Eromosele Abiodun posits that the fiscal and monetary policies of the federal government show that the government sees backward integration as the key to unlocking Nigeria’s economic potential
While speaking at a workshop organised by the Non-Oil Monitoring Committee (NOMC) in Abuja recently, the Minister of State for Solid Minerals Development, Abubakar Bawa Bwari said the N1.5 trillion yearly food import bill is unacceptable and unfortunate.
According to him, “By some estimate, Nigeria spends over N1.5 trillion annually on food importation, which puts heavy pressure on our foreign exchange. We therefore, need to take full advantage of our agriculture potentials in order to preserve our dwindling resources, while enriching our local farmers,” said Bwari.
However, he that Nigeria is set to adopt a labour intensive agriculture strategy to boost local production of rice, cocoa and other crops. Recent reports that the country’s importing bill was declining lays credence to the fact that the federal government is serious about this plan.
Experts believe the current government’s near-messianic approach to changing the attitude of Nigerians towards imports, both at the individual and corporate levels, appears to have a clear plan and focus, after all. Although it has been very difficult for many people and organisations to change their consumption patterns in the last one year, from an almost all-import dependent to local substitutes, the drastic fall in Nigeria’s food import bill in 2016 is, perhaps, a positive commentary on the efforts of government to grow the economy from within.
The 2017 tariff outlook recently unveiled by the Minister of Finance, Kemi Adeosun, further strengthened this policy as the import tariff of several items has been raised by about 20 to 60 per cent. Imported rice, sugarcane, cassava products, tobacco and salt, among several others, will see their prices go up as a result of the hike while their local substitutes will gain comparative advantage, which is expected to be the catalyst needed for more investment in the production of these items here in Nigeria.
The tariff hike complements the Central Bank of Nigeria (CBN)’s foreign exchange prohibition list. The CBN had earlier excluded about 41 items from accessing dollars from the official foreign exchange market. The policy was regarded by many Nigerians as too harsh, that the exclusion could result in lower demand for the products affected, factory closures and job losses. They may be right as the economy faced headwinds for three straight quarters in 2016, which pushed it into recession. It is, however, debatable whether it was the CBN’s policy on dollar sales or the poor returns on crude oil sales, which the government almost entirely depends on to fund its activities, and the central bank entirely depends on to service imports, that pushed Nigeria’s economy into recession.
Looking inward for raw materials
The good news is that the policy has forced many producers to look inward for their raw materials and other goods. One of such firms benefiting from local sourcing is Tempo Paper Pulp and Packing Limited in Ota, Ogun state, whose deputy managing director, Nassos Sidirofagis, recently enthused about the policy and how the company has greatly benefited.
Specifically he said: “The recent CBN policy is helping us tremendously. It is something we have been waiting for, not only us, but other manufacturers, because customers are now buying Nigerian products instead of importing.”
The rapid uptake of the company’s products has led the management to set its sight on expanding the operation of the firm, to 420 tonnes per day.
“We can smile a little bit. These CBN policies help us to realise that there is a big possibility to start expanding. I hope the policies stay, because it is very significant for us,” he said.
Experts also believe now that the federal government has announced fiscal measures to complement the monetary policy of the CBN, import substitution is expected to accelerate even much more. In its 2017 outlook, The Economist magazine referenced the import substitution policy of the government as holding the key to Nigeria’s economic growth and possible escape from the “resource curse”. The government seems to be learning the ropes and getting better with policies aimed at stimulating the economy.
However, this twin policy, as laudable as it appears, had an inauspicious start.
Certain items such as cigarettes and other tobacco products were still allowed to access forex from the CBN in spite of the fact that they are not necessities and Nigeria has more than enough production capacity to meet local demand in addition to capacity to export and generate forex, which is much needed in the country.
The stand out item that was not on the list, which ought to be the first, was tobacco and its by-products. The non-exclusion of cigarettes from accessing forex while essentials like cement and rice were banned raised quite a few brows of analysts and policy watchers. Like cement and to an extent, rice, Nigeria has achieved significant capacity in the tobacco industry.
There currently exists a legal industry in Nigeria for tobacco manufacturing and the players in this industry have been operating in Nigeria for well over a decade. This industry not only manufactures to international standards and best practices, and in carrying out its business operations, it is also deeply integrated into the entire value chain of tobacco production, from farmers to processors and production to meeting local need and also export.
Their extensive operations, which empower Nigerians across the entire length of the value chain in tobacco production and more importantly reduces the need to import cigarettes into the country, lend itself as a template that could be adopted for other goods that Nigerians consume. Some of the key players in the industry partner tobacco farmers to train them on how to improve their farming practices. Asides from guaranteed purchase of tobacco produce, the farmers have reportedly gone into cultivating other crops beside tobacco, thereby transferring the skills that they have garnered over the years working with the tobacco producers into commercial farming.
Domesticating production in Nigeria
British America Tobacco is clearly the leader in this regard, closely followed by Japan Tobacco International. The other major tobacco producer, Phillip Morris International, whose business is model is centred around importing cigarettes from its factory in Senegal, recently mooted the idea of locating a manufacturing base in Nigeria. The combined efforts at domesticating production in Nigeria will have far-reaching benefits for job creation, economic diversification and long term growth and prosperity of the country.
“There is, however, the ongoing debate over whether Nigeria should strive to, or even think of, earning benefits from cigarette consumption, and whether the country should simply outlaw smoking and ban tobacco production.
“One of the biggest benefits is that localising production ensures that you can effectively monitor and enforce rigorous standards. You can also make the producers to be more responsible for how their products are dispensed. Without the local producers, you simply can’t hold anybody responsible for selling cigarettes to people who are under the legal age. Localising production also creates thousands of jobs along the entire value chain. Without these tobacco companies, the pressure on scarce forex would have been greater,” said Ayodele Thompson, Director of Initiative for Public Policy Analysis, in a recent interview with THISDAY.
A major stakeholder in the manufacturing sector who does not want his name in print told THISDAY that the fiscal and monetary policies of the federal government showed that the government sees backward integration as the key to unlocking Nigeria’s economic potential.
“Farmers cultivating large expanse of land and feeding factories with the raw materials needed to produce goods for Nigerians will create millions of jobs along the value chain. The pressure on government to provide forex for the importation of raw materials will be greatly reduced just as the government will benefit from the higher rate of economic activities as its revenue from income tax will grow.
“The road the twin policies are guiding Nigeria to go is however a long and arduous route. Many countries that chose to go this route spend many years in the doldrums of economic activity. Nigeria is fortunate as there are already signs that the policies are achieving their objectives,” he said.
Analysing NBS Data
Economic data released by the National Bureau of Statistics(NBS) showed that in the third quarter (Q3) of 2016 the agricultural sector grew by 7.37 per cent: crop production, livestock, forestry and fishery contributed 24.09 per cent of Nigeria’s gross domestic products (GDP) for the three months of July, August and September 2016. This is a huge improvement over the previous quarters and years, and the economic recession would have been more severe if the government had not implemented the policies to domesticate production and conserve forex. The agriculture sector appears to be set to record steep growth as major producers; Guinness Nigeria Plc and Nigerian Breweries Plc have been searching the landscape for sorghum and maize to feed their breweries.
Unilever is also reportedly exploring ways to source its vital raw materials locally. There have also been reports of factories refitting their machines to accept materials sourced locally since these machines were not originally designed for local raw materials.
Analysts told THISDAY that if the government does not cave in to the pressure being brought to bear on it to change course especially now that oil price is rebounding, then Nigeria’s economic growth and future prosperity is assured.
“With an enviable population and natural resources, not many countries have the advantages that Nigeria offers to manufacturers. Companies, however, did not need to be forced to adopt backward integration before seeing the business case. Corporations that long ago embarked on backward integration are reaping the benefits. Dangote, with massive investment in sugarcane plantation, is following suit. When the investments come on stream, Nigeria will be weaned off importation of raw sugar.
“Imagine Nigeria having 50 or so large manufacturers all sourcing their raw materials locally, the multiplier effect such activities would have on the economy and general household income across the country. This should be the goal of policy makers and stakeholders concerned about Nigeria’s growth and prosperity, Founding Partner at Huntingfield Capital, Oye Nwuka said.
