Nigeria’s agribusiness sector has received a boost as investment and advisory firm, Sahel Capital, executed investment agreements for the first close of its Fund for Agricultural Finance in Nigeria (“FAFIN”).
“We raised $33 million to invest in agribusiness SMEs across Nigeria, and will be seeking to raise additional capital during the course of the year to reach our $100 million target,” said an insider at the firm in an email statement to BusinessDay.
The fund which has a ten-year lifespan will target SMEs across the agriculture value chain in Nigeria. It will also partner with intermediaries for on-lending to agricultural SMEs and smallholder farmers.
FAFIN is a quasi-equity fund – structured royalties, convertible notes and redeemable preferred shares – with equity and debt finance for competitive financial return.
Mezuo Nwuneli, managing director, Sahel Capital, speaking with BusinessDay on FAFIN and how the agribusinesses will be identified, said: “We already
have a consortium doing business in Nigeria working with a number of different clients. Through the networks and relationships, we would get an
initial list; we would liaise with different associations, and get a list from them.
“We have also had a number of conversations with the agric desks in the banks to understand who their clients are, who they have relationships with. We also have a team going across the country, meeting different companies and through referrals, we will get the clients.”
While agriculture accounts for about 40 percent of Nigeria’s GDP, output is mostly by subsistence farmers, and productivity is often low.
In the meantime, only 40 percent of the country’s 21 million hectares (51.9 million acres) of arable land is cultivated.
Government is trying to reverse this decline in agriculture by encouraging the private sector to partner with farmers to boost output.
The Ministry of Agriculture is partnering with the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending, a unit of the Central Bank of Nigeria, to provide credit guarantees to enable banks lend to farmers. It is targeting $10 billion of investment in farming to boost food production by 2015, Akinwunmi Adesina, minister of agriculture, said last year.
Food production rose by about 8 million tonnes in 2012, which is 40 percent of a four-year government target to boost food supply by 20 million metric tonnes by 2015.
Loans to agriculture as a share of total credit rose to N320 billion ($2 billion), or 5 percent, at the end of 2013 from less than 1 percent in 2011.
Sahel Capital says eligibility criteria for potential investments by FAFIN include a track record of strong performance, potential for growth, competitive advantage and exit potential.
The average FAFIN investment would be between $2 million and $5 million, according to Nwuneli.
“We shall disburse directly, not loans, we are taking equity stakes in the company, for five to seven years to help build the company, and exit. We will also see if we can take them to the stock exchange or take them to other international partners to help them grow further,” he said.
By: PATRICK ATUANYA & OLUYINKA ALAWODE