Crusoe Osagie examines the story of Dansa Foods Limited, the drinks making arm of Dangote Group and concludes that what a nation like Nigeria needs to achieve reasonable level of industrialisation is the formulation, implementation and sustenance of so called protectionist policies
Nigeria remains largely uncompetitive in the processing and manufacturing of most of the products it consumes. The nation is blessed with huge hydrocarbon deposits. It manages to extract crude oil and gas with the support of the International Oil Companies (IOCs) but that is where it ends. No value is added. The crude oil is sold in the international market exactly the way it is extracted and most of the proceeds used to import crude oil derivatives such as gasoline, diesel, kerosene among several others.
It is largely the same story for cocoa, cassava, vegetable oil, solid minerals, and so on.
A lot of reasons have been given for this unfortunate position. Lack of human capital, dearth of infrastructure, lack of technical know-how and harsh operating environment are some common culprits. Some of these variables can be hardly controlled significantly but others are firmly under the control of the nation’s economy managers.
A good example of a variable that can be controlled is the operating environment. Tariff regimes, trade policies and foreign policies are the preserve of our government. Government can either choose to regulate these variables in favour of local producers or producers from other countries who jostle daily for the Nigerian 140 million people strong market.
The Dansa Juice Success Story
Today, there is a Nigerian company that boasts to be one of the largest drinks producers in Africa. It is a subsidiary of Dangote Group and it is called Dansa Foods. Interestingly, this massive manufacturing success in Abule Osun area of Lagos state is the outcome of a single government policy.
In 2002, the federal government placed an import ban on packaged fruit juice and lowered to five percent the tariff on fruit juice concentrate ; the major material needed for the production of fruit juice.
Government then under former President Olusegun Obasanjo noted that "Nigeria decided to ban all imports of ready-to-drink fruit juice. The restrictions were designed to help local industry compete with foreign goods. Fruit juice can be brought into Nigeria only in concentrate form and in drums but not in retail-finished product. Not in retail packs, ready to drink. So, if you want to import fruit juice, it must be in drums, so that it can be packed in Nigeria so that there will be value added and this will generate employment, generate income."
This singular policy created Dansa Foods, now arguably one of the biggest juice makers in Africa.
Available statistics indicate that since the ban, local demand for fruit concentrate has risen from 1.5 million kg in 2002 to about 30 million kg in 2007.
The demand for already packaged fruit juice products like Dansa Juice and other brands, was then estimated at slightly more than 200 million litres and about 95 per cent of this was imported before the ban was placed on the finished product in 2002.
Consequent upon the ban, investment in fruit juice processing activities increased rapidly in order to meet domestic demand.
Dansa Foods Limited, the beverage and juice manufacturing arm of the Dangote Group, has now unfolded an ambitious developmental and marketing plan, which is targeted at lifting the market share of the company in the now competitive industry.
The company already has 400,000 hectares of land in Calabar, Cross River, for its orchard farm where it farms fruits to meet its future plan for backward intergration. The move, Dangote Group said, was aimed at making the company self sufficient in local raw material sourcing for its entire product range.
Managing Director of the company, Mr Pankaj Kumar, told THISDAY, after a facility tour of the company’s plants that the farm was already in operation.
Kumar said that this would reduce the company’s dependence on imported concentrate juices, and produce adequate juice to feed the mills and also explore export market.
At present, he said about 20 per cent of the needed concentrate is produced locally. According to him, most juice companies are 80 per cent dependant on foreign inputs for juice processing, while 20 per cent of the raw materials is sourced locally.
He added that the company had commenced processing of pineapple juice from the farm to feed its mills, adding that arrangements had also been concluded to start the cultivation of other citrus species.
He said that Dangote was at the verge of enriching its products with more local juices.
Kumar said that beside the creation of jobs for over 20,000 unemployed, the company would also reduce the freight of foreign exchange and contribute to the poverty alleviation programme.
He said that the group conducted a survey in 2003 and discovered that there were increased demands in the Nigeria market for juices and soft drinks.
In line with this reality, Kumar said the company had concluded arrangements to launch the products to other neighbouring West African countries. Specifically, he said Dansa Foods will soon begin commercial packaging of its fruit juice range of products in Ghana, while full establishment of a manufacturing plant would follow in few months time.
Explaining the company‘s foray into the fruit manufacturing business, Kumar said that the federal government‘s ban on the importation of packaged juice products and beverage products in retail form propelled Dangote Group to invest massively in the sector. He said, ”These factors led to the entry of the company into the production of fruit juices and beverages in the country.‘‘
According to him, the company decided to partner with Tetra Pack for supply of equipment and maintenance of the ultra modern equipment to ensure production of quality products for the numerous customers.
“The factory is equipped with modern machine with an investment worth over N10 billion with 13 production lines and over 649 direct workers,‘‘ he said.
Kumar, commenting on the huge waste of fruits in the market, said that such fruits were meant for table consumption and could not feed a mill for two weeks.
He said that most farmers practised subsistence farming, which could not feed the mills for two weeks. He therefore, urged the federal government to harmonise a hybrid seedlings that could give high yield and consistent taste.
The company‘s Sales Manager, Mr. Prem Kanojia, said that the company would soon flood the market with low income products to meet the various classes of people.
He said the company recently launched its table water under the brand name of “ MOWA,” adding that it was manufactured under a highly automated plant without human being contact.
The sales manager said that the machine was capable of producing over four million bottles of water per month.
He said Dangote Group had increased from zero per cent market share to 11 per cent and targeted to reach 14 per cent before the end of 2010.
The Dansa story has several other mirror images in Nigeria and they are some of the few good stories in a nation fraught with a lot of tales of woe.
These would have been impossible without this policy, which developed nations in the European Union, United States, World Trade Orginisation and other multilateral institutions would label as protectionist and therefore bad. They say our policies should aim only at opening up our markets to be ravaged by the heavy weight of industrialized nations.
CBN Seeks Industrialisation
The Governor of the Central Bank of Nigeria, Mallam, Sanusi Lamido Sanusi recently stated that the surest path to Nigeria’s economic revival is the adoption of policies that protect Nigeria’s industrial sector from direct competition with industrial sectors of developed countries in the world.
Sanusi stressed that open market theories propounded and propagated by developed nations and multilateral financial institution holds little or no future for the advancement of the Nigerian economy and its real sector.
According to Sanusi, even the United States’ economy which is the biggest in the world had to rise up with protectionist policies to defend its steel sector against stiff competition from European steel sector.
“We have been told that we should not plan, we should not focus on developing our domestic capability, that we should open up our economy to free trade, that we should have free market and that we should continue to pursue them even when they have a comparative advantage,” Sanusi said.
“Nobody tells us that in the 19th century after the civil war, the first two head secretary Hamilton was the father of United State industrialisation. Nobody tells us and reminds us that England became an industrial power not just by focusing on industrial revolution but by using gun boats to expand and protect its market and protect its own industry against competition. Nobody reminds us that the French and the Germans and the whole idea of what they call infant industry or what the Germans call an educational change is the recognition of the reality that if you are going to fight a battle or play a game, a level playing field only being set when you are given an equal partner,” he stressed.
According to the nation’s apex bank boss, “if you set your under 15 football team to play against the senior football team of the United Kingdom on the level playing field with the same rules, you will lose because while the playing field is level, the constituents are not comparable and it is a responsibility of government to protect domestic production until that production is capable of competing on a level playing field.”
Conclusion
If just one policy intervention in support local manufacturing has transformed the entire economy so much through Dangote’s Dansa, then many such policies should not only be formulated but implemented and sustained. Like the governor of the Central Bank of Nigeria has pointed out, there may be no future for Nigeria unless we engage ‘protectionist’ policies that help us industrialise.