Tuesday, December 8, 2015

Attaining Self Sufficiency: A Case of Osun State

In recent times, the media has been filled with accusations and counter accusations between the state governor and the Nigeria Labour Congress (NLC) on the payment of salaries and continuous payment of the minimum wage. This is mainly due to the fact that almost all the Nigerian States depend largely of the allocation from the federal government to fund their budgets. Now that the price of oil our major source of revenue is declining, the states that depend largely on it for survival are now going bankrupt.

My position has always been that all the states in Nigeria have what it takes to internally fund their budgets and survive independent of the federal government allocations. To achieve this, my opinion is that they need to focus on 2 major sectors namely Agriculture and Non-oil export. The strategies put forward in this article is capable of not just helping the state to generate revenue and become self-sufficient, it will also help the to create numerous jobs for the teaming population.

We will be starting with states that are currently running on budget deficit and incapable of meeting their recurrent expenditures based on their revenues between January and July 2015. According to BudgIT, the states with shortfalls include Osun, Plateau, Ogun, Nassarawa, Oyo, Bayelsa, Adamawa, Borno, Akwa Ibom, Kwara, Ondo, Ekiti, Bauchi, Abia, Zamfara, Kaduna, Imo, Gombe.

In this edition, we will be focussing on Osun state. The facts raised in this paper is based on the data obtained from different research done by Central Bank of Nigeria, National Bureau of Statistics, Ministry of Agriculture, some universities in Nigeria and 3T Impex consulting limited. This article is aimed at drawing the attention of the authorities concern to what is possible in their states and to challenge them that they can do something to improve the lot of their people in this precarious situation.

From my research, this state has a number of agricultural commodities with export potential but we will be using Cocoa as a case study. Osun state produced about 75MT in 2012. Using the national average of about 38%, this state currently has arable land that is about 346,589.40 hectares of land. We have also made some reasonable and very conservative assumptions in this analysis and this include that:
1. The state is using just half (173,299.20 hectare) of her arable land for cocoa plantation
2. The yield per hectare of cocoa is 1MT per hectare (even though, there is an hybrid seeds that  yields 1.5MT per hectare) this 0.5MT reduction was done to make provisions for losses that might occur during harvest
3. The unit price of cocoa is USD2,200/MT FOB Lagos (even though it can be as high as USD2,500)
4. The cost of farming according was put at N20,000 per hectare based on some research works
5. The cost of exporting per metric tonne was put at N25,000 base on the export projects we have 
handled in the past

With a yield of 1MT per hectare, this mean that this state can produce 173,299.20MT of cocoa on the land size stated in the assumptions above. If this cocoa is exported at a free on board FOB) price of USD2,200/MT, the total revenue will be USD381,258,240.00. Using a conversion rate of N195 to 1USD, this amount to N74,345,356,800.00. The unit cost of farming cocoa and exporting are N20,000 per hectare and N25,000 per MT respectively. The total cost of farming 173,299.20MT of cocoa plus 50% profit on the sales to the government (or to the trading company engaged by the government) comes to N5,198,976,000.00 and the total cost exporting (transport, documentation, freight forwarding etc) comes to N4,332,480,000.00. The total project cost (farming and exportation) will be about N9,531,456,000.00. The estimated profit that can accrue to the state on this project comes to about N64,813,900,800.00.

According to data obtained from government sources, the IGR of the state for the year 2014 was about N8,510,000,000. from the analysis we have done on farming and exportation of cocoa beans, the state could grow her revenue by about 800% from this source alone. Since there are hybrids of cocoa that start producing fruits in 2-3years. This means that the government can begin this project now and start reaping the benefits in 3years from when they start and this will continue for many years. In addition to this, the state can form an alliance with factories that can add value to the commodity in the future. This will mean more revenue for the government on just one commodity.

To implement the option put forward in this article, here are some of the steps that the state will have to take. The state government should:

1. Purchase of improved varieties of seedlings and other farm inputs for registered farmers and cooperatives
2. Train the farmers on the best farm practices using Agriculture professionals and extension officers
3. Provide a guaranteed to the farmers to purchase the harvested crops from them at a pre agreed price
4. Partner with a trading company for marketing and export of the commodity and share proceeds
5. Buy the farm produce from the farmers on credit and pay them upon receipt of export proceeds from buyers abroad.

We strongly believe that if the government of Osun state can adopt this crop as a means of revenue and implement the strategies suggested, it will naturally rebound the economy of this state to the part of greatness while also creating numerous jobs in the process. 

Bamidele Ayemibo (Lead Consultant, 3T Impex Consulting Limited) 

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