We came across a viral whatsapp message supposedly on the critical points from a webinar session of Lagos Business School (LBS) on what the economy might look like after the CONVID-19 lock-down. The message contains some key points from the LBS session. The points included many issues that you may wonder how they affect the price of Garri in the market, but there was an aspect that really got us thinking.
We were intrigued to hear that the agricultural sector may not be a very safe place to invest in the coming months. This is interesting because the sector was largely unaffected during the Nigerian recession of 2015-2016 but we had our concerns on the impact of the corona virus on the agricultural value chain, as we had seen information about food stuff being stuck at locations and having to be destroyed due to low demand and no storage space. The oil industry is currently (at the time of writing this article) being affected by low demand and not enough storage facilities, which could lead to suspending crude oil production.
The First issue is that local demand for agricultural products have gone down drastically, with many restaurant, hotels and other leisure centers closed down. Movement was also being restricted interstates in some regions but there is a fear it could escalate in coming weeks if the virus spreads even further.
Agricultural exports are not exempted from the wahala, since many countries have placed restrictions on movement of imported goods to curb the spread of the virus. More so, we lack the adequate storage facilities to preserve the quality of local produce that could make it for for human consumption when normalcy returns. Otherwise, a substantial part of the country’s farm outputs during this lockdown could go to waste, if it does not reach the markets and get sold.
Hopefully, President Buhari will lift the lockdown order by May 4th, but things are not likely to return to normalcy anytime soon. The president has announced that there will continue to be a curfew from 8pm to 6am in Lagos and Ogun, even after the lockdown order is lifted; and a full lockdown for a month in Kano state where there has been a spike in deaths with no confirmation on whether or not, the deaths are related to the virus. This means consumers may not consume Isi-Ewu, Cat Fish Pepper Soup, Asun in public places on weekends as is popular prior to this time. People are now generally skeptical about eating outside to stay alive.
After considering all these wahala, we thought of the operators of various Agric Crowdfunding Platform as well as the sponsors (investors). The investors are promised a guaranteed interest on their investment, but will these operators be able to continue to pay the principal and interest if they struggle to complete their farming-investment cycle, which includes the sale of the farm produce ?
We understand that the actual farming cycle for some produce is actually shorter than that advertised but what happens is the funds received are utilized for several cycles, so ensure the promoters, farmers and the investors all can benefit from the funds received. If this happens, it may give room for some operators to minimize losses and even better, for they saved some fo the funds received for the ‘raining day’ that has now arrived.
Most of the crowdfunding operations are reportedly insured and investors are assured of recouping their capital if something goes wrong with the farm output. However, it will be interesting to know if the insurers will be willing to compensate the investors for difficulties in selling the farm produce, because the issue on ground seems to be different from the risk originally insured. In fairness to the platform operators, nobody ever thought something like CONVID-19 would happen.
Therefore, the agric. crowdfunding operators may start having difficulties in paying back principals and interest. There are suspicions that some operators in the crowdfunding space are already operating like Ponzi scheme, whereby they use money paid by new sponsors to pay the existing sponsors. I am not aware of any proven case though. It is also possible that the ‘loans’ from investors are paid at a later date after some negotiations to allow the farming value chain successfully conclude their cycles.
Nevertheless, the Securities and Exchange Commission (SEC) has already prepared a set of guidelines for regulating the crowdfunding sector. These guidelines are meant to protect investors from sharp practices by some bad eggs within the crowdfunding space. One provision that really makes sense to me is the requirement that retail investors will not be allowed to invest more than 10% of their portfolio in any crowdfunding offer.
The purpose of this provision is to minimize the negative impact of any loss from such investment on the investors, especially as most retail investors are not as informed and aware of best practices in managing their investments. Investors should not focus on the expected profits only, but they should take the necessary steps to understand the risks related to every potential investment. If for any reason, some of the agric-tech platforms are unable to pay as when due, and one has invested all their portfolio in such, one could be in a very difficult position.
Therefore, investments must not be made in isolation, we must consider other factors like: how long you want to invest? If you we want an investment that give constant a cash flow or one that grows in value with time? How much you can afford to lose? In conclusion, everyone needs an Investment Plan in order to have a coordinated approach towards achieving our financial goals.
It is therefore important to have proper advisory on investment and financial planning to tailor your investments to your unique circumstance, instead of buying into investments without a proper plan. Have you got one?