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Agriculture Well Below its Potential

Agriculture remains integral for developing economies, capable of stimulating growth across the non-oil economy via its broad potential value-chain interlinkages.

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Corn, Soybeans Decline As Favorable Weather May Boost U

Agriculture remains integral for developing economies, capable of stimulating growth across the non-oil economy via its broad potential value-chain interlinkages.

The latest national accounts released by the National Bureau of Statistics (NBS) show that agriculture accounted for c.23% of total GDP. On a y/y basis, the sector grew by 1.2% y/y in Q2 ’22, compared with 3.2% in the previous quarter. Within the sector, crop production grew by 1.5% y/y and accounted for 90% of agriculture GDP. The forestry and fisheries segments grew by 1.3% y/y and 0.9% y/y respectively.

However, livestock contracted by -2.9% y/y.

Over the past eight quarters, agriculture has grown by an average of 2.2% y/y. The agricultural sector has been a beneficiary of substantial credit interventions by the CBN and state-owned development banks. At its July meeting, the CBN/MPC disclosed that total disbursements under the Anchor Borrowers’ Programme (ABP) amounted to N1trn as at end-July ’22, distributed to c.4.2 million smallholder farmers across the country.

Furthermore, the total disbursements under the Commercial Agriculture Credit Scheme (CACS) amounted to N744bn for 678 projects in agro-production and agro-processing. The CACS is among the better performing credit intervention programmes, given its positive repayment outcome (currently estimated at c.N700bn). Meanwhile, for ABP only 40% of mature loans have been repaid.

The misalignment between the growth figures recorded in this sector and intervention efforts can be partly attributed to the large informal economy, which is estimated to represent c.50% of the economy. The formalisation process is partly hampered by absence of bank accounts (by an estimated c.40% of Nigerians).

Given the rural nature of agriculture, a significant number of farmers are unbanked. This contributes to the difficulties in accessing funds. The CBN is gradually winding down special intervention funds, except those that are tagged as critical (relating to SMEs and the power industry). This points towards gradual tapering to maintain the price stability mandate.

It is worth highlighting that the sector is still saddled with unresolved insecurity and structural challenges that undercut investments. Some of these structural challenges include poor storage facilities, poor transport networks, low technology, among others. These challenges contribute to the risk-averse posture of some banks with regards to providing credit to players within the agriculture sector.

Although there have been laudable interventions by the CBN and the FGN, the sector still requires investments. Based on the latest data from the CBN, credit to the agricultural sector accounted for just 6.1% of total credit to the private sector, compared with sectors such as trade/general commerce (7.1%), finance, insurance and capital market (8.6%), oil and gas (16.1%) as well as manufacturing (17.4%) in August ‘22.

Based on another data source, the NBS, agriculture accounted for 3.7% (USD57.4m) of total capital importation in Q2 ’22 compared with 3.3% (USD28.9m) recorded in the corresponding period in 2021. This is an increase of 99% or USD28.5m.

To encourage increased investments into the sector, financial institutions should consider innovative financing solutions targeted at active players across the agricultural value chain. This should boost returns and profitability as well as stimulate economic activity within the sector.

Regarding trade, agriculture exports accounted for 2% of total trade, declining by -30% q/q to N371bn in Q2. We note that cashew nuts in shell, sesame seeds, standard quality cocoa beans, shelled cashew nuts, and natural cocoa butter featured as top export products in Q2 ‘22.

However, agricultural exports have remained below 5% of total exports over the past five years. There is still vast room to boost agro-related exports. This can be achieved through sustainable public-private partnerships that can potentially transform the agriculture sector to ensure that it realises its potential.

In addition, a boost to export receipts should assist with fx revenue diversification and by extension, support overall GDP growth.

As for agriculture imports, it accounted for 9% of total trade, growing by 5% q/q to N464bn in Q2. The growth in imports is unfavourable for imported food inflation. As at August, imported food prices is 17.9%, increasing by 54bps YTD. On the back of supply-chain constraints exacerbated by the Russia-Ukraine crisis, prices of some agriculture commodities have spiked. Notably, the prices of maize and wheat have increased by 20% and 19% respectively YTD.

The Africa Continental Free Trade Area (AfCFTA) agreement should support agricultural activity, create new regional markets for farmers and strengthen the agro-value chain. However, there should be increased focus on value chain interventions, especially around agriculture commodities that the Nigeria has comparative and competitive advantage.

Furthermore, to boost agricultural exports, there is a need to improve quality of products to meet and/or exceed the global standard. This can be achieved through sensitisation programmes geared towards educating exporters across the country. This should assist with solving poor packaging, and high level of chemicals (in the case of agricultural produce), improper labelling, insufficient information on nutritional content, presence of high level of pesticide residue, among others.

Overall, agriculture can potentially drive economic diversification in Nigeria. Improving the agriculture sector requires stakeholders to adopt a longterm view and commit to short-term sacrifices beneficial to expanding the sector.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Economy

African Economy Set for Steady Growth: 4% Projected for 2025

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Nigerian Breweries - Investors King

Experts are forecasting a robust growth trajectory of 4% for the continent in 2025.

This optimistic projection was highlighted during the ongoing Afreximbank annual meetings, incorporating the Africaribbean Trade and Investment Forum, held recently in Nassau, The Bahamas.

Yemi Kale, Group Chief Economist and Managing Director of Research and International Cooperation at Afreximbank, presented the 2024 African Trade Report and Economic Outlook, saying the African Continental Free Trade Area (AfCFTA) is significant in driving economic integration and growth.

The projected growth rate of 4% for 2025 reflects a steady recovery path for Africa, building on the expected 3.5% growth anticipated for 2024.

This positive outlook comes at a crucial time when African economies are navigating challenges posed by global economic dynamics, including inflationary pressures and supply chain disruptions.

Kale underscored the resilience of intra-African trade, which expanded by 3.2% in 2023 despite a 6.3% overall contraction in Africa’s trade volumes.

This resilience is a testament to the AfCFTA’s potential to bolster regional trade ties and reduce dependency on external markets.

The Afreximbank report also delved into macroeconomic environments, trade patterns, and sovereign debt sustainability dynamics, providing policymakers and business leaders with actionable insights to navigate complexities in global markets effectively.

Nomusa Dube-Ncube, Premier of Kwazulu-Natal, highlighted Africa’s modest share of global GDP and manufacturing output, emphasizing the untapped potential within intra-African trade.

She noted that while Africa currently accounts for only 3% of world trade, intra-regional trade is steadily increasing, indicating a growing economic ecosystem within the continent.

Pamela Coke-Hamilton, Executive Director of the International Trade Centre (ITC), echoed the sentiment, advocating for enhanced trade between Africa and the Caribbean.

The ITC projects trade in goods and services between these regions to reach $1 billion by 2028, underscoring the mutually beneficial opportunities for economic expansion.

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Economy

Nigeria Sees 95% Surge in Food Imports Despite Emergency on Food Production

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Nigeria’s food import bill has surged to a five-year high in the first quarter of 2024, despite the federal government declaring a state of emergency on food production.

Data from the National Bureau of Statistics (NBS) reveals a 95.28 percent increase in food imports to N920.54 billion from January to March, compared to N471.39 billion in the same period last year.

This alarming rise comes amid soaring food inflation, which hit a record 40.5 percent in April, reflecting a 15.92 percent year-on-year increase.

The sharp inflation has left many Nigerians struggling to afford a balanced diet, exacerbating the food security crisis in Africa’s most populous nation.

In March, President Bola Ahmed Tinubu emphasized the government’s commitment to self-sufficiency in food production, stating that Nigeria would not rely on imports to stabilize prices.

“We will not allow the importation of food but rather turn the lack in the country into abundance,” Tinubu declared. However, the latest import figures suggest that this goal remains elusive.

The NBS Foreign Trade Statistics report highlights that the value of food imports via maritime, air, and land routes surged 29.4 percent from N711.4 billion in the fourth quarter of 2023.

Major agricultural goods imported included durum wheat from Canada and Lithuania, valued at N130.26 billion and N98.63 billion, respectively. Frozen blue whitings from the Netherlands accounted for N16.67 billion.

Wheat imports alone constituted N519.75 billion of the total food import bill. The average cost of wheat imports, a significant driver of the food import value, increased by 33 percent compared to the previous quarter’s value of N391.01 billion.

The rising importation of wheat reflects its popularity among Nigerian consumers amid skyrocketing prices of close substitutes like garri and rice.

Overall, Nigeria’s total imports for Q1 2024 amounted to N12.64 trillion, representing a 39.65 percent increase from N9.05 trillion in Q4 2023 and a 95.53 percent rise from N6.47 trillion in Q1 2023. Food imports accounted for 7.3 percent of total imports during the period under review.

The bulk of Nigeria’s imports came from Asia, China, Europe, America, and Africa. Mineral fuels topped the import category with N4.44 trillion, representing 35.09 percent of total imports.

Machinery and transport equipment followed with N3.17 trillion, contributing 25.08 percent, and chemicals and related products at N1.79 trillion, making up 14.13 percent of total imports.

Despite the federal government’s initiatives to boost local food production and reduce dependency on imports, the latest data underscores the persistent challenges facing Nigeria’s agricultural sector.

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Economy

Ethiopia Boosts Spending by 21%, Eyes IMF Program for Economic Relief

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Ethiopia has announced a 21% increase in its 2025 budget, marking the first budget since defaulting on a Eurobond payment and committing to economic reform discussions with the International Monetary Fund (IMF).

The nation’s Finance Minister, Ahmed Shide, revealed the new budget details to lawmakers on Tuesday, outlining plans to spend 971.2 billion birr ($16.9 billion) in the fiscal year starting July 2024.

The increased budget reflects Ethiopia’s commitment to addressing its economic challenges head-on. Despite the heightened expenditure, the fiscal deficit is projected to remain stable at 2.1% of gross domestic product (GDP), unchanged from the current fiscal year.

Financing the Deficit

Minister Shide outlined a plan to cover the 358.5 billion-birr deficit through a combination of local and foreign borrowing.

The domestic borrowing component will be managed via government treasury bills and medium-term bonds. Shide emphasized that until substantial external donor support is secured, Ethiopia will continue to rely heavily on its domestic markets to finance budget deficits.

“While the government has secured some external financing from the World Bank and the European Union, negotiating an IMF program will be crucial to alleviate pressure on local banks and secure overall debt relief,” said Giulia Filocca, a senior analyst at Standard & Poor’s for sovereign and international public finance ratings.

IMF Program and Economic Reforms

An agreement with the IMF is seen as a pivotal step for Ethiopia. The nation failed to remit a $33 million coupon payment for its $1 billion bond in December 2023, leading to agreements with some creditors, including the Paris Club, to suspend debt repayments.

In exchange, Ethiopia is expected to reach a staff-level agreement with the IMF, which will likely include economic reforms such as devaluing the birr currency.

“Our expectation is that an IMF program will be signed this year, but the timeline remains unclear due to ongoing political developments and challenges over foreign-exchange reforms,” added Filocca.

Budget Highlights

The new budget includes 451.3 billion birr for recurrent spending, 283.2 billion birr for capital expenditure, and 236.7 billion birr allocated for regional subsidies.

The government projects income of 612.7 billion birr, with tax revenue expected to contribute 502 billion birr and non-tax income 61.6 billion birr. Sector budget support is anticipated to bring in 7.3 billion birr, with aid and grants expected to add 41.8 billion birr.

Economic Outlook

Ethiopia’s economy is forecasted to expand by 8.4% in the coming fiscal year, up from an expected 7.9% growth rate in the current period. The budget increase is designed to support this growth trajectory by enhancing public investment and stimulating economic activity.

“Our partnership with the IMF and other international financial institutions will be key to ensuring Ethiopia’s economic resilience and sustainable growth,” Minister Shide concluded. “We are committed to implementing the necessary reforms to secure a brighter economic future for our country.”

As Ethiopia navigates its economic challenges, the government’s proactive approach to increasing spending and engaging with the IMF reflects a strategic effort to restore fiscal stability and drive long-term economic development.

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