The African Development Bank (AfDB) has invested $9 million, or 12% of its capitalization in the Fund for Agricultural Finance in Nigeria (FAFIN).
Sponsored by the German KfW Development Bank and the Government of Nigeria, and managed by Mauritius-based Sahel Capital Limited, FAFIN is a first generation private equity fund developed to provide financing, capacity boosting, and technical assistance to commercially viable small and medium agricultural enterprises along Nigeria’s agricultural value chain. Through a combination of equity, quasi-equity, and convertible loans, FAFIN targets a two-part objective of realizing financial returns while also achieving positive social impact.
Once self-sufficient in food production in the 1960s, Nigeria’s economic focus shifted to center on oil. Today 90% of Nigeria’s foreign exchange earnings, 35% of its gross domestic product (GDP), and 75% of its government revenue are generated from oil according to This Day Live. However, plummeting oil prices on global markets have left Nigeria in an economically difficult situation.
Nevertheless, Nigeria has vast potential to strengthen its economy through agriculture. Eighty percent of the country’s land, or 84 million hectares is arable with the potential to produce a wide range of crops including palm oil, cocoa, corn, soybeans, rice, rubber, cashew nuts, sesame, beans, melon, and plantains. However, only 40% of this land is cultivated. The country also has adequate rainfall over two thirds of its area and claims 230 billion cubic meters of water.
The country’s focus on oil over the past decades however, has been to the detriment of its agricultural sector. Mostly made up of SMEs, Nigeria’s agricultural industry has been neglected leaving its producers with a lack a financing, poor infrastructure and storage, and outdated production methods.
FAFIN will target reformation of the country’s agricultural value chain by focusing on diverse SMEs. Through mainly quasi-equity and direct equity the fund will invest between US$500,000 and US$5 million with the goal achieving a three part outcome:
- Higher employment rates and household improvements
- Positive gender and social effect through out-grower schemes and rural development
- Private sector development through the removal of financial constraints hindering agribusiness and the improvement of agricultural value chains.
Within the past few years Nigeria has made great strides to transform its economy and to re-prioritize agriculture. Government initiatives and greater investment have led to national food production increasing by 21 million tons between 2011 and 2014 according to This Day Live, while the country’s food import bill has been reduced by 403% between 2011 and 2013.
For the 2015 season the Nigerian government released a fund of US$136.5 million to help support the country’s agriculture sector and increase food security through encouraging farmers to plant three times per year citing that the number of seed companies in the country have grown from 11 to 134 over the past three years.
“As crude oil prices decline, we must create new wealth from the richness of our soils, the vastness of our rivers and the abundance of our cheap labour [sic], said Goodluck Johnathan, president of Nigeria, reports African Farming. “We will produce more, and industrialise [sic] the agricultural sector.”
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Lynda Kiernan