IMPACT OF DEPOSIT MONEY BANKS ON THE AGRICULTURAL SECTOR (1980 – 2015).
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IMPACT OF DEPOSIT MONEY BANKS ON THE AGRICULTURAL SECTOR (1980 – 2015).
Chapter one
INTRODUCTION
1.1 Background of the Study.
In the early phases of economic development in most emerging nations, including Nigeria, agriculture and the agricultural population account for a larger part of GDP and invariably encourage the development of other sectors of the economy. Agriculture has remained crucial to Nigeria’s economy since independence.
This is because, previous to the political crisis of 1967-1970, the country’s food demand was met by domestic production, eliminating the need to spend scarce foreign exchange resources on food imports.
Prior to the growing fortunes of the petroleum sector in the 1970s, agriculture played a huge role in the Nigerian economy in terms of labour force employment and GDP, as shown by Tomori (1979).
Agriculture is still the mainstay of the Nigerian economy, despite the fact that it employs only 70% of the labour force. According to the CBN Publication, the sector contributed around 70% of the total at the time of independence in 1960.
Furthermore, Hewlleiner (1966) demonstrated that the agricultural industry generated a significant amount of capital through tax income between 1950 and 1967.
The agricultural sector’s marketing surplus was also used to fund many other developmental projects, such as the University of Nigeria Nsukka, which was founded with cash generated by the marketing board in Nigeria’s eastern and western regions.
With the political crisis and the rising fortunes of the petroleum sector in the 1970s, available statistical publications show that the agricultural sector’s contributions to the economy in terms of output growth (GDP), labour employment, adequate food supplies, investment capital, and linkages with the rest of the economy declined (CBN Publication).
This development in the sector resulted in rising food costs and inflation, increased food imports and agricultural raw materials for the country’s domestic industries, a relative decline in agricultural export revenues, and a declining standard of living for the average person.
The socioeconomic and political implications of this scenario are more understood as any nation that cannot feed its people appears to be a beggar nation and politically volatile.
Given the agricultural sector’s enormous and strategic importance to the economy, the desire to promote its growth and development in terms of producing both quantity and quality agricultural commodities to meet our people’s nutritional needs as well as industrial needs has frequently compelled governments to intervene in the areas of extension, input supply, credit, and marketing.
According to CBN (2000), Nigeria is endowed with vast expanses of fertile land, rivers, streams, lakes, forests, and grasslands, as well as a large active population
which can sustain a highly productive and profitable agricultural sector capable of ensuring self-sufficiency in food and raw materials for the industrial sector, as well as providing gainful employment for the teeming population and generating foreign exchange for the economy.
Ironically, the reverse is true. Several reasons contribute to Nigeria’s low agricultural performance, including virtual neglect of the industry, limited access to modern inputs and technologies, and a lack of optimal credit availability. (Enyim et al 2013).
In addition to a lack of access to current technologies, inadequate investment capital is a key impediment to agricultural development in Nigeria. Salama and Arawomo (2013).
Qureshi, Akhtar, and Shan (1996) claimed in their contribution that bank lending has the potential to alleviate farmers’ financial restrictions by providing incentives to enable farmers to switch fast to new technologies that can improve productivity and growth.
According to Umoh (2003), bank credit is the power or key to unlocking dormant talents, abilities, visions, and opportunities, which then work as a catalyst for economic growth.
Bank lending makes a significant contribution to economic development by increasing production and productivity, resulting in higher income and a better quality of life for individuals.
However, based on available figures on deposit money banks’ total sectoral loan distribution in Nigeria, the allocation to agriculture is small, despite the sector’s prominence.
For example, loan allocation to the sector ranged from 6.98% to 10.66% from 1981 to 1985, 10.66% to 16.15% from 1985 to 1990, and 16.15% to 17.5% from 1990 to 1995.
It fell dramatically to 8.07% in 2000, 2.46% in 2005, and 1.67% in 2010, fluctuating between 1.67% and 3.44% from 2010 to 2013, and between 3.4% and 3.7% in 2014 and 2015.
1.2 Statement of the Problem
Several studies have indicated that Nigeria is equipped with vast tracts of fertile agricultural land, rivers, streams, lakes, woodland, and grassland, as well as a big active population capable of supporting a highly productive and profitable agricultural industry.
Adubi (2000) admits that if properly managed, this enormous resource could support a thriving agricultural sector capable of ensuring self-sufficiency in food and raw materials for the industrial sector, as well as providing gainful employment for the teeming population and generating foreign exchange through exports.
Despite these advantages, the sector has continued to experience diminishing productivity. The sector’s capacity to fulfil its traditional roles in the Nigerian economy has been constrained by various social-economic and structural problems, such as the unavailability of credits to local farmers, the civil war of the late 1960s, the severe drought of the early 1970s and 1980s, the discovery of oil (the oil boom of the 1970s created relative disincentives for agriculture in relation to other sectors of the economy), High interest rates on loans for farmers,Rural-urban migration Ineffective institutions in charge of implementing policies.
Not until lately has the government truly considered and attempted to mobilise potential savings for rural farmers. Deposit money institutions have paid little attention to the acceptance of loans to farmers for fear of default.
Where credits are obtained from sources other than government and commercial lending, interest rates have been too high. The stated high interest rates are stark reality for peasant farmers.
However, Ogunfowora et al. (1972) attributed most of the shortfalls on institutional credits in Nigeria to factors such as ineffective supervision or monitoring, insufficient funds, political interference, cumbersome and time-consuming loan processing, large loan defaults, and absence of financial projections.
These shortfalls led to the formation of some policies like (OPN) Operation Feed the Nation in 1976, which was to increase food productivity, encouraging food nutrition The above raises the question of how credit institutions, particularly deposit money banks, have impacted agricultural output in Nigeria.
Is the high interest rate on loans made to farmers truly deterring them from borrowing from financial institutions? Is market failure the cause of low productivity in Nigeria’s agricultural sector?
1.3 Objectives of the Study
The study’s objectives are to:
(i) Assess the influence of deposit money banks’ credit on agricultural output in Nigeria;
(ii) To evaluate the impact of government investment on agricultural productivity.
(iii) to evaluate the impact of agricultural production on the growth of the Nigerian economy;
(iv) To analyse the situation and propose appropriate recommendations for increasing the effectiveness of agricultural loan policy in light of recent changes and the future importance of agriculture in the Nigerian economy.
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