Diversification is the word of the moment in Africa. For petro-economies like Nigeria and Angola, which rely almost exclusively on the proceeds from a single resource, the need is great.
During the past two years Nigeria’s government has been leading the drive away from oil followed closely by the private sector. The most obvious initiative – championed by president Muhammadu Buhari – has been a move into agriculture. Around 70% of Nigeria’s workforce is employed in agriculture. The country is also home to large amounts of arable land producing lucrative crops such as cocoa, maize and cashew nuts. By sheer size and number, therefore, any improvement in the sector will go a long way to rebalancing Nigeria’s economic infrastructure.
Tech, although less of a government priority, has also presented itself as key sector of growth. Lagos is one of the continent’s foremost tech hubs and the sector is replete with rapidly expanding start-ups. Jumia, a Lagos based e-commerce company, became the continent’s first company to be valued at a billion dollars in 2016.
Finally banks, as key lubricators of any economy, have been actively diversifying their portfolios away from oil towards lending in other spaces.
Before Nigeria crashed, many of the country’s largest commercial banks had large oil and gas portfolios. Upstream oil and gas made up an average of around 28% of Nigerian banks’ loan books and with such large exposure many felt the brunt of non-performing loans when crude prices dropped.
“During that period of low price, low production and low economic output many players in the oil and gas sector defaulted on their loans,” says Uzoma Dozie, CEO of Diamond Bank. The banks, like the government, needed to diversify their asset base. “Going forward we are going to be lending in line with our strategy which is in the small business areas. We believe growth is in this area because the risk of concentration is not there. You can diversify across all industry segments including education, agriculture and manufacturing as compared to oil and gas where if anything happens you are dead.”
By choosing to lend to Nigeria’s entrepreneurs Diamond Bank’s risk is measured out over the various sectors in which the entrepreneurs are operating as opposed to just one volatile commodity. This strategy – as well as helping the bank resist future shocks – will also unlock finance in many other of Nigeria’s underfunded sectors.
“Over-concentration in the oil and gas sector has had a negative impact,” says Charles Kie, managing director, Ecobank Nigeria. “Obviously there’s a need for banks to rethink which sectors they allocate credit to. In other words it’s important to support more of the industries that drive growth.” As a result Ecobank is pursuing a similar strategy to Diamond Bank. “What we are trying to do is position ourselves to become small business bankers; the bank of entrepreneurs,” reveals Kie.
Sowing the seeds
Agriculture is the ace in much of Africa’s and indeed Nigeria’s diversification cards.
Kola Masha, Managing Director of Babban Gona, a social enterprise aiming to increase the profitability of small holder farmers in Northern Nigeria, argues that there has been a shift in focus towards agriculture over the past two years. “Fundamentally the agriculture sector is one of the highest areas of growth in the economy,” he says. “It has demonstrated its ability to be resilient to macroeconomic shocks.”
The reasons behind this change are largely down to a high-profile government awareness campaign broadcasting the benefits of agriculture – both commercial and social – and work to create the right enabling environment. Onyeka Akumah, CEO of Farmcrowdy, an agri-tech platform sourcing finance for smallholder farmers, points to infrastructure investments, tax rebates and increased government lending in the space through the Central Bank of Nigeria as examples of successful government-led initiatives.
At the same time Akumah argues that the real benefits of these changes may take some time to come to fruition. “Agriculture is not a quick win business; it’s long term and it will take a while to reap the benefits from improvements in the sector.”
For this reason many are concerned that reforms in agriculture may take a back-seat now oil prices are back in town. “If you are getting revenue from a product which doesn’t require much effort then there’s a huge risk that product will affect focus on other activities,” says Akintunde Sawyer, executive secretary, Agric Fresh Produce Growers and Exporters Association.
However, Sawyer argues that regardless of whether it stays the course, the spotlight the government has shone on agriculture as a commercially viable sector has had a lasting impact on the private sector. “This has led to increased private sector consciousness around agriculture,” he says.
Babban Gona and Farmcrowdy – both relatively new companies – are examples of this increased private sector consciousness and commitment. “I was actually one of the people converted by the government’s message about agriculture,” concludes Onyeka. “Farmcrowdy is a product of that.”
While it is unlikely the government will rescind its previous push towards agriculture, the ball is already rolling in terms of the private sector.
Up and coming
Lastly, Nigerian tech companies are increasingly stamping their mark in the African tech space – and many have global ambitions. Jumia, Iroko TV, Andela and Konga are just a few examples of rapidly expanding and highly profitable Nigerian-affiliated tech companies. The space is typified by millennials, who have very little in common with Nigeria’s old-hat politicians. This presents a certain wariness between the sector and public administration.
Onyeka, heading Farmcrowdy, a tech-enabled agriculture start up, laments the lack of a minister who understands the sector and is able to work with it in the interest of both parties. “Going forward, I would recommend a commissioner for tech entrepreneurship,” he says. “Someone who is well respected and who can speak the mind of the community to help grow the sector.”
Greater collaboration would both encourage the sector’s growth and ensure it is regulated and properly taxed so that high-grossing tech companies can better contribute to Nigeria’s growth story. As the scene begins to attract more attention it will only be a matter of time before this convergence takes shape.
While efforts have been made to diversify the Nigerian economy the transformation is not yet complete and the government must continue to work with and encourage the private sector in order to move its ambitions away from oil.