Oil Palm Sector in Nigeria

Oil Palm Sector in Nigeria

OVERVIEW
Nigeria offers an extremely attractive business environment for investors in the agribusiness sector. The Government of Nigeria has ambitious targets for the agriculture sector and the sector enjoys Pioneer Status with attendant tax exemption to all agro-allied companies. There are large investment incentives bagged by enabling laws and supported through the Ministry of Trade and Investments, Nigerian Investment Promotion Commission and the Ministry of Agriculture. The government at all levels is committed to facilitating private investment into the sector. Fiscal incentives, tax exemptions, low-cost labor force, domestic demand and population growth are fueling high return on investment in the sector.

Nigeria has over 80 million hectares of arable land. This accounts for about 23% of arable land across all of West African sub-region. Nigeria is well placed to serve growing global, regional and local demand for oil palm. The climatic condition and rich soils offer ideal conditions for growing oil palm.

Oil Palm trees are predominantly grown in the Southern states, particularly the wet rain forests of the country. The total land that is ideal for oil palm plantation totals approximately 24 million hectares. However, little over 3.0 million hectares of land is put to use. The government and key development partners have launched a number of initiatives to attract large-scale farming operations to Nigeria. Regulations and procedures for importing key inputs (seeds, fertilizers, equipment, etc.) rank among the most efficient anywhere, and a strong institutional base has been put in place to support the sector, including outgrower education and skill-development, quality and certification programs.

MARKET OPPORTUNITY & KEY FINANCIAL DRIVERS

High Demand: Oil palm demand in Nigeria outstrips domestic supply. The primary market opportunity for investors is local. Demand has been growing steadily in Nigeria and neighboring countries and has outpaced domestic production due to rapid population growth, increasing incomes, and lifestyle changes that accompany urbanization. Estimated annual demand for palm oil grew by 5% between 2012 and 2016 versus annual growth of 1% – 2% of palm oil production within same period.

Supply Shortfall: Supply gap reigns in Nigerian oil palm industry. Rising demand by the growing population and increasing industrial use of oil palm products continue to expand the demand for the commodity. At 1.54 million metric tonnes, total consumption creates a shortfall of about 600,000 metric tonnes per annum and presents a huge upside for investment in local oil palm market.

Limited Competition: Due to limited competition, investors in plantation development have good access to under-served local and regional markets. Nigeria is experiencing an exponential increase in demand for oil palm and it is also ideally positioned to supply oil palm to growth markets in Africa, Europe, the Middle East and America.

Population: Nigeria’s population in 2016 was put at 180 million estimated to be 480 million by 2050 (National Census, National Population Commission). Implicit in this is a widening supply demand gap. Nigeria relies on imports to fill its food demand.

Land Availability: Nigeria has over 84 million hectares of arable land. The total land that is ideal for oil palm plantation totals approximately 24 million hectares in the whole of Nigeria. However, little over 3.0 million hectares of land is put to use. The total plantation area of oil palm in and around Niger Delta ranges from 1.4 million hectares – 1.8 million hectares, the wild grove plantation is more than 1.1 million hectares, smaller plantations (categorized as plantations below 1000 hectares) approximates to 26,000 hectares and organized large estates adds up to another 100,000 hectares.

Tax Exemption: All businesses in the agro-allied sector enjoy Pioneer Status in Nigeria. Pioneer status goes with attendant tax holiday.

Enabling Environment: Government at federal and state levels is promoting the policy of providing the enabling environment for private sector-led oil palm production. Oil palm farmers and processors receive government support through provision of inputs and services at affordable cost.

Regulatory Framework and Incentives: Nigeria provides investment guarantees, tax exemptions, full protection and rights to investors and is signatory to all major multilateral and bilateral investor protection agreements. The Nigeria Investment Promotion Act and the Industrial Development (Income Tax Relief) Act provide incentives and guarantees for investors. The Government of Nigeria has declared agriculture a priority/pioneer sector with the attendant tax exemptions.

Economic Growth: Nigeria is largest economy in Africa. The Government is committed to economic growth through private sector development, and has attracted the highest level of foreign investment in the whole of Africa.

Growing Fast Food & Noodles Industry: There is a growing market for frying oils with growing fast food and noodles industry. It’s been estimated that the demand for vegetable oil in Nigeria increased at a rate of 7% annually between 2012 and 2016; however, the production of oil palm has increased only 1% – 2% per annum during the same period. The wide gap between demand and supply of oil palm in Nigeria offers huge market opportunity. 90.0% of palm oil is consumed by food industry and the remaining 10.0% is used by the non-food industry. Foods like noodles, vegetable oil, biscuits, chips, margarines, shortenings, cereals, baked stuff, washing detergents and even cosmetics thrive on palm oil. Noodle industry alone consumes 72,000 MT of imported palm oil and the leading domestic palm oil producers fail to meet this demand. Thwarted by unavailability of sufficient oil palm in the Nigerian market, some noodle-makers have proactively announced strategic alliances to invest in oil palm plantations.

Import Duty: A 35.0% import levy on Crude Palm Oil offers investors in the Nigerian oil palm industry a significant competitive advantage. The Government of Nigeria has resorted to prohibitive measures to shielding the plantation companies and local producers from competitive imported Crude Palm Oil.

Cheap Labour Costs: The current minimum wage is set at approximately US$50/month.

Input Costs: all imports of capital, machineries, fertilizer, etc., are duty-free and VAT-free for investors.

Stable Political Environment: Nigeria is one of the most open and stable democracies in Africa. Elections are held every 4 years, with smooth transitions between governments.

Access to ECOWAS Tariff-Free Market: All producers in Nigeria have duty-free access under the Economic Community of West African State (ECOWAS) market regime. Under this arrangement, producers including oil palm producers and plantation companies are afforded preferential access to the ECOWAS market for exports from Nigeria. Custom duties do not apply. This is an incentive primarily geared towards free trade within the ECOWAS sub-region.

Proximity & Centrality: Nigeria is geographically situated at the heart of Africa. There is a large oil palm gap in the region which Nigeria is ideally located to supply. There is therefore longer term potential to supply global deficit markets. The country has proximity to markets in Europe, America and the Middle-East; with five major international airports: Abuja, Calabar, Enugu, Lagos, Kano, Port Harcourt, Uyo; and five seaports: Apapa, Calabar, Port Harcourt, Tin Can Island, Warri. Additionally, two seaports with free trade zone facilities are currently under construction at Ibaka and Lekki.

Outgrower Development Costs: various donor and NGO programs are available to assist with training & inputs.

Several Universities and Research Institutes ensure robust skill supply for the oil palm agribusiness development, whether for the upstream, midstream or downstream subsectors:

  • Nigerian Institute for Oil-Palm Research (NIFOR)
  • Michael Okpara University of Agriculture, Umudike
  • Obafemi Awolowo University, Ile-Ife
  • University of Agriculture, Abeokuta
  • University of Agriculture, Makurdi
  • University of Calabar, Calabar
  • University of Nigeria, Nsukka
  • University of Uyo, Uyo

PIONEER STATUS AND TAX CREDITS
Government has ambitious targets for the agriculture sector and the sector enjoys Pioneer Status with attendant tax exemption to all agro-allied companies. There are large investment incentives bagged by enabling laws and supported through the Ministry of Trade and Investments, Nigerian Investment Promotion Commission and the Ministry of Agriculture. For a complete list of the incentives, please click here.

GOVERNMENT SUPPORT AND INTERVENTIONS
In July 2016, the agriculture ministry released a new roadmap for the sector entitled the Agriculture Promotion Policy (APP). The target of the APP is to double the growth rate of agriculture against overall GDP growth on an annual basis from 2016 to 2020. The new policy is building upon the successes of the Agricultural Transformation Agenda (ATA) under the previous administration. The ATA brought about reforms in input delivery. The Growth Enhancement Support (GES) Scheme, agricultural financing, value chain development, including the Staple Crop Processing Zones, and farm mechanization yielded abundant gains to farmers and the country at large.

According to the Ministry of Agriculture, national food production grew by 21 million metric tonnes between 2011 and 2014, leading to a sharp reduction in food imports. In addition, Nigeria’s food import bill declined from US$21.2 billion in 2011 to US$4.23 billion in 2013.

The President of Nigeria launched the Anchor Borrowers’ Programme (ABP), an initiative of the Central Bank of Nigeria (CBN), which links over 600,000 smallholder farmers with reputable large-scale processors with a view to increasing agricultural outputs including oil palm and improving capacity utilization of integrated mills.

Government of Nigeria’s long term goal is to return Nigeria to being a net exporter of palm oil. PZ Wilmar signed an MoU with the Nigerian Institute for Oil Palm Research (NIFOR) in 2016. The MOU covers research and development, capacity building and knowledge sharing on innovative ways of driving the palm oil industry forward.

One of the social intervention programmes planned by the Government of Nigeria involves feeding primary school children between the ages of 5 and 13 years under the National School Feeding Programme. To achieve this, it has contracted companies to produce biscuits for an estimated 25 million children. Since palm oil is an ingredient used in making biscuit, this programme is expected to provide a boost to the domestic palm oil industry.

Thus, the government is now focusing on increasing the area under oil palm cultivation and also to improve the yield per unit area. The government is taking conscious strong measures to revive the industry. It has rolled up its sleeves to increase considerably the land under cultivation and also is all set to increase the per hectare production. The target is to increase production to meet the domestic demand and curtail imports, in the near to medium term.

Some of the companies participating in the oil palm sector in Nigeria include Okomu Oil, Presco, UAC (Tiger Brands), Olam, PZ Wilmar.