FAO Mozambique facilitates a High-Level Policy Dialogue with Nigeria on Agricultural Finance
13 March 2024, Mozambique – The Food and Agriculture Organization of the United Nations (FAO) organized a High-Level Policy Dialogue Mission to Nigeria from 19 to 23 February 2024 to study the successful Nigerian experienceon attracting affordable finance to the agricultural sector. Availability and access to finance is key to the growth of the agricultural sector and the Mozambican economy and imperative for the sustainable implementation of the investment opportunities identified in the Hand In Hand Initiative (HiHi). The Mozambican delegation was chaired by Director Jaime Chissico from the Ministry of Agriculture and Rural Development (MADER) and included representatives from the Ministry of Economy and Finance, the Association of Financial Institutions, the Central Bank and the Foreign, Commonwealth & Development Office. The members met during the five-day visit with high level public and private stakeholders in Abuja, including the Minister of Economic Planning and Budget and the Director of Development Finance of the Central Bank of Nigeria.
In a collaborative effort aimed at enhancing the agricultural finance ecosystem in Mozambique, the Delegation identified, through dialogue sessions, lessons from Nigeria's approach to mitigate risks and constraints in agricultural financing. Nigeria put systems and institutions in place that enabled capital markets to engage in funding ventures perceived as riskier within the agricultural sector. Their extensive experience in financing agriculture resulted in reduced risks associated with financing and fostered successful commercial ventures for both capital market participants and private sector entities.
Some of the critical enabling investments for agricultural finance are government led, such as the Anchor Borrowers Programme and the Interest Drawback Programme. These initiatives incorporate targeted cost-sharing mechanisms designed to reduce the cost of capital based on achieved results along with measures to enhance the financial inclusion of smallholder farmers while facilitating market access. The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) was a source of inspiration. Initially developed within the Central Bank framework, NIRSAL has evolved into a Non-Bank Financial Institution. It offers various guarantee schemes tailored to different stakeholders along the agricultural value chain, thereby addressing associated financing risks. Moreover, NIRSAL provides technical assistance aimed at enhancing capacity and facilitating market linkages, among other support services.
The delegation recognized that there is no single solution or institution capable of fully addressing all agricultural finance constraints in Mozambique. This underscores the significance of fostering strategic partnerships among the Central Bank, Government Authorities, Financial Institutions, and the Private Sector. Initiating commercial financing products with a focus on reducing the cost and risk of agricultural lending is an important step. To scale up successful models and initiatives in agricultural financing, there's a need to develop dedicated instruments tailored to encourage replication across different value chains or geographic regions. Furthermore, providing incentives or support for financial institutions to adopt best practices and innovative approaches in agricultural lending is essential.
The Nigerian stakeholders also emphasized the significance of not only tackling obstacles related to risks but also identifying and aligning the capacities of both public and private investments. This is imperative to ensure the profitability of agricultural investments for the private sector and its investors throughout the entire value chain and allow for public investment to act as catalytic and effective leverage for private sector investments.
The policy exchanges between Mozambique and Nigeria represent a tangible outcome of South-South cooperation, through which FAO aims to facilitate evidence-based and effective policy dialogue among countries and economies facing similar challenges. This initiative helps prevent the recurrence of common pitfalls and fosters an environment conducive to private sector investments as well as the inclusion of capital markets.
"The investment opportunities identified within the HiHi will benefit from the mission's work and the ongoing efforts of delegation members to enhance the agri-finance environment for capital markets engagement in the agricultural sector." FAO Country Representative
"The sustainability of these investments hinges on their integration into a supportive private sector environment and the availability of capital liquidity to grow agri-based entrepreneurship." Jaime Chissico
"The presence of accessible finance and alignment between public and private investors will facilitate scalable and profitable investments, leading to job creation and the capture of economic value in Mozambique." Patrice Talla
FAO, along with the delegation members will now further detail the array of instruments to be utilized in Mozambique's agricultural sector, as well as identifying regulatory frameworks requiring attention to facilitate effective agricultural finance for stakeholders across the value chains. The technical and policy guidance provided by FAO will also draw upon successful practices from other countries in the Sub-Saharan African Region. Furthermore, the alignment of public and private investment capacities and the ensuing policy dialogue will be conducted in close partnership with CIFAM, the government-led platform for agricultural sector financing.