Addressing the Dearth of Raw Materials

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INDUSTRY ANALYSIS

Nigeria is endowed with large deposits of minerals and raw materials. Accordingly, there’s no reason why local manufacturers cannot source much of what they need. Jonathan Eze writes on why Nigeria should encourage local sourcing of raw materials for domestic use and exports

Raw materials constitute an integral part of the industrial base of any country. Such raw materials may form the source of the required input into other industries or they may be distinct. Where such downstream industries do not exist, manufacturing companies are faced with the sourcing and processing of the raw materials.

There is however no gainsaying the fact that the dearth of locally processed raw materials has forced manufacturers to resort to massive importation to augment the shortfall from local market. Worse still, poor local capacity to add value to available raw materials, lack of access to capital to set up processing facilities among others are some of the impediments militating against effective utilisation of local raw materials.

This is against the backdrop of the fact that Nigeria’s rich mix climate, vegetation and geological factors make it a natural zone for diverse agricultural, mineral and renewable resources.
It is worthy to note again that Nigeria is known for its richness in raw materials and solid minerals, but only 46.71 percent of raw materials are sourced within, according to the Lagos Chamber of Commerce and Industry. The report states that local manufacturers now outsource raw materials from other African countries, creating a displacement, which directly affects workers in the intermediate segments of the local economy.

A report by Renaissance Capital recently revealed that the manufacturing sector had become Nigeria’s major economic driver, as it was witnessing growth which surpassed those of the oil and gas, telecommunications, and the agricultural sectors. This growth was significantly evident with the astronomical increase in manufacturing capacity utilisation over the past decades.

However, the drastic drop in manufacturing capacity has been attributed primarily to probable poor quality of raw materials and insufficient supply of them within the country. On the other hand, the Manufacturers Association of Nigeria (MAN) attributes this decline to the lack of a functional petrochemical industry, which it said, constrains improvement in local sourcing of industrial input materials.

For a country where large deposits of minerals and raw materials like cocoa, rubber, iron ore, coal, and animal skins are found, local manufacturing industries should be impacted positively. The ability of any nation to engage in the transformation of raw materials to finished goods significantly develops their economy. If impacted, these industries can help the Nigerian economy to stop importing finished goods from the western world.

Classification of raw materials
Raw materials needed for industrial use can be classified into four major classes, namely:
•Unprocessed agricultural products, which are usually in their natural state, like cassava, yam, grains, fruits, vegetables, etc.
•Semi-processed agricultural products in form of dry cocoa beans, dry sugar, pasteurised milk, grain flour, cocoa mass, malted grains.
•Finished products of a particular industry can serve as raw material or ingredient for another industry, e.g. refined granulated sugar, starch, ascorbic acid, flavour, etc.

•Bye-product or effluent of an industry can serve as input for another industry, as molasses can be used for the production of alcohol and yeast, while biscuit dust can be used for the production of animal feed.

Food and beverage industries can supply raw materials to various sub-sectors such as brewery, soft drink, flour mill, cereal and bakery products, dairy products, animal feeds (livestock and fishery), meat and meat products, tea and coffee, sugar and sugar confectioneries, margarine, edible oils, roots and tubers, fruits and vegetables, spices and flavours.
However, to facilitate a streamline presentation, the Nigerian food industry can be divided into two major categories:
•Milling industries: Flour mills, rice mills, edible oil mills, etc.

•Processing industries: Beverages, cereal products, dairy products, confectionery, fruit and vegetable products, meat and poultry products. Each of these can derive all their raw materials locally.
The milling industries require mainly agricultural products and the outputs are generally finished products offered for sale as domestic food items after suitable food packaging.
The food processing industries require derivative secondary produce, and in some cases, require tertiary forms of agricultural and synthetic raw materials.

There are three broad categories of raw materials, namely, primary agricultural produce, secondary and tertiary raw materials.
In sourcing for raw materials, there is a general principle that most industries use. The aim of sourcing is to obtain the best quality raw material at a most economical rate. In Nigeria, the approaches used include direct, indirect or combination of the two.

Manufacturing industries are capable of providing the economy with a serious boost in employment, by providing opportunities in areas such as research and development, processing, engineering, entrepreneurship, and a lot more. Employment in the areas that sourcing and processing raw materials locally can provide will greatly impact Nigeria’s current struggles with unemployment.

According to a report by the National Bureau of Statistics, Nigeria’s unemployment rate rose for the seventh straight quarter to 13.9 per cent in the third quarter of 2016 from 13.3 per cent in the previous period. It was the highest level since 2009, as the number of unemployed rose by 5.2 per cent to 11.2 million, employment rose at a much slower 0.6 percent to 69.5 million and the labour force increased 1 per cent to 80.7 million.

Meanwhile, youth unemployment rate increased to 25 per cent from 24 per cent in the previous period. A year earlier, the unemployment rate was recorded at 9.9 per cent. Unemployment Rate in Nigeria averaged 9.52 percent from 2006 until 2016, reaching an all-time high of 19.70 per cent in the fourth quarter of 2009 and a record low of 5.10 per cent in the fourth quarter of 2010.

Over-reliance on oil in Nigeria is listed to be another contributing factor to the growing rate of unemployment, particularly because other viable job-generating sectors, like manufacturing, agriculture, and entertainment have been neglected.

Politically, it is expected that the government would declare a state of emergency on massive local production of raw materials to aid the reality of industrialisation. After his inauguration, President Muhammadu Buhari promised to intervene in the issues facing local industries. His plan involved reviving ailing and moribund textile and mining industries so as to improve the agricultural sector, and thereby keep the local industries operational. Hopefully, the second phase of his administration would improve on same.
Manufacturing industries can indeed provide the economy more employment by providing opportunities in areas such as research and development, processing, engineering, entrepreneurship and a lot more.

On the way forward, a former Director General of Raw Materials Research and Development Council, Professor Azikiwe Peter Onwualu said that it is a known fact that many of the developing countries are generously endowed with vast natural resources, but noted that in the emerging global economy, the wealth of a nation is no longer determined by mere possession of natural resources, but largely by the human resource capabilities ,whose role include acting upon the natural resources to enable the society derive full benefit from such endowments.

According to him, “This is because endowments of a nation with natural resources does not necessarily make a nation rich, it makes the nation only potentially rich and a nation can remain potentially rich on a permanent basis, whilst a country that is not generously endowed with natural resources can become very rich by making use of the quality of its raw materials for development of human resources.”

The ability to transform the natural resources into products which are acceptable and globally competitive defines the wealth of a nation, he added.

Onwualu however advised on practical steps the government can take to ensure genuine developments of raw materials that will boost industrialisation.
His words: “We have seen that Nigeria is blessed with many agro based raw materials. There are at least 2000 agro raw materials that can be grown commercially in Nigeria. Each of these can support a cluster of industries at the SME level involved in production, handling, processing, marketing and storage. These can create wealth.

“For these activities to flourish i propose the 25 establishment of Raw Materials Processing Clusters, at least one in every local government area of Nigeria. The proposal is to use information already at the disposal of the Council to decide on the most viable raw materials in each local government. Based on that, a cluster can be designed. Then under a PPP arrangement, this can be established. Each of the clusters can have common infrastructure and marketing facilities.

This means the emergence of at least 7000 SMEs with the potential of doubling within a short time due to downstream activities. The wealth creation potential and economic multiplier effect of this is enormous.
“The major constraint in achieving this vision is funding. However, with a good model of PPP, this can be overcome. The Raw Materials Research and Development Council has developed blue print for this concept and is currently taking steps for actual implementation.”