Brazil negotiates $1bn farm package with Nigeria

Assis Moreira
Brazil is negotiating a $1.1 billion financing package for the sale of farm machinery and equipment to Nigeria to serve as a pilot project and face China's competition on the African continent.
China provides financing advantages in Africa with interest rates of 2% and a 20-year repayment term. However, Nigerian sources complain that the Chinese sell their cheap machinery and equipment and then “disappear.” Nigerians do not know how to operate them accurately or how to keep their equipment running, and in a year or two they become a problem.
Ricardo Guerra de Araújo, Brazilian ambassador in Abuja, says that the Brazilian package comes with a broad business plan to boost agriculture in general, and a financing structure linking forces from state and private-sector banks.
"What sets us apart from China is that Brazil is proposing a business plan that covers the entire value chain, from assembling equipment on Nigerian soil, training to those who will operate them, local assembly, providing fertilizers, seeds, pesticides, marketing and sale until reaching consumers," Mr. Araújo says.
The package, which negotiators expect to be concluded by the year’s end, initially includes the sale and local assembly of 20,000 machines and equipment. Korean company LSTractor, which operates in São Paulo, plans to set a tractor assembler in the state of Bauchi.
Negotiations between the two countries now revolve around the interest rate. The idea is that the Brazilian Development Bank and commercial banks extend the loan in euros so the rate is more “acceptable” to Nigeria. The Libor rate in euros is around 0.5% compared with the Libor in dollars of more than 2%.
The loan will have a 13-year term, with a three-year grace period. The Islamic Development Bank and the Brazilian Guarantees and Fund Management Agency (ABGF) are expected to provide the collateral.
The Committee on Export Financing and Guarantee (Cofig), body of the Foreign Trade Chamber (Camex) that approves this type of financing, will discuss the Nigerian package at the end of this month.
The farm business plan for Nigeria was prepared by Fundação Getulio Vargas. The business school carried out a feasibility study on the Nigerian agriculture, mapping equipment sales, increase of productivity, provision of services, among other factors.
For Nigeria, with a population of 200 million and Africa’s largest GDP, the challenge to ensure food security also goes through the strategic partnership with Brazil in the agricultural segment.
Instead of agreements with Chinese or Americans, cooperation with Brazil is welcomed even because the two countries have the same type of climate and soil, for example. Nigeria also wants to replicate state-owned research company Embrapa's model of agricultural research.
The Nigerian government initially wanted to make a far more ambitious farm investment package, totaling $10 billion. But Brazil recommended the country to start slowly.
At stake is not only this Nigeria project, but also the export of this business model to other African countries in the competition with the Chinese.
Rather than just selling commodities, with the plan Brazil could expand exports of industrial, added-value products.

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