Food security/inflation has been at the top of many news articles from Nigeria recently. Africa’s most populous country has struggled, like many others with inflationary pressures that are rooted in the COVID-19 pandemic. These pressures have formed a complicated knot at the throats of the average Nigerian, the tightening of which chokes a critical majority of the country past the point of hunger and into the worrying realms of forced penury.

The agricultural sector is a crucial sector to national prosperity. It is a crucial economic point that bears the primary responsibility of providing the base supply stock of food for national consumption and cash crops on which many manufacturing, extractive and other sectors rely. The agricultural sector has faced longstanding challenges. However, historical examples, such as the Obasanjo-led Operation Feed the Nation in the 1970s and the Adeshina-led Ministry of Agriculture’s reforms (2010-2015), demonstrate that Nigeria’s agricultural potential can be unlocked through a combination of forward-thinking policies, government interventions, and subsidy programs.

Nigeria currently faces a complex economic situation. The devaluation of the naira and the forex challenges that have persisted with growing intensity since 2021, have had significant impacts on many agricultural inputs including consumables like fertilizer, seeds and labour. This translates to an understandable impact on the selling price of agricultural produce to the final consumers.

As inflation continues to drive prices higher, agricultural produce have also trended similarly, albeit further driven by additional factors that include security challenges in farming regions, climate and environmental challenges and a frustrating inability to effectively adopt mechanization. These challenges require multifaceted solutions that would bring together the best possible approaches that combine policy making, financing solutions and supply/value chain optimization. It is for this reason that impact financing for the agricultural value chain presents a compelling opportunity for problem solving and value creation at an institutional level.

Impact Financing is an investment strategy that focuses on the achievement of measurable impacts on the real economy. It is a strategy that works to achieve a three-pronged objective of financial returns while ensuring that key social and environmental indicators are achieved without any tradeoffs in priorities. It is an idea that is prominently associated with global standards like the Sustainable Development Goals (SDGs) that provide the foundational framework on which the “impacts” that constitute a crucial portion of the investment strategy is built and measured.

Bringing impact investment into the fray of discussion for Nigeria’s agricultural productivity, SDG 2 (Zero Hunger) is a clear foundation for the impact driven solutions to the problems that have been identified, while SDG 1 (No Poverty), SDG 8 (Decent Work & Economic Growth), SDG 13 (Climate Action) and SDG 17 (Partnerships for the Goals) serve to support the expression of our desired impacts to varying degrees.

For example, a medium-scale investment program could focus on the rice value chain. Financing focus could be turned to the procurement of seedlings, sourcing of machinery for land preparation and subsequent harvesting, training and the retention of staff to attend to plants as they grow. These investments align with SDG 2 by boosting local rice production. Additionally, they contribute to SDG 8 through mechanization and job creation, SDG 1 by fostering staff development, SDG 13 by promoting climate-smart practices, and SDG 17 by fostering partnerships throughout the project lifecycle. Crucially, maintaining a clear focus on these objectives, coupled with well-defined, measurable purpose statements (e.g., “produce 50,000MT of rice,” “hire and train 50 young people in climate-conscious, mechanized agriculture”), directly correlates financial success with the achievement of impact KPIs. This alignment makes financial returns an inevitable outcome as long as communication channels are maintained, accurate data is collected and there is responsiveness in dealing with any concerning deviations from the impact focus that may arise.

Beyond the rice value chain, impact financing holds immense potential for other agricultural sectors. For instance, investments in livestock, fisheries, and agro-processing can drive rural development, improve food security, and create economic opportunities. However, realizing this potential requires a conducive environment shaped by government policies, incentives, and actively led by private sector investments.

To maximize the impact of impact financing, robust measurement and evaluation systems are essential. By tracking both financial performance and social outcomes, investors can assess the effectiveness of their investments and make data-driven decisions. Additionally, addressing potential challenges such as risk, profitability, and scalability is crucial for the long-term success of impact financing in agriculture.

Impact Financing offers a promising opportunity to unlock the productivity potential not only within Nigeria’s agricultural sector but within Nigeria’s MSMEs as a whole, where a majority of employment opportunities and local production is domiciled.