Nigeria records mixed success since FX restriction on 43 items
The story of Grif, Federated Steel, Universal Steel and other wheelbarrow and aluminium drum manufacturers should serve as a lesson to Nigerian monetary and fiscal policy authorities.
These companies had been known for producing aluminium drums and wheelbarrows in Nigeria over the years, employing
hundreds of workers.
Today, the entire subsector is comatose as many exited between 2016 and 2018, sacking all their workers. Their exit is attributed to their inability to access the most important raw material – annealed cold rolled steel – due to foreign exchange restriction.
The Central Bank of Nigeria (CBN) and the Ministry of Industry, Trade and Investment had been convinced that Western Metal Products Company (WEMPCO) had the capacity to produce annealed cold rolled steel and sell to other downstream manufacturers who needed it for production of aluminium drums, wheelbarrows and other similar products.
Due to lack of due diligence and consultation, little effort was made to determine WEMPCO’S capacity. Industry players were perplexed that the decision to restrict annealed cold rolled steel from the FX market was taken because of just one company which claimed to produce the raw material. WEMPCO was accused of importing 90 percent of the product and in turn selling to downstream players who were not allowed to import.
For months now, WEMPCO is neither producing nor supplying annealed cold rolled steel and a number of downstream companies, including Wahum, cannot have access to the input and so risk closure.
All the industry players who spoke with Businessday over the weekend said the steel sector does not have the capacity to satisfy the local demand in most of the items on CBN’S list, including galvanised steel sheets, head pans, metal boxes and containers, wire mesh, and steel drums.
Nigeria imports roughly 7.1 million metric tonnes of steel annually, spending $3.3 billion a year.
Eighteen of the 30 functional steel firms in Nigeria produce about 2.2 million tonnes a year with scraps and billets imported mainly from China. Manufacturers told Businessday that there is no new investor or evidence of any change in this number in four years since the FX restriction.
Oluyinka Kufile, chairman of Qualitek Industries, a roofing sheet maker, told Businessday that most manufacturers claiming to manufacture many of these products rather import them dubiously in the name of other items.
He pointed out that essential steel raw materials have had their duties increased from 15 to 45 percent since 2015, while some finished steel products are now imported at 15 percent duty.
Now enters palm oil, which is one of the items on the list. Ever since the restriction in 2015, importation has not ceased.
At a stakeholders’ meeting on the palm oil value chain in Abuja in March 2019, Godwin Emefiele, CBN governor, said Nigeria spends $500 million on importation of palm oil. Nigeria’s production of palm oil has risen from 930,000 metric tonnes capacity to around 1.1 million tonnes, Henry Olatujoye, national president, National Palm Produce Association of Nigeria (NIPPAN), told Businessday in 2018. But demand is still high at 2.1 million tonnes. In other words, there exists a gap of 1 million metric tonnes. As a result, Malaysian and Indonesian palm oil is increasingly smuggled into Kano through Benin Republic.
“Visit any supermarket or traditional market in Nigeria and you see that plenty of imported vegetable oil, which is banned in the country, are easily available. The leading domestic refineries in Nigeria are facing a crisis and many in the country are not operational,” Santosh Pillai, managing director, PZ Wilmar, complained in 2018.
Food and beverages companies using palm oil as input are also not finding it easy.
Nigeria ranks third in the world in terms of land area planted with oil palm, but it is only the fifth largest palm oil producer due to low yields. Much of Nigeria’s oil palm cultivation is grown by small-holders who grow oil palms – a specie native to West Africa – with other crops rather than the industrial oil palm plantation approach seen in Southeast Asia and Latin America, according to a Bloomberg report.
“Does it make sense when your factory stops because you don’t have the raw materials?” asked Mauricio Alarcon, CEO, Nestle Nigeria plc, at the 2019 Businessday Agribusiness and Food Security Summit.
For him, the question of investing in the production side of agriculture is not whether it is profitable, but if it makes business sense in the long term.
Nigeria has a deficit across every type of food produce. In fact, the Agriculture Promotion Policy released in 2016 showed a 20.14 million MT deficit across 13 major crops and 60 million poultry bird deficit. Three years later, with the rapidly growing population, this deficit has increased substantially, say experts.
Though tomato is still one of the 43 items, industry players say its case has worsened. About $360 million is still spent on import of tomato paste. Industry players estimate that the number has risen to $1 billion. Much of the paste that comes into Nigeria is smuggled through Contonou. Local industries are not faring better, with Dangote Tomato just reopening its Kano plant. Others are either not functional or operating below 25 percent capacity.
Tomato growers continue to complain of huge losses every year, whereas processors equally operate haphazardly due to inconsistency in supply. The market and supply chain inefficiencies remain a stumbling block to ensuring backward integration in that industry truly works.
Nigeria is the 14th largest producer of tomato in the world, while 45 percent of its annual production still gets wasted as a result of improper preservation and bad handling practices.
In terms of rice, importation into Nigeria through the ports has declined by over 96 percent, officials say, but smuggling from Benin Republic through the numerous porous borders is now a big business.
Furthermore, manufacturers told Businessday that restriction of glass from the FX market was a poor decision as only one company in Benin produces windscreen.
Textile is on the list even though the number of textile makers is less than four. There is no evidence of improved local production and new investments in textile production, industry players say.
In fact, most of the socalled textile makers are producers of rugs, handkerchiefs, and towels.
The World Bank estimates that textiles smuggled into Nigeria through Benin Republic are valued at $2.2bn annually, compared with local Nigerian production, which has dropped to $40m annually.
“The textile industry has been a beneficiary of several fiscal incentives and protectionist measures over the years, yet it has remained in stagnation,” Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry, said in a recent statement. “Some of them have even gone into receivership as they could not repay their loans. The lesson is that we should deal with the fundamental issues of production competitiveness in our economy,” he added.