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Analysis Of Savings And Investment Strategies Among Cassava Processors
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CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND OF THE STUDY
In Nigeria, agriculture has remained the largest sector of the economy. It generates employment for about 70% of the population and contributes about 40% to the Gross Domestic Product (GDP) with crop accounting for 80%, livestock 13%, forestry 3% and fishery 4%. Agriculture accounts for over 70% of the non-oil export and provides over 80% of the food needs of the country (Adegboye,2004). Nigeria has a total land area of 98.3milion hectares, but at present, only about 34 million hectares or 48% are under cultivation. Agriculture in Nigeria is practiced at subsistent level and is characterized by numerous farmers operating several scattered small and fragmented plots of land using traditional methods such as land rotation, bush burning with the use of crude implements like hoes and cutlasses. According to Olawepo (2010), the majority of the rural populace in Nigeria either depends entirely on farming and farming activities for survival and generation of income, or depends on other non-farming activities to supplement their main source of income. Over 90% of the country’s local food production comes from small-scale farms. About 60% of the population earnstheir living from these small farms which are usually of the size of about 0.10-5.99 hectares (Olawepo,2010). It could then be seen that most farmers have limited resources, a factor that limits their productivity, income, savings and investment. In the midst of all these, farmers have resulted to a number of means to enhance their production and also to improve their well-being socio-economically. These options includes pooling their resources and working together as members of cooperative societies, through the use of loan and other services from microfinance or community banks; making daily, weekly or monthly contributions through the formation of small savings and thrift groups like Ajo-dida and Esusu or employing the method of risk diversification by engaging in the trading of other non-agricultural goods or in processing or value addition of agricultural produceinto finished goods with longer shelf-life as agro-processors – those into the process of producing or sourcing for agricultural produce and converting them into finished goods for consumption. In Nigeria, where rural farmers account for over 80% of the farmers in the country and produce 95% of the domestic food production in the country (Olashore,1998; Yusuf,2000), majority of rural households are small-scale farmers and as such, a significant part of their non-farm income comes from small and medium enterprises (SMEs). Rural entrepreneurs are characterized by poor access to credit, poor savings rate, risk and uncertainty, poor weather condition, focusing of information on technology and not on pricing. The inability of rural entrepreneurs to access credit has restricted their potential to expand their enterprises especially in diversifying into non-farm activities and end up with low income and hence, poor savings (Albu and Scott,2001). This has led to low standard of living and inability to break the vicious cycle of poverty for the rural dwellers. Savings is normally considered in economics as disposable income minus personal consumption expenditure. It could also be regarded as income that is not consumedimmediately by the purchase of goods and services. According to Azhar (1995),savings may be made in kind such as jewelry, land, livestock or dowry. It may still be in the form of currency notes deposited in banks or more often be hoarded. Savings are very imperative for supporting and developing rural industries. They provide several benefits for households. Directly, saving could be used for investment. Indirectly, saving indicates repayment ability, also increase credit rating and as collateral in the credit market (Brata,1999). Savings is both a risk management strategy and determinant of magnitude of investment but its determinants and mobilization strategy are controversial issues in literature (Mkpado and Arene,2010). Ayanwale and Bamire (2000) claimed that saving behaviours of farmers in developing countries is less dependent on the absolute level of aggregate income, but more dependent on other factors on the relationship between current and expected income, the nature of business, household size, wealth and demographic factors like age. Adeyemo and Akala(1992),for instance, showed that there is a high degree of responsiveness of savings to change among fishermen in the riverine areas of Nigeria. On the other hand, investment could be considered as an act of laying out money in return for a future financial reward or the sacrifice of something now for the prospect of later benefits (Ajayi,1998). According to Olofin (2001), investment is any form of producer durable that is capable of contributing to the production of goods and services. Investment spending or expenditure to him would be any form of outlay, either by individuals or corporate units as firms or institutions such as government, for the purchase of such durables. Therefore, investment in their context refers to the purchase of real tangible assets such as machines, factories or stock of goods and services for further use as opposed to present consumption. Investment is a process of exchanging income for assets or converting forms into productive economic unit based for higher return or higher rate of economic value in future period for the purpose of gaining income. Odoemenem(1991),however, was of the view that small scale farmers invested their savings in two major areas; the agricultural and non-agricultural sectors. Investment in the agricultural sector or farm activity includes the purchase of fertilizer and chemicals hired labour and buying more land for farming while non-agricultural sector are mainly centered on education, trade expansion, building houses, dowry obligation and purchase of durable assets. In line with the above concepts, savings and investment in the rural economy appear to be in monetized and non-monetized forms. This could be attributed to the subsistent nature of the economy. This further implies that for any meaningful investment to be obtained, a sound saving mobilization has to be pursued. Although, when the increments and funds are spent on household expenditure, farming economy and economy growth tend to be jeopardized,adequate integration of savings and investment programmes into development strategies are capable of improving resource allocation, promoting equitable distribution of income and reducing credit delivery and recovering cost. The government, armed with the awareness of the contribution of savings and investment strategies among farmer cooperatives, agro-processors and SMEs to the economy, have been encouraged to establish programmes involved in loan schemes such as Family Economic Advancement Programme (FEAP), Cooperative Federation of Nigeria (CFN), Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) amongst others.
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