By Madison Kang
From the Bakken Formation in North Dakota to Eagle Ford in Texas, increased U.S. oil fracking since 2014 has taken its toll on crude-dependent Nigeria. The 2014 rise in American oil production robbed Nigeria of its largest consumer and induced an international collapse in prices. The price of Nigerian oil fell from the break-even $122-a-barrel to just $50 by 2016, leading to recession. With a 6% decline in oil exports, Nigeria also experienced currency devaluation of 20% against the U.S. dollar.
According to the World Bank, Nigeria emerged from its recession in 2017, with a positive gross domestic product (GDP) growth rate of 0.8%, primarily driven by the oil sector. Growth in 2018 improved to 1.9%, supported by a broader range of sectors, but still fell short of expectations based on population growth and pre-recession levels. Despite hints of recovery, Nigeria remains a laggard on many development indicators. In 2018, the country’s GDP per capita was $2396.30—only 19% of the world’s average.
Though well-endowed with natural oil reserves, Nigeria continues to experience slow growth, failing to fully utilize its workforce. The oil sector generates 70% of national income, but is not labor-intensive enough for the population to derive direct economic benefits from production. Job creation is pertinent: nearly a quarter of the workforce was unemployed in 2018, and 20 percent under-employed. Considering the United Nations’ projections of a rise in the proportion of working-age Nigerians (aged 15 to 64) in the next 30 years, from 53% of the population being working-age in 2010 to 59% by 2050, domestic demand for employment will only intensify.
Since assuming office in 2015, President Muhammadu Buhari has promised to promote development through alternative sectors, focusing on agriculture, as the sector currently employs two-thirds of the Nigerian workforce. Buhari’s administration has sanctioned various policies aimed at increasing agricultural production and national self-sufficiency in agricultural products, most recently by closing Nigeria’s border with the Republic of Benin this past September.
With a population around 5% of Nigeria’s, Benin is the world’s second-largest exporter of rice. In contrast, the U.S. Department of Agriculture anticipates that Nigeria will be the second-largest importer of rice this year, after China. The Benin border closure was meant to prevent rice smuggling and allow Nigerian farmers better access to local rice markets. However, Nigeria’s agricultural sector is incapable of accommodating demand, evidenced by a shortage of 2.2 million tons of rice and the 75% rice price hike that followed the closure.
The adverse effects of the Benin border closure demonstrate the need for improvement in domestic agricultural yield to precede trade policy curtailing imports, which does little to achieve self-sufficiency without adequate domestic production. Food insecurity and inflated prices will persist as domestic farmers take advantage of limited supply.
To prevent food scarcity, Nigeria needs to develop its domestic agricultural capacity. That will necessitate an overhaul, from rural subsistence farming by smallholder farmers (i.e., those who own less than 10 hectares) to profit-driven agripreneurship. A shift to agripreneurship could realize some of Nigeria’s most pressing development objectives: employment opportunities in rural and urban areas, improvements to food security and diets, import substitution, and the integration of smallholder farmers into larger markets.
Agripreneurship is the synthesis of agricultural and entrepreneurial practices. Agripreneurs recognize and create exploitable business opportunities through various strategies such as mechanization, global marketing, and organic farming. Agripreneurship has already made large differences in other developing nations, such as Myanmar and Guatemala. One of Myanmar’s largest commercial banks, Yoma Bank, provided loans in 2018 to help transition smallholder coffee farmers from producing low-grade commodity coffee to high-value specialty coffee sold at premium prices across global markets. The transition from commodity to specialty coffee exports was largely enabled by Mandalay Coffee Group Company Ltd., which bought, processed, roasted, and shipped the coffee to overseas retailers. Enabling such forms of agripreneurship has tripled the average income of Myanmar coffee farmers and boosted the export value of the country’s coffee industry from $1.5 million to $6 million.
In Guatemala, heavy use of chemical pesticides in vegetable production resulted in soil nutrient depletion and low productivity, as high chemical levels often led to rejection for export. In 2013, a major agribusiness firm called Popoyán began assisting 4,500 smallholder farmers in the testing, procurement, and implementation of cost-efficient biological pest control products such as insects and fungi as alternatives to harsh agrochemicals. Guatemala’s vegetable export value rose by 13% from 2013 to 2014. In both Myanmar and Guatemala, high private sector involvement in connecting smallholder farmers to agricultural inputs, capital, and markets was crucial for success.
Nigeria stands to learn much from the experiences of Myanmar and Guatemala. Indeed, Nigeria’s government and private sector have already begun stimulating agripreneurial practices in the cassava and rice industries through the Value Chain Development Programme (VCDP), established in 2015.
The VCDP is a six-year development initiative that partners Nigeria’s International Fund for Agricultural Development (IFAD) with Olam International, a private food and raw materials supplier. It aims to increase Nigeria’s food supply and promote growth in smallholder production. Olam brings smallholder-harvested cassava to its cassava processing centers in Lokogoma and Katchia within Niger State and then markets the processed cassava derivatives overseas. The firm has also made key productive capacity investments in the rice industry, agreeing to purchase rice at prevailing market prices. In return, Olam has gained access to a consistent supply of high-quality rice.
Local farmers have benefited from the infrastructure investments made through the partnership: the VCDP has developed and parceled out 1,192 hectares of land to participating rice and cassava farmers, established produce aggregation centers, formed a price determination committee to remove market distortion, and promoted cashless credit. The program has also championed agricultural mechanization, advancing the use of smart power tillers to facilitate land preparation. Since 2015, VCDP farmers’ average incomes have doubled, with $137.5 million in cash receipts to smallholders and 2,500 new jobs.
Nigeria’s VCDP ends June 2020, but has only begun to address training farmers on how to respond to changing consumer habits and greater environmental regulation. In its place, other private companies must step up to extend their resources, networks, and industry-specific entrepreneurial insights to guide the country’s smallholder farmers for further growth, especially in the cassava and rice industries. As the world’s largest cassava producer and Africa’s largest rice importer, Nigeria would benefit from enhancing cassava’s competitiveness in the international market and streamlining domestic rice production and processing to curb import dependence.
As the private sector cultivates agripreneurship, the state must in turn rein in its own excesses. Nigeria’s outdated Land Use Act of 1978 endows the state with excessive control of land ownership, use, and development, preventing smallholder land acquisition. Nigerian smallholder farmers currently manage an average of only four to five acres of land. With 51.4% of the Nigerian population living in rural areas and a high percentage of arable land (37.33%), Nigeria should push to abolish the Land Use Act, allowing rural residents to readily purchase land.
September’s border closure—and the resultant food shortage and inflation—evinced the persistent inadequacies of Nigeria’s import-dependent agricultural sector. In order to stimulate development and propel crude-reliant Nigeria out of post-recession economic risk, private firms must help initiate the transition from smallholder subsistence farming to agripreneurship in global markets.