Agricultural sector loses ground as foreign direct investment plunges 41% in 2024

Onome Amuge

Foreign direct investment (FDI) into Nigeria’s agricultural sector declined by 41 percent year-on-year during the second quarter (Q2) of 2024, according to the latest capital importation report by the National Bureau of Statistics (NBS), which indicates a weakening of the sector’s economic contributions, limiting its overall impact on the Nigerian economy.

The NBS report revealed that investment in the agricultural sector plummeted from $10.01 million (N16.9 billion) in Q2 2023 to just $5.91 million (N10 billion) during the same quarter of 2024.

On a quarter-on-quarter basis, foreign direct investment into the sector suffered a 63 percent decline from the previous quarter’s investment of $15.80 million (N26.7 billion) in Q1 2024.

Foreign direct investment, as defined by the Organisation for Economic Co-operation and Development (OECD) is a form of cross-border investment in which an investor, resident in one economy, establishes a long-term interest in and a significant degree of influence over an enterprise located in a different economy.

The significant drop in FDI points to the ongoing struggles of the agriculture sector, as it battles food shortages and inadequate production while trying to meet the needs of a growing population.

Despite its immense potential as a key driver of the Nigerian economy, the agriculture sector has yet to realise its full potential as evidenced by the 63 percent decline in investment during Q2 of 2024, as shown by the NBS data.

The disappointing outcome reflects the lack of sustained growth and insufficient foreign exchange (FX) generation, despite the sector’s 22.61 percent contribution to the country’s overall GDP in real terms in the same period.

Nigeria’s agricultural sector has been reeling from a lack of investment, and the root cause, as many analysts and industry players point out, can be traced to the rampant insecurity and pervasive violence engulfing the North Central and North West regions.

Farmers have been reportedly targeted and terrorised by marauding bandits and herders. From the theft of livestock and crops to the merciless killings, farmers have become a prime target for attacks, leaving many farmers either displaced from their ancestral lands or forced to pay the perpetrators for the right to work their own land.

The violent and seemingly unrelenting attacks on farmers in Nigeria’s North Central and North West regions have sent a chilling message to foreign investors, effectively driving them away from the agricultural sector.

As Promise Amahah, director general of the Nigerian Young Farmers Network, pointed out, the persistent threat of insecurity has had a bad impact on the willingness of foreign investors to invest in the country’s agriculture sector, contributing to the steep decline in FDI during the second quarter of 2024.

In an assessment of the current state of affairs in Nigeria’s agriculture sector, Amahah warned that the absence of young farmers in a country with over 200 million people spells doom for the industry’s future.

With the youth turning away from farming, Amahah emphasised the pressing need for immediate and decisive action to make agriculture an attractive option for the younger generation and, in turn, rekindle foreign investment interest in the sector.

With the aim of luring the younger generation into the fold of modern agriculture, Amahah urged for a much-needed image makeover of the sector.

He stressed that today’s agriculture is far removed from the traditional image of farming with rudimentary tools and methods, instead encompassing advanced technological applications and innovative practices.

It is therefore imperative, according to Amahah, to present this modern face of agriculture to young people, in order to shift their perception and make farming a viable and attractive career choice.

Amahah stated that it is crucial to ignite a sense of interest and engagement in agriculture among the younger generation to ensure a smooth and sustainable transition from the aging farmers to the next generation of agriculturalists.

With the agritech industry booming globally and continually evolving, he implored the youth to recognise that agriculture has transformed into a technologically advanced and high-potential field, teeming with opportunities for those who are willing to embrace it.

“How we can correct the challenges in the agric sector is to create an ecosystem that is all-inclusive, that engages both young farmers, processors, value chain aggregators within the same ecosystem so that everyone has a role cut out for them,” he suggested.

Agriculture, Amahah pointed out, is already the largest employer in Nigeria, but by unlocking the potential of other value chains such as post-harvest management, research and development, essential services, and mechanisation, young people can be empowered to reinvent and revolutionise the industry, thereby attracting significant foreign direct investment.

Amahah stressed the urgent need for a paradigm shift in Nigeria’s agricultural sector, from a reactive to a proactive, forward-thinking strategy.

According to him, by adopting a more holistic approach that encompasses the entire value chain, from production to distribution, marketing, and processing, the sector could uncover vast opportunities to boost foreign direct investments.

Tajudeen Ibrahim, director of research & strategy at Chapel Hill Denham, weighed in on the matter, noting that security is a key determinant of foreign investment in the agricultural sector.

He cautioned that the government’s inability to effectively combat insecurity across the country would likely lead to further contraction in capital importation, highlighting the interdependent relationship between national security and foreign investment.

Ibrahim also underscored the critical importance of government policies, stating that they must not only exist but be consistent, predictable, and investor-friendly to attract foreign investment into Nigeria.

“We need to fix any issue that we might have around policy implementation as well as ensuring they are friendly to foreign investors and will steadily attract them over the medium to long term,” he added.

In addition to the security concerns, the capital market expert, identified structural challenges, particularly those related to infrastructure, as a key impediment to attracting more foreign direct investment.

He emphasised the importance of addressing these issues, stating, “We should be able to have a better road network, good transportation system, and power systems whereby investors can operate at relatively cheap or low cost.”

Chinonso Okafor, the national coordinator for the International Trade Centre, underscored the importance of creating investment vehicles managed by fund managers who are knowledgeable about the intricacies of the agriculture sector, including interest rates, competing interest rates, returns, investment duration, and other management factors, in order to build investor confidence. He noted that this would be an effective way to promote capital importation into the agriculture sector in Nigeria.

The former senior research analyst at Nextier Advisory, a leading public sector advisory firm, underscored that agriculture goes beyond the traditional activities of farming and crop cultivation, encompassing a wide spectrum of value chains and wealth creation opportunities.

He stressed the importance of local producers and agricultural sector stakeholders partnering with international organisations, the Central Bank of Nigeria (CBN), and other relevant government and private agencies and regulatory councils, to create technical or financial support initiatives that would boost foreign investment in the agriculture sector.