Financing Science, Technology And Innovation (STI) For The Development Of Agro-Allied Industries In Nigeria

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By Godwin Emefiele –

It is my pleasure to be invited to deliver a lecture to participants of Senior Executive Course 39 on the topic “Financing Science, Technology and Innovation (STI) for the Development of Agro-Allied Industries in Nigeria”. I am fully aware that Senior Executives course is organized yearly for top executives from both the private and public sectors in order to broaden their knowledge horizon on topical issues of national development and build capacity toward effective policy formulation and implementation in Nigeria.

The theme of this year’s lecture “Science, Technology and Innovation for the Development of Agriculture and Agro-Allied Industries in Nigeria” is appropriately timed considering the urgent need to leapfrog the economy to full recovery and sustainable growth after recently exiting economic recession.

In addition, the development of agriculture and agro-allied industries is central to the achievement of Sustainable Development Goals (SDGs) for which Nigeria is a major signatory. More importantly, the emphasis being placed by the current administration on development of agriculture and agro-allied industries in a bid to achieve economic diversification is an evidence of the potentials of agricultural sector in tackling the challenges of underdevelopment, joblessness among youths, poverty, food insecurity and high import bill as well as increased social crimes.

It is well acknowledged that scientific and technological advancement are major drivers of economic development. In fact, the wide development gaps between the industrialised nations, emerging markets and developing economies such as Nigeria are largely attributed to scientific and technological differences.

In addition, science, technology and innovation is linked to all sectors of the economy. Without it, reasonable economic progress cannot be achieved. It is in recognition of its critical role in economic development that science and technology has become one of the indicators of human development used by the United Nations Organization (UNO) to assess member countries. Agriculture and gro-allied industries play critical role in the structural transformation of a nation. Agriculture and agro-industry sector contribute between 20.0 and 30.0 per cent of GDP in least developed countries (LDCs) and the sector is best placed to fully engage the growing youth if well-developed.

Agro-industry has been cited by Ecosoc 2017 as “a subset of manufacturing that processes raw materials and intermediate products derived from the agricultural sector”. It involves post-harvest activities such as transformation, preservation and preparation of products that originate from agriculture, forestry and fisheries for intermediary or final consumption. Agro-industry, however, are capital intensive in nature, which explains its low existence in developing countries. Thus, financing becomes a critical requirement for the development of agro-industry through science, technology and innovation.

The agro-allied or agro-processing industries are all those industries which produce inputs for or depend on outputs from the agriculture sector. Examples include industries that transform raw materials or intermediate products from the production of crops, livestock, fishery, and forestry into consumer products such as beverages, packaged food, paper, fabric, etc. It further includes industries that produce the machinery, fertilizers, pesticides and other chemicals used in agricultural production.

On the side of processing output, agro-allied can be further disaggregated into 1) upstream and 2) downstream industries. Upstream industries are those involved in the initial processing of agricultural commodities such as flour milling, cotton ginning, and oil pressing, whereas downstream industries carry out additional manufacturing operations on intermediate products. Examples include bread making, textile weaving, and paper production.

 

Financing STI In Agro – Allied Industrial Development.

Development worldwide is largely driven by the ability to develop, distribute and exploit intelligence to achieve competitive edge, create wealth and improve the welfare of citizenry. Breakthroughs in Science, Technology and Innovation (STI), particularly in information and communication technology has brought technology at the reach of an overwhelming number of the global population, increasing their frontiers to explore and even expand innovations further into limitless opportunities.

The above is supported by the following quote that captures the essence of this paper as follows: “In today’s world, the core of each country’s competitive strength is; intellectual innovation, technological innovation and high-tech industrialization”.Science which could be driven by need or curiosity is a study of the physical world based on experiments and observations; technology is the ability to apply knowledge to create inventions that resolves and improve process; while innovations introduces new devices, ideas or ways of doing things.

The compound term Science, Technology and Innovation therefore describes the necessity to create, develop new ideas, and methods to improve processes within an economy to attain a competitive advantage. Targeted implementation of policies arising from STI must be supported by adequate financing to actualize the strategies driven by STI to achieve development. Science, Technology and Innovation (STI) holds the key to the progress and development of any nation.

According to the OECD (2012) national strategies on STI are multi-dimensional and focus on finding new sources of growth and development; targeting strategic sectors; meeting challenges posed by global changes; maintaining stable R&D budget; meeting business and social requirements amongst others. For developing and emerging countries innovation tends to be adaptive, by adopting technology available in foreign countries in their local environment. Examples are using new plant and machinery varieties to boost output. The major agents of innovation in these countries are universities and research institutes. These group of countries also practice inclusive innovations, in that they deploy Research And Development (R&D) that is embraced by the grass root populace such as the use of cell phones for mobile money.

 

The Status Of Sti And Agro Allied Industries In Nigeria.

Nigeria has over the years embraced some form of STI in one way or the other in its national policies borne out of the need to diversify the economy and remove the dependence from crude. Secondly it is aimed at achieving food security in view of the potentially explosive population of the country which is estimated at N195 million in 2018. Concern for the development of science, technology and innovation in Nigeria therefore date back to the 1960s with the establishment of the National Council on Scientific and Industrial Research (by Decree 83 of 1966), to advise government on science and technology policy. Thereafter the first national STI policy limited to Science And Technology (S&T) was developed in 1986 with the primary objective of promoting research on the environment that would ultimately enhance the quality of life for Nigerians.

In 2005 the government in collaboration with UNESCO developed an STI initiative that embraced economic development, funding mechanisms and R & D agenda for the country amongst others. By 2011 when a new STI policy was launched, the general policy objective statement was “to build a strong technology and innovation capability and capacity to evolve a modern economy”. With regards to agro allied industries. The specific objectives of the policy were to facilitate the acquisition of knowledge to adapt, utilise, replicate and diffuse technology for the growth of SMEs, agricultural development amongst others

 

Under the national STI, several agencies were involved in the promotion of agro allied development through research and development including the National Agency for Engineering Infrastructure (NASENI), Project Development Institute (PRODA), Federal Institute of Industrial Research (FIIRO), Raw Materials Research and Development Council (RMRDC), National Board for Technology Incubation (NBTI), National Office for Technology Acquisition and Promotion (NOTAP). Some of the achievement recorded were; agro-allied processing technologies for processing of cassava, palm oil, tomato, soy beans, millet, meat, fish, diary, fruits and other grains by NARICT which limit waste.

Under the NOTAP-Industry linkages, PZ Nigeria plc upgraded the research laboratory of various universities and research institutes in Nigeria including University of Calabar, MAU Tech, Yola and NARICT to offer various laboratory/research services to SMEs and large scale industries s related to food processing/preservation. Other agro-allied technologies developed by Research Institutions in Nigeria included; Mobile Cassava Grater, Cassava Chipping Machine, Cassava Peeling Machine, Rotary Dryer, Cassava Pelleting Machine, Palm Oil Milling MaAchine, Palm Fruit Digester, Palm Fruit Bunch Stripper, Seed Oil Expeller, Multi-Grain Thresher, Cabinet Solar Food Dryer, Rice Threshing Machine, Smokehouse Device; among others.

The state of STI in Nigeria has also been characterized by lack of synergy between research institutes and the industries cum venture capitalists who would commercialize results of R&D from these institutions. It is not enough to provide finance for science and technology research, but equally important is private financing that will take up the research results and commercialize them. Taking a cue from what obtains in other jurisdictions, the Nigerian experience shows that while government develops the science and technology policy and provide funding for initial research, industries and private investors are the second stage financiers.

 

Financing Of STI In Nigeria For Agro-Allied Development – Issues, Challenges And Opportunities

A myriad of challenges exist today for financing STI… or indeed entire agricultural value chain. These challenges only relates to access and cost of financing and will be broadly discussed hereunder in the following buckets. The first relate to the peculiarities of the STI and Agribusiness.

  • Long term nature of the business. Unfortunately the primary source of funding for business in Nigeria which is the Banking Sector is currently not well placed to give out such loans due to structural problems. The nature of bank deposits are essentially short term and predominantly below two years.
  • Capital intensive nature of STI related activities and … some of the Agribusiness ventures is a problem in an environment where the capital market is weak and the demand/supply fundamentals essentially creates a seller’s market in the Banking Industry. Consequently, the banks prefer to finance smaller transactions and the short end in order to enhance asset turnover and returns.
  • Returns are low and payback period often very long. This often negatively impact on the bankability of financing STIs generally, this impacts on access.

The second major challenge relates to cost of borrowing. Due to current market fundamentals, the lending rates in Nigeria’s Banking Industry is high, thus further challenging the bankability of STIs in addition to their being capital intensive, low return and long term business.

The third challenge is the mere absence of alternative known traditional sources for funding STIs in Nigeria. Such vehicles as Angel Financing, Venture Capital and Foundations are generally non-existence.

Financing of STI thus largely has been through incentives, direct loans, budgetary provisions and support from international organisations. The budgetary allocation to the Ministry of Science and Technology for 2015, 2016 and 2017 as a per cent of total was a dismal 0.66%, 0.87% and 0.93% of total budgetary provision respectively. This is far too low to achieve the drive towards harnessing STI to develop agro-allied industries as well as other sectors.

The Central Bank of Nigeria has played a major role under its intervention schemes to provide funding at a single digit to agriculture and inclusive agro-industrial industries. Some of the efforts of the Bank to mention a few are:

  1. The Nigeria Incentive – based Risk Sharing System for Agricultural Lending (NISRAL) designed to enhance lending to agriculture by derisking the sector through credit risk guarantee, among others, to increase production and processing along the value chain. N75 billion was set aside for this project by the CBN.
  2. The Agricultural Credit Guarantee Scheme (ACGS) Fund administered by the Central Bank of Nigeria provides up to 75 per cent guarantee for all loans granted by commercial banks for agricultural production, and processing.

iii. The Commercial Agricultural Credit Scheme established in 2009 in collaboration with the Federal Ministry of Agriculture and Rural Development (FMARD) for the purpose of financing large scale agricultural value chain projects funded with the N200 billion Federal Government bond raised by the Bank. Over 520 projects have been financed with the sum of N484.2bn with 1.2m jobs created

  1. The Small and Medium Scale Enterprises Refinancing and Restructuring facility (SMERRF) established by the Bank in 2010 to fast track the development of SME/manufacturing sector and set the pace for industrialization. It has seed money of N200billion. A total of 604 projects were financed with the some of N382bn and over 3000 jobs created.
  2. The Anchor Borrower Programme (ABP) launched in 2015 by Mr. President in Kebbi State was introduced to create economic linkage between small holder farmers and reputable large-scale processors to increase agricultural output and capacity utilization of Agro Allied Industries. ABP has financed 218,000 small-holder farmers who cultivated 280,000 hectares. The commodities produced include rice, maize, soya bean, cassava, cotton, poultry and sesame. The ABP has reduced rice importation by over 50 per cent and increased accretion to our foreign reserve. Currently, Nigeria consumes 6.5 million metric tonnes (MMT) of rice annually, while producing only 2.5mmt. The gap of 4mmt was usually imported. ABP’s over 2mmt production has reduced rice importation drastically.
  3. In order to ensure youths and start-ups have access to credit the Youth Entrepreneurship Development Program (YEDP) was introduced to enable them unleash their potentials for innovative enterprises for economic development. The Development Finance initiatives of the Bank has created over 6.5million jobs across the country.

 

Recommendations On Financing STI For The Development Of Agro-Allied Industries In Nigeria

Financing STI to promote the development Agro–Allied Industries in Nigeria must be undertaken with sound management of STI schemes and availability of linkages that would promote sustainability. The following therefore can be recommended:

  1. Government Expenditure based on Result Based Project Financing Framework (RBPFF) a process of linking budgetary allocations to desired result. It is essentially a special public management tool that can be used to measure and evaluate outcomes and impact, and then feed the information back into the ongoing processes of decision making. Building an RBPFF will provide a credible response that address the accountability concerns of stakeholders, provides the requisite information on progress toward achieving stated targets and goals and provide substantial evidence as the basis for any necessary mild-course corrections in policies, programmes and projects.
  2. Venture Capital brings capital for firm development, management expertise, market expertise, reputational benefits. Loans are commonly used to finance capital projects such as science and technology. This entails approaching financial institutions that can provide loans for the undertaking. Loans are typically secured by project assets, including any revenue-producing contracts in existence at the time. The lender exert a lien on the assets as a safeguard against default or non-compliance with loan terms by the borrower. The loan is expected to be repaid entirely from project cash flow, not from your general assets or creditworthiness. Private sector can also be involved through Public Private Partnership (PPP).

iii. Self-Financing Option for R&D institutions is the enablement of research institutions to sell the outcomes of their R&D to domestic firms. This could be by prior agreement or commercialization of their operations.

  1. Diaspora financing in cash and in-kind through ideas could be promoted through requisite policies. Nigeria has a large number of highly skilled diaspora that can contribute to the development of agro-allied industries with attractive incentives to encourage inflow through this source.
  2. Sourcing for international and domestic funding for research from international foundations and multilateral organizations can bridge the funding gap in the country to promote R&D development.
  3. Open up the capital market to facilitate access to long term and cheap capital.

vii. Provide incentives for banks to lend to STIs and particularly those related to Agro-Allied Industries – a scheme similar to the defunct Community Re-investment Act of the USA will help.

viii. Opening up the fixed income market will assist in ultimately driving down interest since most of the big borrowers will move to the capital market and ultimately tilt the demand and supply fundamentals in favour of the borrowers.

  1. Sustained derisking of the STIs and Agro Allied businesses will help their commercial viability and ultimately their bankability.
  2. Ultimately, price and monitor stability is a necessary ingredient for the viability of every business in Nigeria. Stable and low interest, inflation and exchange rate will improve the commercial attractiveness of STIs and Agro- allied businesses.

Conclusion

The current level of production of the Agro-Allied Industries remains low. If Nigeria is to achieve its goal of food sufficiency and a diversified economy, more attention must be paid to implementing financing for agro-allied industries by the government and also through deliberate policies that would encourage non-government investors. Enhancing the financing framework in the context of access and low interest rate for the commercially attractive STI and Agro -allied businesses would require both tactical and strategic solutions. Financing, however, is not the magic bullet, a conducive macroeconomic environment is required to provide the support for the economy to achieve sustainable growth and development.

 

– Being Lecture Delivered By Governor Of Central Bank, Mr Godwin Emefiele, At The National Institute For Policy And Strategic Studies (NIPSS) Kuru.