THE IMPACT OF DEVELOPMENT BANKS AND AGRICULTURAL FINANCING ON ECONOMIC GROWTH IN NIGERIA (1980-2014)
Background of the Study
Prior to 1980 in Nigeria as well as in many developing countries, successive governments have implemented various agricultural and rural development policies, all in an effort to address perceived shortfall in rural credit, stimulate rural employment and enhance agricultural productivity. Under these rural credit schemes, institutional resources, programme efforts and government agencies – based top – bottom interventions, to implement mostly supply-led financial development strategies. That is the channeling of government funds to rural entrepreneurs and small scale farmers to enhance the contribution of agriculture to economic development (Yaron, 1992).
The above aim prompted the government in Nigeria to establish the defunct Agricultural and Co-operative Bank (NACB). The objective of NACB is to finance agricultural project through loans to farmers. Others like the Nigeria Bank for Commerce and Industry (NBCI), People’s Banks for Nigeria (PBN) as well as Special Banks for Local Areas – Communities Banks (CBs) were also established for similar objective and purpose. Government also made it mandatory for commercial banks and merchant banks to finance agricultural sector through loans. There was also the rural banking scheme of the Central Bank, the Nigeria Agricultural Guarantee Scheme, National Agricultural Scheme, establishment of the Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) Nigeria Industrial Development Bank (NIDB), Federal Mortgage Bank for Nigeria Ltd, (FMBN), National Agricultural Land Development Authorities, the Family Economic Advancement Programme (FEAP) and the National Economic Empowerment Development Strategies (NEEDS), which were all formed in lieu of promoting agricultural and rural development.
The Nigeria’s Vision 20, 2020 is designed to make the country among the first twenty developed nations by the year 2020. Although, manufacturing and the service sectors are set up as a driving force of the economy but the agriculture sector will still remain an important contributor, especially in the food production. The percentage contribution of agriculture to gross domestic product (GDP) is declining, in terms of absolute value, perhaps the amount is increasing geometrically. The agriculture sector has contributed significantly to the growth of the Nigerian economy and for it to continue to significantly contribute to the national economy; it has to be globally competitive. The Third National Agricultural Policy, which covers the period 1998 to 2010, provides the policy framework for the future growth of the agricultural sector in the next decade.
The future of the rural and agricultural finance institutions in Nigeria including Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB), rest on its ability to meet the challenges for the purpose in which it was established to as well as to remain a sustainable development and competitive in the global financial institution. With the liberalization of the world trade including the financial sector through the World Trade Organization (WTO) agreements, the trade competition will be stiff amongst existing players and new competitors from within and outside the nation. NACRDB must find ways to strengthen its existence by having enough capital, improving its operation, expanding its scope of business and operating normal banking business.
The bedrock of agriculture and agricultural development in developing countries of sub-Saharan Africa is rural development, without which all efforts towards agricultural development will be futile. A large majority of the farmers operate at the subsistence, (smallholder level), while intensive agriculture being uncommon. A characteristic feature of the agricultural production system in such countries, Nigeria inclusive, is that a disproportionately large fraction of the agricultural output is in the hands of these smallholder farmers whose average holding is about 1.0-3.0 hectares, (Yaron,1992). Also, there is very limited access to modern improved technologies and their general circumstance does not always merit tangible investments in capital, inputs and labour.
Household food and nutrition quality relies heavily on rural food production and this contributes substantially to poverty alleviation. Consequently, the first pillar of food security is sustainable production of food. Parkin, (1998), noted that in the early 1980s, while the population grew rapidly, food production and agricultural incomes declined in many African countries including Nigeria. In
most of the countries the diminishing capacity of agriculture to provide for household subsistence increased the workload shouldered by populace as investment by the financial institution withdrew their service from agriculture.
Evidently, development, food, security and poverty alleviation will not be truly achieved without rapid agricultural growth. Assisting the rural poor to enhance their livelihoods and food security in a sustainable manner is therefore a great challenge. Broadly put, increases in agricultural productivity are central to growth, income distribution, improved food security and alleviation of poverty
in rural Africa.
In spite of efforts of the government, less is achieved in the agricultural productions. This is partly because the institutions were not designed to function as “true” financial intermediaries that mobilize deposits to make loans, they lack the obligation to operate under financial constraints, nor were they driven by commercial financial performance criteria.
It is based on this premises that this study is undertaken to assess the contribution of development banks to the development of Nigeria economy using Nigeria Agricultural and Cooperative and Rural Development Bank as a domain of the study.
Statement of the Problem
Nigeria, like most other countries in the African Continent is not only endured with vast agricultural farmland, but also conducive geographical condition that favors agricultural production throughout the year. Despite this great potential, there is not much to show for it (Salami, K and Arawomo, 2013).
Several studies in this area including Enyim, Ewno and Okoro (2013) have identified poor credit supply as one of the factors accounting for the poor performance of the agricultural sector in Nigeria. According to Obilor (2013), banks precisely the commercial banks obviously have no kin interest in Agricultural finance. In order to encourage the banks, the Federal government established the Agricultural Credit Guarantee Scheme (ACGS) to provide lending. This measure could not achieve the intended objectives because agriculture guarantees against inherent risk in agriculture, being both labour and capital intensive venture requires huge capital outlay (Nwankwo, 2013).
The country with its highly diversified agro-econological condition relies on massive importation of basic food items and raw materials for industrial inputs. (Itodo, Apeh and Adesina, 2013). The resultant effect of the high cost of living coupled with high level of unemployment on the common man is beyond reasonable imagination. Obviously, the government’s effort to fortify Nigeria Agricultural Sector has not yielded the desired result (Udensi, Orebiyi, Ohajianya and Eze, 2012). Thus, the need for further investigation in this area cannot be overemphasized.
- What are the contribution of total cash crop financing on Gross Domestic Product in Nigeria?
- Is there any effect of total Livestock financing to Gross Domestic Product in Nigeria?
- Is there any impact of total food crop financing on Gross Domestic Product in Nigeria.
Objectives of the Study
The main objective of the study is to examine the impact of development banks’ operations on the growth of Nigerian economy.
Other objectives are:
- To ascertain the contribution of total cash crop financing to Gross Domestic Product in Nigeria.
- To identify the effect of total livestock financing to Gross Domestic Product in Nigeria.
- To evaluate the contribution of total food crop financing to Gross Domestic Product in Nigeria.
For the purpose of this study, the following hypotheses are formulated:
- H01: Total cash crop financing has no significant impact on Gross Domestic Product in Nigeria.
H11: Total cash finance has significant impact on Gross Domestic Product in Nigeria.
- H02: Total livestock financing has no significant impact on Gross Domestic Product in Nigeria.
H12: Total livestock financing has significant impact on Gross Domestic Product in Nigeria.
- H03: Total food crop financing has no significant impact on Gross Domestic Product in Nigeria.
H13: Total food crop financing has significant impact on Gross Domestic Product in Nigeria.
Scope of the Study
This study is designed to cover a period of thirty four years (1981-2014) and will be restricted to NACRDB as the case study. The period chosen will be sufficient to lead to logical findings. The variables of the study consist of GDP as dependent variable and total cash crop financing, total livestock financing and total food crop financing constitute the independent variables.
Significance of the Study
NACRDB was established by an Act of Parliament. As a statutory body, the bank is responsible to arrange, provide, supervise and co-ordinate credit for agricultural purposes in Nigeria. The idea for an agricultural bank is directly a result of the government’s decision to embark on the massive agricultural production that ensures food security for her populace. Hence, this study will be of great importance to the following:
Government will benefit immensely as the study will help know if the desired objectives of establishing the banks have been achieved.
The study will help to evaluate and reposition oAgricultural Development Banks in rural areas as it brings to the attention of policy makers and other regulatory bodies for the need for its funding.
Rural agricultural producers will equally find the study interesting as it abrades them the opportunity available for them to explore as a way of accessing credit facilities through the bank in order to expand the level of production.
The study will equally be of great importance to other researchers, scholars and student as it adds to already existing literature and other literary works.
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