The Federal Government has shared details on its plan to privatize the Bank of Agriculture (BOA).
Backstory: The plan to restructure, recapitalise and privatize the BOA is no longer news. But last week Thursday, a meeting to kick-off the recapitalisation of the Bank finally held. Right from when he was appointed in 2016, Agriculture Minister, Audu Ogbeh has continued to announce that the bank will be recapitalized and privatized. In 2017, the sum of N500 million was earmarked for the recapitalization of the bank and in April 2017, the National Council on Privatisation announced the approval of the exercise but not much was seen on this front.
The Bureau of Public Enterprises (BPE) has historically deemed BOA, just like most other government ventures unprofitable, and have recommended its privatization since the previous administration. The BOA is fraught with several bad debts and previous turnaround measures have failed. According to an official of the Bank, the bank is owed as much as 60 billion Naira only.
The problem? “Nigerians approach the Bank of Agriculture for loans and after getting the loan for commercial Agriculture, they wouldn’t pay back because they see it as part of their own national cake,” Ogbeh told the Nigerian Senate in March during a budget hearing.
The privatization plan: The plan is for the private sector to own majority shares (up to 60%) and public sector will own the remainder.
1. A Farmers’ Bank?
BPE Director General, Mr. Alex Okoh said up to 40% of the stake in the new bank will be owned by farmers.
- “We envisage that the Central Bank equity will be reduced to 20 per cent, Federal Ministry of Finance (incorporated) will be reduced to 20 per cent. The government agencies equity in the new bank will be a minority of 40 per cent. We will then invite private sector investors who will own 20 per cent and the remaining 40 per cent equity will be owned by farmers and farmers’ cooperatives,” Okoh said.
- The minister Ogbeh said: “the good news to farmers” is “that this a chance to become co-members, owners of the bank. What we doing is a big leap forward. By end of May, there will be a new management. Let’s have a strong bank, a farmers’ bank.”
2. The Chinese and Netherlands model:
The Minister said that the bank will be modeled after two large agriculture focused banks but did not give a lot of specifics. He mentioned the Rabobank of the Netherlands and an unnamed Chinese larger bank (most likely the AgBank).
- “Today, the Rabobank accounts for 75 per cent of all the credit given to banks in the European Union and they lend at three and half per cent but the bigger one is in China with nearly eight million clients. I don’t see why we can’t do the same here,” he said.
However, this proposal may not be factoring some of the local context that has affected agriculture lending in Nigeria. According to a Cassava expert, Segun Adewunmi, one of the problems of the BOA is the land administration system and the bank’s refusal to allow land collateral for lending.
- “It is only in Nigeria that agricultural land is not use for collateral. In Malaysia, ordinary palm tree is used as collateral. So the American guy just went to Ghana, he got the land and the people who partner with him were able to use the land as part of their equity.”If you have your father’s land and used it as part of collateral for loan, you won’t want it to be confiscated. For all the problem being faced here, is not the problem of BOA alone, it is the system. So the system is the contributing factor to why the bank has not performed.”
3. Beyond Debt: To sell BOA’s non-performing debt to a “risk taker” – most likely the Assets Management Corporation of Nigeria (AMCON). The government is looking to recapitalise the bank with about 200 billion although the level of liabilities are still being evaluated. A new management team would emerge and it is important that they get a clean balance sheet for a “fresh start”.
- To secure cheaper credit from multilateral development institutions (DFIs) and specialized investors with a focus agricultural financing.
The political rhetoric continues: The Minister of State for Agriculture and Rural Development, Senator Heineken Lokpobiri believes that the BOA’s resuscitation effort should be credited to the agricultural ‘achievements’ of President Muhammadu Buhari.
- “We are not surprised because before this government came, agriculture was not being given priority attention but now that everybody had realised that there is no more money to import food, we have policies today that tend to create jobs through the agricultural sector and then substitute for import. We have a policy that instead to be importing food, we should be exporting food.”
Bottomline: Previous efforts to privatise BOA like most other state owned enterprises have encountered bottlenecks especially from the organized labour led by the Nigerian Labour Congress. BOA has to rethink its approach in the digital age with the rise of digital agriculture financiers in Nigeria. It will be interesting to see how the restructuring of the BOA goes. Should it go big or think small?