Sustainable Diversification, A Long Way Off

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Guest Columnist:  Sonni Anyang

Save for a newspaper editorial the recent closure of Dangote’s tomato processing factory in Kano has not attracted much public commentary – as far as I know.  But the unfortunate development and the reasons advanced for it merit extended examination, especially in the light of the optimism recently expressed by both President Muhammadu Buhari and CBN Godwin Emefiele, about the prospects of the economy going forward.

According to the Dangote Company, it has had to shut down its tomato processing plant because of unfair competition from Chinese imports that are largely smuggled into the country.  With the Nigerian market as their target, Chinese producers are said to have ‘crashed’ the price of the product by up to 50%.  Some of them have gone as far as setting up shop in at least one ECOWAS country, the better to access the Nigerian market.  Even retail packs are being smuggled into the country.  The five per cent import tariff imposed on tomato paste has proven ineffective in discouraging its importation.  So has the Central Bank of Nigeria policy of not selling foreign exchange for its importation (tomato paste is one of the 41 products on the CBN list of items that are not to be imported with foreign exchange from its coffers).  In the circumstance, of course, Nigerian tomato farmers are not getting prices that can keep them in business and are therefore unable to produce enough to feed the Dangote processing plant.

The successful and widespread processing of locally grown produce like tomato for local consumption is precisely the sort of outcome President Buhari expects from the policies of his government.  It is a mantra for the regime that Nigerians must produce what they consume and consume what they produce.  In this way, the country can cut down on imports, reduce pressure on its foreign reserves and insulate itself somewhat from the vagaries of the international market for crude oil.  The net result would be economic diversification, growth of employment and output as well as meaningful national development.

The government in fact, believes that such an outcome is already being achieved, going by the recent pronouncement of the Minister of Agriculture, Chief Audu Ogbeh.  According to Chief Ogbeh, the country is on track to self-sufficiency in a number of food products, including rice.  Central Bank Governor, Godwin Emefiele thinks so too.  In a recent speech to the Chartered Institute of Bankers, Emefiele credited extant policies with the resumption of growth and the relative stability of the naira that the country has witnessed in recent months.

In particular, the CBN governor said that the policy emphasis on the promotion of local production, exemplified by the restriction on the sale of foreign exchange from official sources for the importation of 41 items, has succeeded in bolstering reserves, which grew by over US$10 billion from US$23 billion in October, 2016 to US$33 billion by October, 2017.  According to him, the country’s average monthly import bill has declined from a high of US$5.5 billion to US$2.1 billion in 2016.  For the first half of 2017, average monthly import bill stood at US$1.9 billion.  He said further that Nigeria now produces many of the items on the famous list of 41 products that it used to import, including toothpicks.  He further told the bankers that we are so close to self sufficiency in rice production that Thailand, which used to export 1.2 million tonnes of the stuff to us, is now feeling the unsalutary effect of the 99 per cent decline in the volume of our off-take of its rice.  On the back of these positive developments, the CBN boss expressed optimism that if the present policies are maintained, our reserves should hit the US$40 billion mark next year.  That would of course, impact positively on the fortunes of the much-battered national currency.

Against the high hopes of the Buhari; government and the rosy picture of an economy on the mend painted by Godwin Emefiele, the collapse of local tomato production (for reasons other than nature-induced crop failure) and the Dangote retreat from local processing of the product, represent a significant setback.  Should the unfortunate development be generalised across many products, it might turn out that both the government and the CBN governor counted their chickens before they were well and truly hatched.  The situation with tomato may well be a warning that what we are trumpeting as successes in the pursuit of increased local production, diversification and value addition are not sustainable.

It is well known that Nigeria is not yet a producer’s paradise – by a long shot.  From agriculture to mining, processing of any sort and manufacturing, if the issue is production; all the usual suspects remain present and fully accounted for: inadequate or non-existent/functioning infrastructure, limited or no access to finance at costs that make competitive sense, limited application of modern science and technology, dependence on importation for equipment and machinery as well as spare parts for same, high costs of operation, dearth of appropriate skills, unequal foreign competition (legal and illegal), incoherent and unpredictable regulatory/policy environments, pre-modern socio-cultural attitudes and practices, wide prevalence of rent-seeking activities, etc.  Although casual observation marks out Nigeria as a country that should be an economic powerhouse given its resource endowments, size and a large, mostly young and dynamic population, the sober reality is that ours is neither a very competitive economy nor a particularly productive one.

Since this essay is hinged on the fortunes of an agricultural product, international comparisons of yields in selected farm produce can serve to illustrate the point here.  In tomato production, for instance, average yield per hectare in Nigeria is 5/7 tonnes against 50/80 tonnes in the US, Italy and China.  Should we be surprised that Chinese producers can ‘crash’ the price of tomato paste by over 50 per cent, as complained by the operators of Dangote’s processing plant?  With yields in China at many multiples of what Nigerian farmers can produce, the real surprise is that the Chinese ‘crashed’ the price of only 50 per cent!  Nigeria is further rendered uncompetitive by the likelihood that Dangote’s plant was imported stock, lock and barrel.  Chinese tomato processors on the other hand, likely bought their equipment from Chinese manufacturers and therefore have few or none of the issues with maintenance and replacement parts that Dangote might have to deal with.

For rice, a product that Nigerians have become inordinately fond of, average yield in the country is three tonnes per hectare.  The international benchmark is six tonnes.  But, the one that shows us up as laggards extraordinaire is cassava yields.  In total volume produced, Nigeria is the world’s number one.  And we eat it the most.  In fact, cassava, along with its derivatives, is a staple of the Nigerian diet.  In production though, average yield for cassava in our country is 10 tonnes per hectare whereas in Thailand, where the people don’t eat the stuff directly, it is upwards of 22 tonnes per hectare! Elsewhere, yields of 50/60 tonnes per hectare have also been demonstrated.

As if low productivity is not enough of a disadvantage, Nigerian tomato producers (as well as producers of virtually everything else), must contend with unequal competition from overseas producers who often benefit from open and hidden help from their governments.  I refer here to direct and indirect subsidies that foreign producers who export to Nigeria receive but which are not available to our own producers.

Take power for example: farmers and manufacturers in many of the countries that export to Nigeria benefit from relatively cheap power supplied by state-owned entities at less-than-market prices.  The point being made here is not quite the same as the usual complaint about non-availability or inadequacy of power (and utilities generally) in Nigeria.  The point is that elsewhere, power is not only available but because it is supplied by the state, users in such countries are unlikely to be paying market prices for it.  The story is the same with availability and costs of funds.  State-owned banks and finance houses extend credit and guarantees that are cheaper and easier to access than what the CBN and the Bank of Industry have been able to offer with their schemes and programmes.  In some countries, unwritten policies ensure that as long as misappropriation for private gain is not involved, no delinquent borrower from state-owned finance houses that is in production, employing workers and exporting its products to earn foreign exchange can be foreclosed upon or shutdown.  Instead, when such borrowers run into trouble, they get more help to stay afloat!

Even the limited protection that the present international trading arrangements (WTO and ECOWAS rules are in reference here) offer is denied to Nigerian producers because of smuggling.  Like other manifestations of corruption, smuggling in Nigeria is an industrial-scale activity.  In most places in the world, smuggling largely involves the surreptitious conveyance through customs, of limited items of contraband; perhaps a few packs of cigarettes or the occasional bottle of drink hidden in-between clothes in a suitcase.  In Nigeria though, thousands of containers and whole shiploads of contraband are ‘smuggled’ into the country and sold openly; advertised in the media even.  Powerful interests regularly secure duty exemptions and waivers or pay minimal duties for imports of items that complete with locally-produced ones.  The furore that erupted when the CBN restricted access to foreign exchange from official sources for the importation of 41 items that it felt could, and should, be produced locally showed clearly that powerful interest groups are dead set against the expansion and diversification of local production.  These interests even succeeded in mobilising the media to support their campaign against the measure.

It is not a little curious that in the same breadth that he was claiming success for a policy package that restricted imports, CBN governor Emefiele was promising for 2018, an improved (presumably higher) naira exchange rate on the back of higher reserves. Given the handicaps that they already face, can Nigerian producers survive and thrive under a naira that is substantially stronger than what it is at the moment?  Has the CBN thought through the implications for local production of a stronger naira?  If our reserves are tending northwards, shouldn’t our focus be on how to use them to sustain expanded local production and diversification instead of encouraging importation?

There are strong indications that what is being celebrated today is, to a large extent, the result of fortuitous developments for which we should not be in a hurry to claim too much credit, for either effort or policy.  President Buhari, as usual, has been quite honest about the reported increase in food production.  On some of the occasions he has spoken about it, he acknowledges the contribution of nature in the form of abundant rains.  Going forward, and in the interest of sustainability, our agriculture should not depend on nature to that extent. No country that has raised its agriculture game depends to a critical extent, on rainfall and nature generally.  Modern agriculture that generates the type of yields that put ours to shame is driven by the widespread application of science and technology.  It is also bolstered by subsidies at every level and price support schemes.  Even the Western nations who worship at the altar of neoliberalism do not believe that the gospel of markets and limited government should be extended to agriculture.

The president is also right about corruption.  If that monster is not effectively decapicitated, industrial-scale smuggling will not be curtailed and local production will not, thrive for long.  The closure of Dangote’s tomato processing plant was a pointer to what can happen in this connection.  And if, because of buoyant foreign reserves, Nigeria returns to the era of “cheap” dollars, as many are yearning for, we should add rice, toothpicks, vegetable oil, margarine, etc. to the list of items, the local production of which is likely to go the way of tomato paste.

On the foreign reserves front, the heavy lifting seems to have been accomplished by higher earnings from crude oil.  More of the stuff is being produced and sold at higher prices these days than in late 2015/early 2016.  Which, is not to belittle the effects of import restriction/reduction.  As we cannot absolutely guarantee that our luck will hold out with crude oil sales, more import restriction/reduction should be the focus of effective (as opposed to nominal) policy.

Even if the successes about which the government and the CBN are so pleased were to be attributable generally to effort and policy, in the area of import restriction/reduction at least, the lesson we ought to learn contradicts the neo-liberal worldview that lies behind the overall thrust of current policy.  At the height of the recession and foreign exchange crisis from which the country is said to be emerging, the clamour was for more deregulation and market-determined ‘reforms’.  Mr. Emefiele stubbornly refused to yield.  Should this not urge pause on the country in the unconditional surrender of policy and national development to so-called market forces?

Our relative and absolute backwardness in production (as typified by agricultural production in general and tomato production in particular) suggests that we have a very long way to go before we arrive at a diversified and competitively productive economy.  And to get there, we have a lot of work to do; the sort of work that requires literally rolling up our sleeves and getting our hands dirty, in short, the sort of work we are yet to do.

• Anyang, who has been variously a journalist, banker and Commissioner for Economic Development in Akwa Ibom State, writes Port Harcourt

  • Obi Ike Sorres

    We hate the country. Farmers or food stuff sellers will carry their products on Nigeria road, the police, army, and area boys will be disturbing them to drop some money. How can we develop with such mentality. Food is a security of a country that should not be toyed with, address that abnormalities

  • Iskacountryman

    sustainable diversification is an oxymoron….how can someone plant tomatoes, travel over a thousand miles and sell it cheaper than the ones harvested in kano?…okay, they have shops in west africa and plant tomatoes there…why are dangote tomatoes more expensive than even these ones?…let dangote compete…haba…

    • madu

      other such processing manufacturers would even provide advisories, financing and commodities exchange for farmers so as to guarantee the source of their raw materials.
      Dangote behaves like a spoilt rotten child and wants his bed ready made

      • Iskacountryman

        of course…he has an eboe house maid…

        • madu

          What does that comment mean?

          • Iskacountryman

            you no go school?

          • madu

            As Na only you go school, expatiate

          • Iskacountryman

            keep waiting…

  • William Norris

    You write like an intelligent man. So I’m sure you know the solution already

    Just float the naira. Simple.

    • Michael Kadiri SocioPolitical

      It really is like pulling teeth

      • William Norris

        At this point I’m not even going into any other policies that could help stabilize and grow the economy.

        Floating the naira would be an equalizer of sorts, so everyone can play in the economy on somewhat equual terms.

        I suspect this petrol & forex subsidy thing is also going to affect the viability of the Dangote Refinery. The hopes that are invested in that project might be for nought.

        I don’t see how that refinery is going to operate proftably in a regulated price regime.

        • Orphic

          Dangote ain’t that stupid. He’s deliberately sited on an offshore trade zone to prevent such commercial interference. He plans to sell wholesale (not retail) at internationally competitive prices to Nigerian companies.
          The FG can either subsidise by discounting the price Dangote buys crude oil, contract the refinery to refine by paying the cost of refining a defined amount of crude or subsidise by compensating fuel retailers.
          By its siting, the refinery is also independent of Nigerian crude, meaning should the FG decide to play tough, the refinery can import and refine other African crudes i.e. Gabon, Ghana, Angola.

          • tobias

            I agree with your logic. And essentially I think dangote is geared towards export and not placing much trust in govt/nnpc.

          • William Norris

            There are 2 interviews with Dangote and the CEO of the refinery explaining exactly what you’ve written.

            So the hard fact is that NOTHING CHANGES when Dangote starts refining. This is hard for even me to accept but there it is, it can’t be denied. I keep thinking I’m missing something but no matter what, the logic is the same.

            Nigerians have to pay full prices for their ENERGY or put up with persistent shortages and underperformance.

          • William Norris

            https://www.dailytrust.com.ng/news/business/-we-will-sell-fuel-from-dangote-refinery-at-international-price/139642.html

            Q. The participation of government in fixing fuel price has discouraged investors who have refinery licences. How does Dangote refinery intend to cope with the government still controlling the prices of petroleum products?

            A. One would prefer if it was deregulated so that we know that we are playing in the open market. The key issue is that if I buy crude whether from Nigeria or anybody, I buy at an international price. If I produce product and want to sell, I should sell that product at an international price. So, I would not be affected by the decision of local pricing, it is on that concept that we went into refining. We expect that we would buy our input, especially crude on an international market price and that when we produce products we will sell those products at an international price. The refining industry is a global industry, if you use those international benchmarks you shouldn’t really worry about price.

          • FrNinja

            All that Dangote will care about is that he will have a 10% margin advantage over anyone buying from Rotterdam or Houston or the middle east who has to pay CIF. So if the landing cost from european or american refiners at $66 oil is 47 cents per litre, Dangote can price his own at 43 cents a litre. The subsidy is not his problem just like it is not the problem of refiners elsewhere.

            He will sell to NNPC and licensed importers and the FGN can then decide to do what they did under Jonathan where importers applied for subsidy payments (and diverted cargoes) or they can do what they do under Buhari which is collect subsidized dollars from the NNPC and import (and also divert).

            At the end of the day, heads Dangote wins, tails he wins. His only competition is Warri and Port Harcourt Refineries which the FGN has deliberately chosen not to revamp.

          • William Norris

            At the end of the day, heads Dangote wins, tails he wins. His only competition is Warri and Port Harcourt Refineries which the FGN has deliberately chosen not to revamp.
            ————————————–
            Big question for YOU…given that the Dangote Refinery is costing $12 billion, do you still think the Federal Government has enough money for large investments in Nigeria? The Federal Budget this last year was around $19 to 22 billion. Care to comment on that issue?

            If the FG adopts TOTAL privatization and deregulation there will be plenty of competition for Dangote. So it depends on what “the end” means for you.

            Not only that, all the current government refineries will start producing once they’re sold to PRIVATE companies. The FGN can NEVER revamp anything.

            Back in 2003 most Nigerians were crying that MTN is a monopoly.

            Interestingly the NLC released a statement today condemning the government for creating a future monopoly for Dangote in the fuel market. They don’t want to lose their cozy NNPC refinery jobs.

            The ONLY path to progressively rising living standards for Nigeria is extensive privatization and deregulation.

          • FrNinja

            Hope you know that demand in Nigeria is 445,000 bpd. If the FGN fixed the Port Harcourt and Warri refineries there would be no need for Dangotes 650,000 bpd refinery. As it is anyone who buys PH and Warri will still be at a disadvantage because they will be paying taxes while Dangote freeloads as usual.

          • William Norris

            The NNPC refineries don’t pay any taxes. Those employed by NNPC are getting paid billions of naira for producing NOTHING.

            They get 445,000 barrels of crude oil for FREE and still they can’t refine it. The reason is simple – the civil servants and government employees who run NNPC have no profit incentive and no fear of job loss no matter how they perform.

            You’re regurgitating the same arguments made against MTN back in 2001, 2003. Those arguments made no sense in the telecoms setting and they made no sense in cement and airlines, broadcasting, banking and the proof is in the BETTER PERFORMANCE of those sectors AFTER privatization & deregulation.

          • FrNinja

            Is Nigeria the only country where the state owns refineries? Why do refineries owned by government work in Egypt, Algeria, Brazil, UAE, Singapore? NNPCs problem is not the profit motive but corruption. Nigerian government couldnt even run a toothpick factory because of that fatal flaw.

          • William Norris

            I’ve told you the main reason public enterprises work well…..ETHNIC or tribal cohesion OR dominance .

            I remember you gave Eskom as an example of a successful utility.

            My reply was that

            1. Eskom was established at a time when Boers or Whites were COMPLETELY dominant

            2. Now that the nation is not completely dominated by one race, Eskom is underperforming.

            Public schools in the USA are widely acknowledged as deteriorating. I believe the cause is increased diversity.

            I shouldn’t have to repeat so much so often.

            All those countries you mention, if they have government owned monopoly refineries, have an uncontested dominance by a single ethnicity, tribe or race…..or religion. I make that claim without bothering to research it.

            Corruption is a universal feature of government. I’ve given you plenty of exams from the USA, your perfect nation.

            Stop being obtuse. It sucks.

          • FrNinja

            You and your ethnic theories. The government of Imo is 99% ethnic Igbo yet they are not better than the FGN. Government at the end of the day is about CHECKS and BALANCES. Those in government are elected by people who keep it accountable, they govern according to laws. That is civilization 101 not the nonsense practiced in Nigeria where imbeciles and criminals walk into the hallways of power unrestricted pervert the system and get away with murder.

            Your President screaming anti-corruption and justice is the same president breaking the law on a monthly basis. Locking up opponents against judicial orders, withdrawing money from the ECA without national authorization, subsidizing fuel against budgetary provisions. In a better county he would be booted out back to Daura to tend to his lawless cattle. In Nigeria where anything goes we deserve the Buharis, Sarakis with his dogdy asset declaration, Osibanjo with his frequent lies from the pulpit, Kachikwu and his cowardly disposition and vested interests in the oil sector.

            Now there is no advanced country in the world that can perform with the kind of system Nigerian government practices. A lootocracy at best, a snail of Indian-style bureacratic primitivity at best. That and not ethnicity or deregulation is why Nigeria is a proverbial shthole.

          • William Norris

            You have a poor apprehension of what Nigeria is and why it has failed to satisfy its citizens.

            You, a shareholder of the crminal and exploitative MTN monopoly, should be the last person to talk about greed and corruption.

            I give up. It’s no use discussing anything with you.

        • FrNinja

          Dangote refinery will be no different than the refineries in Rotterdam or Houston where NNPC gets its supply from with one exception. They will not bear the cost of insurance or freight to transport the product and Dangote will pay zero taxes since he is operating in a free zone.

          The FGN is basically handing over the 30 million litres of petrol it consumes per day currently worth $13 million to Alhaji Dangote and friends. Margins of refiners is currently 17-20% so expect Dangote to corner $2 million per day or over $700 million per year in profits.

          Now in a better country (which Nigeria is not), that $700 million profit or taxation of it would have gone to the CBN treasury as additional funds to be used for infrastructre and other services (education, health, etc). But not in Dangote’s case. All the petrol tankers coming to load from his refinery will destroy all roads (just like Obajana in Kogi) and the FGN and Lagos State government will have to dig in their pockets to fix the damage (since Dangote doesnt pay much tax).

          • William Norris

            Everyone in business is in it to maximize profit. The real question is whether the business and associated activities, including tax practices, are LEGAL and Dangote cement and refinery qualifies as much as MTN, DSTV, Chevron or Nigeria Breweries or the butcher and mama put joint down the street.

            So I don’t understand your hostility to Dangote. I read a story where many YOUNG NIGERIANS have been EMPLOYED and sent abroad by Dangote to train so they can run this refinery on their return. Some of them were interviewed and they were grrateful for the opportunity. Go and tell them how evil Dangote is and how his refinery is bad for Nigeria.

            As for me, my problem is the fuel and forex SUBSIDY.

          • Michael Kadiri SocioPolitical

            Dangote has elevated to global business status which means that his operations will like his peers around the world, start to operate without borders and society (not only in NIgeria, but also in the West) seems to have accepted that the good those business deliver in terms of jobs, spreading wealth, etc is worth more than taxing them.

            It is a compelling model because truth is, they create more than governments do especially our type of government. What we must do is create an encouraging and transparent environment – floating the Naira and removing subsidies for example.

          • William Norris

            My remedy for the taxes is to convert from taxing income to taxing consumption.

            I believe one effect of this would be an increase in savings and investment.

            Also force these companies to list on the exchanges and encourage Nigerians to buy their shares.

          • FrNinja

            Do the refineries at rotterdam, houston, singapore operate tax free? The refinery business operates on margins of 12 per barrel. Its profitable enough to be taxed.

          • William Norris

            It’s possible they pay no taxes.

            There’s a list published from time to time of massive USA companies that pay no tax because they use various avoidance schemes, shelters etc which they get by LOBBYING Congress….which is a genteel term for CORRUPTION.

            I know, I know, there’s no corruption in the USA. LOL!

          • FrNinja

            Dangote paid just 12 billion in taxes from 1 trillion in profits from his cement business between 2010 and 2015. Meanwhile his thousands of 40 tonne trucks caused billions in damages to state and local roads built to support maximum loads of 30 tonnes.

          • William Norris

            Deep pocketed MTN allowed kidnappers and terrorists to operate for years with unregistered phones. People got kidnapped and killed as a result.

            MTN then bribed the Chief of Staff to the President to escape legal sanctions.

            I wonder if all those who profited from MTN shares are willing to give back their blood money.

    • FrNinja

      How do you want Emefiele, Buhari, Osibanjo and others to pay for their children’s school fees abroad if the naira falls to 600 to the dollar?

      • William Norris

        THE NIGERIAN PEOPLE are the ones demanding that the naira be fixed at an unrealistic rate. They elected Buhari. Deal with it.