NIGERIA’S AGRICULTURAL SECTOR GROWTH AND INSTITUTIONAL CREDITS: A CAUSALITY ANALYSIS

NIGERIA’S AGRICULTURAL SECTOR GROWTH AND INSTITUTIONAL CREDITS: A CAUSALITY ANALYSIS

The aim of this study is to assess the causal relationship existent between institutional credit and Nigeria’s agricultural sector output.

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CHAPTER ONE: INTRODUCTION

1.1 Background to the Study

Agriculture contributes immensely to the Nigerian economy in various ways especially, in the provision of food for the increasing population supply of adequate raw materials and provision of the market for the products of the growing industrial sector, a major source of employment and generation of foreign exchange earnings (Ajala, 2013). However, the support for agricultural development is widely driven by the public sector, which has established institutional support in form of agricultural research extension, commodity marketing, and input supply land use legislation to FastTrack the growth of agriculture in Nigeria. Several measures were designed in the 1970s preceding the structural Adjustment Programme (SAP) which stimulate the growth and development of the agricultural sector. Such measures include subsidized low-interest-rate policy, of the 1970s and early ’80s. Establishment of specialized institutions to lend solely to the sector, input subsidies, and producers price setting through commodity board. (Awe, 2013).

Moreover, following the adoption of the structural adjustment program (SAP) quarter to provide productive incentives to farmers through increased prices. A unified system of agricultural extension was also adopted to enhance the dissemination of improved husbandry practices and research findings to farmers. More universities of agriculture and research institutes were established to broaden and strengthen agricultural research in Nigeria. Also, international and non-governmental agencies including the World Bank, food and agricultural organization of United Nations contribute towards the enhancement of farmers productivity inform of finance, input supply and strengthening of technical capacity macroeconomic policies that tend to promote agricultural growth, such as credit channeling, financial policies, price stability, monetary and exchange rate policies and other fiscal policies such as tax exemptions for agricultural business were all effected. (Bamiro et al., 2012).

In spite of these measures, the performance of the agricultural sector has generally been considered as abysmally low and the expected significant contribution it has to make towards the attainment of the Nigerian economic and socials goals remains largely and expectation. (Central Bank of Nigeria, 2005).

However, development financing involves financial institutions established by the government to provide medium and long-term finance to the industrial and agricultural sectors of the economy. Amidst some of the development banks operating in Nigeria include the Nigeria Agricultural Cooperative and Rural Development Bank Plc, (NAC.RD.B), bank of industry Plc, Federal mortgage bank of Nigeria and Nigeria Export-Import bank Plc (N.E.X.I.M) The development institutions are preoccupied with macro-economic policies which promote the agricultural sector (Obisesan, 2012).

The Nigeria Agricultural Cooperative and Rural Development Bank is the single largest development finance institution in Nigeria. It was established through the successful merger of the former people’s Bank of Nigeria (P.B.N) and the defunct Nigeria Agricultural and Cooperative Bank (NACB) Ltd that was established in 1973. Thus, Nigeria Agricultural Cooperative and Rural Development Bank were re-established in the year 2000 which commenced full operations in 2001. The bank is dedicated primarily to Institutional Credit at both rural and urban levels as well as Micro-financing of small and medium scale enterprises in Nigeria.

Therefore, this research sought to address the challenges militating against agricultural growth and development in Nigeria by determining the impact of the activities and performance of the Nigerian agricultural cooperative and rural development Bank Plc. (NACRDB). (Olayemi, 1996). Therefore, this research sought to address the challenges militating against agricultural growth and growth in Nigeria by looking into the financing activities as related to agriculture and its growth and performance of the nation.

1.2 Statement of the Problem

Despite the germane role of the agricultural sector in an economy, Agricultural production has not improved. This can be attributable to inadequate credit through the scheme may have as pertained agricultural productivity are; Low agricultural cash crop productivity in Nigeria, Low agricultural livestock productivity in Nigeria, Low agricultural fisheries productivity in Nigeria and Poor Agricultural productivity in Nigeria.  In the course of the fund’s operations, a number of problems have been identified as militating against its smooth performance, which has limited the funds’ contribution to the cash crop, livestock, and fisheries agricultural subsectors which have lead to low agricultural productivity in Nigeria (Ajala, 2013).

According to Akinleye, Akanni, and Sekumade (2009), some of the problems are: increasing incidence of loan defaults, high rate of loan repayment by Agricultural Credit Guarantee Scheme Fund (ACGS) beneficiaries, others are: natural disasters, poor farm management, low product prices, loan diversion, deliberate refusal to pay and the inability of farmers to assess loan requirements properly leading to farmers receipt of inadequate or excessive loans; Participatory banks in the ACGS do not cooperate fully in lending to farmers. Because of the high cost of processing loans relative to the actual loans and the high default, rate of the farmers, many banks prefer to pay penalty to risk lending their funds to agriculture. Also, banks fault the farmers for submitting incomplete application forms. In some cases where loans are approved, it arrives too late for it to fulfill the purpose for which it was intended. This delay seems more administrative than any other. Another problem that militates against the smooth operation of the scheme is on Personal guarantee as security that may be offered to a bank for the purpose of a loan. A personal guarantee as a condition was not explained in the decree. This, therefore, makes it almost nothing as its interpretation rests on the bank officials.

Despite the reviewed literature, this study still discovers a lack of concrete and thorough evidence as to the interrelationship between agriculture and economic growth in Nigeria, as scholars like Oyakhilomen and Zibah (2014), Izuchukwu (2011), Amire and Arigbede (2016), Eicher and Staatz, (1984); Dowrick and Gemmmell, (1991); Datt and Ravallion, (1998); Thirtle, Lin and Piesse 2003). Johnston and Mellor (1961)) speak positively about the relationship between agriculture and Agricultural Output growth in the nation while Oyinbo et al., (2013), Salako et al., (2015), Apeh and Adeshina (2012), Oboh and Ekpebu (2010) and Uma et al., (2013) who discovered an insignificant relationship between agriculture and Agricultural Output growth, In light of the above, this study intends to take an updated review of the subject matter thus utilizing relevant variables.

1.3 Aim and Objectives of the Study

The aim of this study is to assess the causal relationship existent between Institutional Credit and Nigeria’s Agricultural sector Output. Accompanied by the following specific objectives which include:

1. Determination of the nature of the causal relationship between Aggregate Deposits by Deposit Money Banks in Nigeria and Lending to Agricultural sector
2. Evaluate the nature of causal relationship between Deposits mobilized by microfinance banks and lending to the Agricultural sector.
3. Examine the nature of the causal relationship between Deposit Money Bank credits to Agricultural Sector and Agricultural Output in Nigeria.
4. Assess the nature of the causal relationship between Micro Finance Banks Credits to Agricultural Sector and Agricultural Output in Nigeria.

1.4 Research Questions

This part is aimed at helping the researcher to adequately address the research problem and also to investigate beyond what is already known, therefore upon the following research questions, hypotheses were formulated.

1. What is the extent of a causal relationship between Aggregate Deposits by Deposit Money Banks and Lending to Agricultural sector in Nigeria?
2. To what extent and deposits of microfinance banks causally related to their lending to Nigeria’s agricultural sector?
3. What is the nature and direction of a causal relationship between Deposit Money Bank credits to Nigeria’s agricultural sector and Agricultural Output in Nigeria?
4. To what is extent is there any significant causal relationship between Micro Finance Bank Credits to Nigeria’s Agricultural Sector and Agricultural Output in Nigeria?

1.5 Research Hypotheses

The following null hypotheses shall be tested in this research work:

H_o1: There is no significant causal relationship between Aggregate Deposits by Deposit Money Banks and Agricultural lending in Nigeria.

H_o2: Deposit mobilized by microfinance banks are not significant functions of Agricultural lending in Nigeria.

H_o3: Deposit Money Bank credits do not constitute a predictor of Agricultural output in Nigeria.

H_o4: There causal relationship which prevails between Microfinance Banks Credit to Nigeria’s Agricultural sector and Agricultural Output in Nigeria is not significant.

1.6 Significance of the Study

This study is significant in the following ways;

1. The government: The government will benefit from this study in its policy formulation and review of existing laws, regulations for achieving maximum efficiency and productivity in the agricultural sectors.
2. Central Bank of Nigeria (CBN): it will enable the Central Bank in implementing its various agricultural policies created by the government by adequately ensuring that local farmers and producers have access to credit facilities.
3. Future researchers: it will provide an objective view of the effectiveness of the credit facilities to the Agricultural sector and ass to the existing body of knowledge in Nigeria.
4. Investors: The research will also serve as an avenue for private investors to invest and contribute tremendously to the agricultural sector in Nigeria thereby stimulating growth and development.

1.7 Scope of the Study

• Content Scope:

The research work at hand deals on the influence of Institutional Credit and economic growth in Nigeria. This study will focus on major growth and bank credit components, which are vital parts of output growth of the agricultural sector. The Credit institutions will be limited to the deposit money banks and the microfinance banks. The period covered by the research is twenty-five (25) years (1992-2016). The availability of uniform data on the variables informed the researcher’s choice of the period of analysis.

• Geographical Scope:

The geographical scope of this research is limited to Nigeria, while the time scope will cover 1992 to 2016.

1.8 Definition of Terms

No term(s) have been applied in any unconventional sense in this study. Hence there is no need for any definition.

1.9 Organization of the Study

This study comprises of five chapters.  Chapter one concerns itself with the introductory aspect of the study which gives an insight into the subject matter of the study. This chapter provides the intended direction of the study and under it are such issues as the overview, statement of problem, objectives, hypotheses, significance, scope, limitations, organization, and the definition of terms.  Chapter two reviews related literature on institutional credits and the growth of Nigeria’s agricultural sector.  Chapter three describes the methodology; chapter four forms the core part of the study which deals with the presentation and analysis of data collected from the study. Chapter five is devoted to a discussion of findings, conclusions, and recommendations of the research.