Evaluation and Impact Assessment Report

November 16, 2018

Thursday, November 15, 2018 / 06:22 PM / by CBN

Introduction

The
Commercial Agriculture Credit Scheme (CACS) is a sub-component of the Federal
Government of Nigeria’s Commercial Agriculture Development Programme (CADP)
financed from the proceeds of the N200 Billion seven (7) year bond raised by
the Debt Management Office. The fund is made available to participating banks
to finance commercial agricultural enterprises at a maximum interest rate of 9
per cent. In addition, each State Government could borrow up to N1.0 Billion
for on-lending to farmers’ cooperative societies and other areas of
agricultural development provided such initiatives/interventions are in line
with the objectives of CACS.

The
Central Bank of Nigeria established the CACS in collaboration with the Federal
Ministry of Agriculture and Water Resources in 2009 to: fast-track the
development of the agricultural sector; enhance national food security; reduce
the cost of credit in agricultural production; increase national output;
generate employment; and raise the level of foreign exchange earnings of the
country.

The
evaluation is intended to formalize the evidence of the impact of the CACS
program and track the progress made in the implementation in line with the
program objectives. A mixture of qualitative and quantitative methods were
employed.

Quantitative
information were collected from CACS beneficiaries using structured
questionnaires, while qualitative information were collected from beneficiaries
through focus group discussions (FGDs). The structured interviews were designed
to collect data from beneficiary firms, while the FGDs from farming groups and
individual farmers who benefitted through state governments. All beneficiaries
(firms) were approached to provide data on the structure questionnaires
(Appendix II), while FGDs were conducted in three (Cross River, Kano, and Oyo)
selected states.

Beneficiaries and CACS Funds Utilization

The
evaluation report is based on information retrieved from 191 benefiting
businesses comprised of; cooperative groups, partnerships, private and public
limited liability companies and sole proprietorships. A total of N147.87
billion was disbursed to the 191 businesses between 2009 and 2016. State
governments also served as channels to certain groups of beneficiaries. Over
the years, 2011 and 2015 recorded highest uptakes of CACS loans. Most (79.1%),
of the 191 businesses are private liability companies, 7.3% were government
owned, 6.8% sole proprietorships and 4.2% public liability companies.

In
terms of number of benefiting firms, Oyo, Kano, Kaduna, Lagos, Edo and Kwara
states lead, while seven (7) of the 36 states each received above 5% of the
total funds disbursed.

Majority
(44.5%), of the 191 beneficiaries are engaged in crop production, this is
followed by livestock production (23.0%) and agriculture produce processing
(14.7%). Most(80.2%) of the disbursed funds were channeled to these activity
areas and applied to agriculture and agriculture related activities, while
19.8% (N29.2 billion) of the funds may have been applied in the areas not
intended under the Scheme by 33 or 17.3% of the beneficiaries.

Impact of CACS on Economic Growth

One
of the key objectives of the CACS is to “increase national output”. National
outputs are measured through aggregating the values of production, income or
expenditure of economies. The assessment heuristically compared growth in
aggregate income from sales of produce/products of beneficiaries with growth in
nominal GDP of corresponding subsectors, and the volume of production of firms
as a measure of contribution to growth is compared with real GDP since the real
GDP is a value measure adjusted for price increases.

Impact
assessment compared growth differential of beneficiaries with growth in
agriculture. Results show that, prior to access to CACS facilities, aggregate
growth in sales of beneficiaries was far lower than the overall nominal growth
of the agriculture sector. After access to CACS loans, aggregate growth of
sales of the beneficiaries averaged 28.44% between 2009 and 2016 as compared
with average growth of 9.96% in agriculture or the 13.93% average growth of
manufacturing in the same period. Beneficiaries recorded a growth differential
of 18.48% and 14.51% when compared with growth in agriculture and manufacturing
respectively.

The
positive impact of CACS funding on growth in sales were recorded across most
activity areas as: crop production beneficiaries recorded an average growth of
26.69% as against national crop production growth of 9.69%; beneficiaries in
livestock production averaged growth of 65.33% as against 12.0% of national
livestock income; beneficiaries in fish production averaged growth of 42.63% as
against 13.37% of national fish income; beneficiaries in food and beverages
manufacturing recorded average growth of 84.26% as against national growth of
10.91%; and the textile industry beneficiaries averaged growth of 35.33% as
against national textile growth of 28.46% between 2009 and 2016.

Non-metallic
and plastic manufacturers did not however record positive impact when compared with
national figures as; beneficiaries in non-metallic manufacturing recorded an
average growth of 9.93% as against national growth of 27.56%, and manufacturers
of plastic products recorded average growth of 26.70% as against the average
growth of 37.20 % recorded in the national output of plastic manufacturing.

Nominal
output and income from sales are recorded at current prices. Growth in value
measures may be due to growth in volume, unit prices or both. Real income
measures growth in volume of production. We further compared real GDP growth
with growth in volume of production of CACS beneficiaries.

CACS
beneficiaries involved in livestock and crop production recorded an average
growth in quantities of produce of 21.09% between 2009 and 2016 as against
national average real growth of 4.55% recorded in agriculture production,
thereby creating a growth differential of 16.54%. The contribution of CACS
benefiting firms towards national output is also pronounced in the
manufacturing sector. The firms recorded an average growth in volume of
production of 69.0% between 2009 and 2016 as against the average of 8.52%
recorded in real GDP growth by the manufacturing sector, leading to a
substantial growth differential of 60.54 percentage points.

Between
2009 and 2016, volume of crop production by beneficiaries grew at an average of
15.18%, while growth in national crop production recorded 4.56%. Similarly,
CACS beneficiaries involved in livestock production recorded an average growth
of 23.62% as against the national average of 4.07%. Between 2011 and 2016, fish
farmers output grew on the average by 6.15% while production of CACS
beneficiaries grew by 37.74% on the average in the same period. All of the
agriculture production activities recorded substantial differential growth in
volume of produce, indicating substential impact of the Scheme on real GDP
growth.

Growth
in national output from manufacturing of food and beverages has been subdued
between 2009 and 2016, and in particular turned negative in 2015 and 2016. The
average growth recorded by firms under the Scheme between 2009 and 2016 was
97.80% as against 3.22% recorded by the entire sector. Real growth in the
Textile and textile products manufacturing deteriorated between 2011 and 2016.
Growth in the volume of production by beneficiaries of the CACS funding had
been very unstable but averaged 21.61%. National output of non-metallic
products had had robust growth with average real growth of 21.28% as against
-3.57% recorded by firms on the Scheme between 2009 and 2016. These results
confirm similar observations made in respect of the sales.

Impact on Operational Capacity and Employment of Firms

One
of the objectives of the CACS is to deepen the credit market. Evaluation
results indicate that about 37 per cent of firms who benefited from the CACS
loans leveraged on other resources totaling N22.28 billion from other sources
to argument the CACS facility and upgrade financial capacity. Most (64.5%) of
the firms obtained the funds from commercial banks, while the equity market
(11.1%), family and friends (3.8%) and micro-finance banks (0.4%) were other
important sources of leveraged funds.

As
hoped, 85.4 per cent of the firms undertook one form or the other of expansion
in their operations on receipt of the CACS loan. Most (67.6 %) of the firms
acquired new plants or additional equipment/machinery, while other forms of
expansion included; recruitment of additional employees (50.3% of firms),
improving utilization of installed capacity (41.9%), replacement of old
equipment (35.8%), expansion of land under cultivation (30.7%) and
establishment of new outlets (22.9%). However, aggregate installed capacity
utilization remained low around 50%. Evidences also exist that small holder
farmers, who in groups, accessed the facility through state governments
expanded operational activities.

Another
key objective of the CACS is to “generate employment”. As a group, the firms
employment records showed continuous increases in the number of employees
between 2008 and 2017, growing from 10,443 employees in 2008 to 70,070 in 2017,
consisting of 32% female and 68% male employees. Nominal increases in staffing
positions of the beneficiaries that accessed N119.58 billion generated a net
job increases of 24,457 since inception of the CACS in 2009. Beneficiaries
engaged in crop production, and manufacture of food and beverages recorded the
most net job gains with a total of 11,317 (or 46.3% of total) and 10,604 (or
43.4% of total) respectively. Evidence exist that small scale enterprises that
accessed funds through state governments also generated new jobs that were not
included in the 24,457 new jobs.

Impact on Assets of Benefiting Firms

The
foundation assumption on which the Scheme was established is that “provision of
funds to small and medium agricultural enterprises with plans to grow their
assets base” would stimulate growth in production/output. Specifically, the
Scheme targeted commercial agricultural enterprises with agricultural assets of
not less than N100 million with plans to increase the assets to N250 million
within a period of three years, and non-integrated farms/agriculture
enterprises with assets of N50 million with plans to grow their assets to N150
millions within three years.

Results
of evaluation indicate that all classes of aggregate assets of benefiting firms
recorded growth between 2008 and 2017. After 2015, there is evidence to suggest
that firms may have disposed their landed properties and equipment/plants to
remain liquid or service their financial liabilities. Since inception of the
Scheme in 2009, only 6.8% of the firms had their aggregate assets expanded by
150% and above, 12.3% by the end of the second year, and this dropped to 11.6%
in the third year indicating reversal in earlier assets growth.

Aggregate
value of foreign exchanges earnings of the benefiting firms increased over the
years from $20 million in 2008 to $65.3 million in 2016 mainly from exports of;
cotton, cowpea, fruits, maize, rubber and lately processed soya bean. Other

Observations and Recommendations

As
part of the structured questionnaire and focused group discussions, challenges
and lessons learned were solicited from beneficiaries. Amongst the issues
highlighted were: business failures due to poor business plans, late
disbursement of funds, shortfall in planned budget, tedious bureaucracy and
bottlenecks of participating banks. We also observed that timely collection of
data from beneficiaries may improve the efficacy of the Scheme.

Following
from the results, which obviously demonstrated substantial impact on; economic
growth, employment generation and foreign exchange earnings, we make the
following recommendations to CACS fund managers:

1.
There are indications from all categories of beneficiaries that the Scheme
provided funding for start-ups and sustenance of operations by existing
businesses indicating that cost of funds inhibits economic growth. We therefore
recommend that all necessary steps be taken to reduce the cost of funds to
businesses.

2.
A number of beneficiaries attempted to actively explore the agriculture value
chain, in particular start-ups. These efforts were not mostly anticipated by
their business case plans, and DFO contacts with them were unable to identify
such opportunities. We recommend that interaction with start-ups be more
frequent and the objectives of such contacts should include identification of
expansion opportunities so as to transit identified beneficiaries to other
facilities for maximum funding impact.

3.
The absence of data from most states that participated in the Scheme may
indicate that such funds may have been misapplied. However, there are
indications that some states with special purpose vehicles (SPV) and active
extension services made the funds available to end users which produced some
success stories, but most beneficiaries did not have good business plans to be
financed. Concerted efforts be made to ensure that states with plans to key
into the Scheme are scrutinized and disbursement monitored.

4.
Agriculture is rainfed in Nigeria and production activities are seasonal. For a
one year tenured facility, correct timing of disbursement is key. All efforts
be made to ensure that crop producers receive funding at appropriate cropping
periods.

5.
A number of benefiting firms were not involved in any active economic activity,
and such firms refused provision of information. This calls for the need to
monitor closely all beneficiaries through periodic collection of data. We are
therefore recommending that the structure questionnaire used for this impact
assessment be adopted for annual reporting by all firms under the Scheme.

6.
Funding mismatch is a common issues raised by beneficiaries that received
funding far less than their planned budget. This resulted in their inability to
fully fund planned expansions activities. We recommend that funds approved for
disbursement match business plans in terms of timing and amount.

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