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No respite for manufacturers as FG’s backward integration flops

industry

By Bimbola Oyesola

Fourteen months after the present administration commenced its Backward Integration Policy (BIP), it seems the Federal Government may have missed the mark as the programme, expected to drive the economy, so far has had little impact so far in the face of recession.
Just last month, two giant manufacturers in the food sector, Erisco Foods Limited and Dangote Industries Limited, threatened to shut down their factories, though for different reasons. Erisco had complained of lack of foreign exchange to support his tomato paste factory and subsequently issued a 30-day ultimatum to the Federal Government. The company finally made good its threat a fortnight ago, when it announced the shut down of its $150 billion plant and the relocation to China.
The Chief Executive Officer, Erisco Foods Limited, Chief Eric Umeofia, said he was moving the factory to China where he already has a thriving business, adding that from there, he would be manufacturing and exporting tomato paste back to Nigeria, as it was far cheaper doing so than producing locally.
With this development, about 1,500 employees of the firm are expected to be retrenched in a process that will span six to nine months, as the company relocates. The company said the retrenchment, which will take place in batches, had already commenced with the first batch of workers being sent home.
The Group Vice President of Dangote Industries Limited, Alhaji Sani Dangote, also last month said the group had stopped tomato paste production at its $20 million factory established in March this year.
Dangote Industries Limited said it was stopping its Nigerian process due to harsh business environment. In fact, the Group Vice President Sani Dangote, said the company had already stopped producing tomato paste due to insufficient consideration for foreign exchange.
The company said as a result of this, it is finding it difficult to pay farmers whom it bought raw materials from and unless there was urgent help from the government, closure was inevitable.
Nevertheless, while Erisco complained about lack of forex, Dangote’s complaint was the lack of execution of the Federal Government’s resolution to ban the importation of tomato paste. Dangote said that Ministries, Department and Government agencies were dragging their feet in addressing the issue while precious forex was being used to import tomato paste.
For Dangote, its desire is for government to put up a policy, which will support its production of tomato concentrate for industries that are into packaging.
The two companies are among those that bought into the idea of government’s backward integration to source materials locally. For Erisco, the forex sought for was for the purchase of machinery to enhance its expansion as production on a large scale is what can ensure continuity in business.
Precisely two months after President Muhammadu Buhari’s administration was sworn in May last year, the Central Bank of Nigeria (CBN) came out with a list of 41 items, which cannot access foreign exchange through its window on the consideration that such items, mostly raw materials, could be sourced locally.
However, in the last one year, the Manufacturers Association of Nigeria (MAN) reported that 58 members of the association had closed down due to the unavailability of raw materials, a fall out of forex restriction from the Federal Government. In the same vein, over 220 Medium and Small scale Enterprises (MSMEs) had equally shut down. The closures also have resulted in over 4.5 million workers being forced into redundancy.
Backward integration policy in retrospect
Backward integration, a practice where companies are encouraged to cultivate or source their own raw materials by contracting out to suppliers or establishing farms to grow produce for their factories, was first initiated in 2002 but gained momentum in Nigeria following the crash in crude oil prices, which started in the fourth quarter of 2014.
When the BIP policy was mooted in 2002, it was in a bid to deliver the country from over reliance on imported raw materials in cement and breweries. The policy then  demanded that cement import licenses be allocated only to importers who show proof of building factories for local cement manufacturing in the country. Before then, despite the huge demand for cement in Nigeria, domestic production was unable to meet the demand, hence the country relied on importation of cement to meet domestic construction needs. Incentives under the policy include waiver of Value Added Tax (VAT) and Customs duty for importation of cement production equipment. Following the implementation of the BIP, all the existing moribund government-owned cement plants were privatised, while the private sector installed additional production and bagging capacities. Before the policy, Nigeria had an installed capacity of 4.03 MMTPA but producing only 2 MMTPA. However, the country now produces 28 MMTPA with a total installed production capacity of 45 MMTPA and bagging capacity of 27.7 MMTPA, while additional 14 cement production plants of various capacities are under construction.
Former Minister of Trade and Investment, Mr. Olusegun Aganga, said the BIP in the cement sector provided investment of about $6 billion, direct and indirect employment for about two million people.
According to the him, there was no industrial policy that has been as successful as the BIP in the cement industry, which implementation had saved the country foreign exchange of about N210 billion per year.
Once a net importer of cement, the BIP and government support in the cement sector had resulted in a huge success, changing Nigeria from a net importer to an exporter of the product. Nigeria’s industrialist, Alhaji Aliko Dangote, has even gone beyond to establish plants in other parts of Africa.
Dangote at this year’s MAN Annual General Meeting (AGM) in Abuja further affirmed the progress in cement BIP when he explained that from December this year, all his cement companies would source all their raw materials 100 per cent at home. The BUA Group shared part of the cement success story and said as part of its strategic plan to effectively implement government policy on backward integration of the manufacturing sector of the Nigerian economy, it has since embarked on rapid expansion of its sugar plantations in Kwara and Kogi states.
Challenges
However, the same success story is not being replicated in other sectors despite the fact that stakeholders in those sectors have tried to adhere to government’s policy.
BUA Group’s integration on sugar is still in progress. At the moment, the company said extensive work is ongoing in Lafiagi, Kwara State, with over 20,000 hectares, while it also has another 50,000 hectares of farmland in Bassa, Kogi State. These two operations form the fulcrum of its BIP for sugar and it is believed that this will further reduce the country’s dependence on imported raw sugar while supporting the value chain in sugar production within Nigeria.
Manufacturers in the flour milling sector have also been taking steps to increase the tempo of backward integration in recent times. Flour Mills of Nigeria Plc, for example, has invested in Thai Farms and other agricultural projects.
Investigation revealed that despite the challenges of meeting factory demand thereby necessitating importation, the company has been able to reduce importation of raw materials by over 50 per cent. Another company of note, DUFIL Prima Foods Plc, a key player in the Nigerian culinary industry, was equally reported to have embarked on strategic backward integration to ensure 100 per cent local content in most of the products being produced by the company.
This move includes the establishment of a seasoning plant, flour mills, an oil refinery and a palm tree plantation under the Edo State government agribusiness revolution scheme.
In an effort to boost the local production of palm oil, the company has also acquired and signed a Memorandum of Understanding (MoU) with the Edo State government for 60,000 hectares of land for cultivation of palm trees, which will help in boosting local production for palm oil, thereby bridging the supply gap of palm oil within the country.
In contrast, the tomato sector and a few others still depend on imported raw materials. With an abundance of tomato fruits all year round, technology has proved a great hindrance in producing concentrates locally and manufacturers groan as scarcity of forex inhibits importation of tomato concentrates.

Stakeholders’ position
‎Stakeholders, however, argued that though manufacturers have indeed keyed into the government agenda, but that it has been a frustrated effort all the way, plagued with the problem of poor infrastructure, mostly roads and power, among others.
MAN President, Frank Jacobs, noted that there has been about 45 per cent compliance from his members since the policy was introduced, adding that a company like PZ now sources its palm oil locally. He noted that government using the success recorded from cement and sugar as a yardstick for others has been the reason for the failure.
“It is true that the government is using the success in the cement BIP as yardstick, but how about the incentives given then? The present government is not doing that,” he said.
The MAN President said the sector was disappointed that even Erisco and Dangote that had tried to record some level of success had to back down due to government negligence and policy.
Maintaining that government would need to reconsider its hard stance on the 41 items, else many more casualties would soon follow.
Jacobs noted that given the needed support, Nigeria can save N11.7 billion on importation annually and become a leading exporter of tomato concentrates, but lamented that with the porous border manned by the Customs, this would be ‎difficult to achieve.
He insisted that government still needs to give grace of 18 months window to manufacturers of tomato to move the sector forward.
He said, “backward integration is paramount on the mind of tomato producers and other manufacturers, and it would be ideal to support them to actualise this ambition for the good of our economy. As you well know, once this is actualised, jobs would be created and, more importantly, exports would start to happen because Nigeria has the potential to become leading exporter of concentrates if given the prerequisite support. Even if government can give only one year‎, within this period allow those companies who have invested in the sector to import concentrates needed for production so that the factories can stay open and people can remain in employment. I’m sure that even some that have closed down would be resuscitated.”
The Director General of the Nigeria Employers Consultative Association (NECA), Segun Oshinowo, believes that government needs convergence and coherence of its fiscal and monetary policy if it must succeed in its new BIP.
He shared the same view with the MAN President that the policy cannot be saddled upon ‎the manufacturers as a microwave policy but rather they must be given time to implement it.
He said, “there ‎is need for basic information about a particular sector and the existing plan for meeting national consumption. With that, we would be able to determine how long it would take within appropriate time frame just the way cement was done, but that benchmark is not being followed now. What we have now is rhetorics.
“Diversification would require some foreign exchange. Let’s look at tomato paste; the machine is not manufactured here. For that, are you going to create concession? What programmes are in place to support those producing raw materials, the structure, methods. Nobody is looking at the intricacies. For example, rice; we need to know national consumption, identify quantity that is available now and the gaps. We lack that framework.”
Oshinowo warned that the problem at hand calls for dialogue with stakeholders to share their thoughts rather than fiat or a sovereign manipulation or enforcement of draconian policies.
“What we are seeing more is sovereign power being wielded but this will only lead to creation of crooked avenue for those who will fill the vacuum illegally and this is what ‎is happening with rice,” he said.


Plantain chips packaging as viable income stream

Plantain chips is one of those snacks that never go out of fashion.  Every year, about 4,575 tonnes of plantain chips are produced, while demand for the snack is about 5,250 tonnes. The production cannot meet the demand.
For most Nigerians, it is a snack that comes handy to fill up before one can sit up for a proper meal. The opportunity of earning foreign exchange from it is equally limitless as Nigerians in the Diaspora also crave for it. Plantain chips are probably the fastest moving consumer goods in Nigeria after bottle and sachet water. Plantain chips production, however, is one of the easiest businesses you can start in Nigeria if you want to generate quick cash right at home. The raw material for the production is also easier to get and more so now that it is in season, it comes in cheaper and handy.
The start-up capital requirement is low. You don’t really need to rent a shop and plantain is readily available in the country, especially in the South/middle belt regions of Nigeria.
With an initial start-up capital of N15,000, you can generate income of at least N10,000/day when you are able to produce 1,000 packets of plantain chips on a daily basis. The street price for a small nylon pack of plantain chips sells for as much as N100 in Lagos and in other parts of Nigeria. Plantain chips production is actually not new but the opportunity therein is inexhaustible now, with Federal Government drive to promote exportation of locally made products.
Nigeria is one of the largest plantain producing countries in the world. In 2012, Nigeria had a plantain production of 2,800,000 tonnes, which ranked 6th in the world with a share of 7.5 per cent. Its 456,000 hectares harvested area accounts for 8.4 per cent in the world, ranking the second after Uganda. States of the country producing plantain include Lagos, Ondo, Ogun, Oyo, Oshun, Ekiti, Edo, Delta, Cross River, Akwa Ibom, Imo, Bayelsa, Abia and Ebonyi.
These are steps to take for the interested entrepreneur:
Capital
As said earlier, with an initial capital of N15,000 you can comfortably start the business.
Equipment
Plantain chips cutter or table knife; big frying pan; portable nylon sealing machine; gas burner or kerosene stove and weighing scale.
Production materials
Some bunches of ripe or unripe plantain; vegetable oil; table salt; sugar; plain packaging nylon or customised nylon; printed label.
Production process
Peel the back of the plantain (ripe or unripe).
Cut or slice the already peeled plantain into small chips using your kitchen knife or plantain cutter.
Add some quantity of table salt or sugar depending on what your customers will like.
Light your stove or gas burner, place your big frying pan and then pour in the vegetable oil to get hot.
Start putting some quantity of the sliced plantain into the hot vegetable oil to fry till they become slightly golden brown colour before you strain them out and allow to cool.
Packaging
Now you can start weighing the already fried plantain chips in 50gs measures and then pack into your customised or plain nylon with printed labels and get it ready for the market.
Marketing
With a population of over 170 million people, Nigeria has a large market for plantain chips. People in urban and semi-urban areas are the main consumers. You can start making money instantly as you introduce your plantain chips to relatives, friends and neighbours. Also, you can introduce your products to the numerous provision stores and schools in your area; these are the places you will find people who will buy from you consistently. Hotels, restaurants, canteens and army establishments will also provide a large customer base requiring chips in significant quantities.
On the packaging nylon, it is important to print your product name, address and phone numbers for easy contact by those you will want to start supplying your product in large quantities here in Nigeria and outside the country.

Source: Trending news today

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