Unleashing Local Resources

As more companies begin to look inwards for raw materials, Raheem Akingbolu takes a look at how the development will impact the economy and soften the ground for consumers of goods

Things appear to be looking up for manufacturers of goods in the country. In a desperate move to bridge the gap following the fall in the value of naira, which made importation a bit tight, and in line with government call on the companies to look inwards for untapped resources, more manufacturers are beginning to source for raw material locally. Today, companies are yielding to the advice with many of them either cultivating their own raw materials by purchasing their suppliers or establishing farms to grow produce for their factories. Thanks to the crash in crude oil prices which started in the fourth quarter of 2014, thus compelling company owners to start thinking out of the box.

At the last count, manufacturing giants like Nigerian Breweries, Friesland Campina Wamco Plc, Nestle, PZ Wilmar; Dangote Group and Flour Mills of Nigeria, have shifted drastically to local inputs for their products. Others are; De-United Food, Chi Limited, Presco Oil, Okomu Oil, and BUA Group.

For example, Nigerian Breweries recently struck a deal with Psaltry International Limited, a local manufacturer of starch, located at Ado Awaiye, a community 112km away from Ibadan, Africa’s third largest city. The company is owned by YemisiIranloye, a former staff of Ekha Agro Processing Company, with a stint in Nigerian Breweries before damning the consequence to go into local manufacturing of starch in the village. Ekha is an agricultural processing firm based in Lagos.

The story began to change for the brewery giant in 2016, when it turned to cassava as a source for starch, an ingredient critical to the production of its varied brands of beer and malt, including Heineken.

According to the company’s Corporate Communications and Brand Public Relations Manager, Mr. Patrick Olowokere, NB was then looking for innovative ways to locally source for its production inputs and the production team of the company discovered that the food grade starch gotten from local cassava would help it achieve just that.
“We are growing and looking for opportunities, the quantities of imported barley are decreasing and Cassava boosts the local content,” he told reporters during a recent tour of the farm at Ado Awaye.

In the same way, one of the country’s leading one-step packaging solutions company, Shongai Technologies Limited, recently disclosed that it had concluded plans to produce corrugated carton and self adhesive labels locally, as part of its backward integration drive and effort to support the made-in-Nigeria initiative.
This, the Managing Director, Shongai Technologies Limited, RavinderKanwal, told THISDAY would be achieved by the importation of more high technology machines for corrugated carton and other packaging solutions being currently offered to clients. With the proposed machineries, Kanwal disclosed that its production capacity would increase from 2,500 tonnes per month to about 6,000.

He said: “There is a huge requirement of paper board, there should be paper board mills set up in Nigeria to supply paper. Similarly, we are also thinking of getting into corrugated cartons, apart from that paper has to be imported today. Thus, if there is a good mill that can produce corrugated cartons, I think it would be welcome.”
Last year April, at the inauguration of the over $1 billion 2-line six million metric tonnes capacity cement plant, built by Dangote Cement, the Minister of Solid Minerals Development, Dr. KayodeFayemi, indicated that the greatest desire of the government was seeing Nigerian entrepreneurs working together with the government through backward integration to unlock the potential of the solid minerals sector.

According to the minister, a recent report he commissioned had revealed that Nigeria’s mineral resources were to be used to drive the country’s industrialisation adding that whereas the sector contributed just 0.34 per cent to the nation’s Gross Domestic Product, with more investment in the sector, the government would stand to earn $25bn annually by 2025.

Also, while commending Dangote for producing cement locally by using the abundant raw materials that were available in Nigeria, the Edo State governor, Adams Oshiomole, noted that the practice where manufacturers obtained land from government only to use the land as a base for importation was the most destructive practice for an economy.
In an interview with THISDAY, one of the players in the corporate sector, who had at different times worked as brand managers at Unilever Nigeria and Nestle Nigeria, Mr. Sola Fakorede commended government for its recent stance on backward integration. According to him, there had been time in Nigeria when most companies had farms scattered around the country and this was able to make the naira compete favourable with foreign currencies.

‘’What we are witnessing now is the best that can happen to the economy. There was a time in this country when manufacturing companies had farm in different locations. Nestle had its farm somewhere in the old Gongola State, I think the location now falls within Adamawa, Guinness had farm in Mokwa, while Friesland Campina Wamco Plc, had its own in Vom, Plateau State. Along the line, one government came and relaxed the rules and companies began to do what they like,’’

Meanwhile, in recent investigation carried out by THISDAY, it was discovered that Friesland Campina Wamco Plc, now source 40,000 litres of raw milk locally from dairy farmers in Oyo State. He also expressed delight about the company’s commitment to the local content initiative as almost 90 percent of raw materials being used for the biscuit are sourced locally. Equally, Shongai Technologies, a member of Sona Group of Industries, has begun to offer packaging solutions like flexible laminates, self adhesive labels, blown films and mono cartons to clients. The company was said to currently has 10 colour Gravure printing machine, eight Colour UV Flexo printing machines, five layer blown film line and speedmaster offset printing m/c for mono cartons.

The company’s contribution in this regard must have informed its clinching the 2016 Afristar Award for developing plastic vegetable for packaging wrapper with high barrier polyfilm. It currently works for Dangote, Oando, IDL, Chi Limited, among other leading brands in the country.

During a recent visit to the Lagos office of the Manufacturers Association of Nigeria (MAN) located in Ikeja, Lagos, THISDAY findings revealed that investments in backward integration projects have boosted local content by 53.17 per cent. The findings further revealed that Nigerian Breweries, for instance, has been procuring 99 per cent of its packaging materials from local suppliers. The breakdown showed that the company is now procuring 60 per cent of its cassava starch and 100 per cent of sorghum from indigenous suppliers.

In 2013, Nigerian Breweries began to partner with Psaltry to help develop the capacity of the firm and the farmers supplying the raw materials. They linked up Psaltry with 2scale, a Dutch funded non-profit with the objective of accelerating inclusive businesses in the agri-food industry. 2scale took the burden of training local farmers off Psaltry shoulders and helped the latter free its cash-flow.

The Managing Director of Psaltry confirmed this when she declared that “They (Nigerian Breweries), hired one of the best agronomists in the country to train our farmersand the farmers started to imbibe higher degrees of agronomic practises, compared to their counterparts.”

She also pointed out that NB committed to buying 60 per cent of Psaltry’s output and facilitated a seven-day receipt process, to improve the processing company’s cash-flow and allow them take more products from farmers.

From the picture painted by Iranloye, it was a win-win situation for both sides.Last year, when the foreign exchange crisis deepened, Psaltry, according to her, received a deluge of requests from firms who could not import their starch.
The implication of this is that while struggling to meet up with demand, both the starch manufacturing companies and its trade partners successfully saved Nigeria about $4 million.

There is indeed a lot of lesson to learn by Nigeria and manufacturing companies in the life of this young entrepreneur. In 2005, when many of her mates were yet to know what to do with their lives, YemisiIranloye purchased a piece of real estate in Ado-Awaye.

Although she didn’t have a solid grasp of what she would be doing with the real estate, she also incorporated Psaltry International Limited.
After the incorporation, she started to ask herself what kind of business she would love to do when she left paid employment. She found her answer when she observed the pain of the farmers who supplied raw cassava to her company. The farmers lived in the hinterlands and had to transport their goods to distant cities like Lagos and Akure to sell their cassava for processing. But due to poor roads, outdated trucks, and the time-gap between harvesting and sales, they faced frequent product degradation.

“Sometimes when we did starch analysis, cassava that actually left the farm with about 17 per cent starch content, would have dropped to about five per cent, and that meant less money for the farmers,”

Iranloye told THISDAY that when she was with her former employer, sometimes the company rejected cassava from farmers, because they were already rotten.
From this observation of the farmers’ misery, she decided to, upon leaving paid employment in 2011, to set up a cassava processing plant in Ado Awaiye. Rather than allowed the fear of the unknown to dampen her ambition, she damned the consequence and built a well furnished farm house to accommodate her family. Then, there was no power, no connecting roads into the community and no water at Ado-Awaye. She took a further step by building the community’s first hand-pumped well-water.

“I told myself I wanted to do cassava differently than it was being done at the time, so I decided to meet the farmers where they are, to close the gap,” she said. “I believed I could surmount the challenge of road, power, and human resource.”

Her business model was to get small-holder farmers and transform them into commercial farmers. Although a lot of people told her it was not going to work, she was ready to find out. “I was ready to take the pain,” she said, “it meant no party, no wedding-attending, no aso-ebi; I was just trying to grow the business.”

The first major hurdle the business had to leap was attracting funding from financial institutions. When First Bank asked her to write a business plan, she wrote down her vivid thoughts for the business and plans for growth. The bank executives were impressed. The lady who approved her loan request drove from Victoria Island in Lagos to Ado-Awaye on the eve of the approval and told her they were investing, not because she had provided collateral, but because she had left everything behind to start the business. “You can’t afford to let it die,” the banker said.
Out of the money she got from the bank, Iranloye decided to take a risk on her local farmers. Psaltry started to buy tractors, herbicides and clustering the farmers into groups to provide them with training. The idea was to help the farmers grow and increase yield, thereby ensuring that the factory has access to enough raw materials to keep its end of the bargain with buyers. It worked. A farmer who was cultivating one acre of farmland started doing 15 acres. About 2,000 small-holder farmers are now cultivating about 4,000 hectares of land, producing about 60,000 tonnes of cassava per annum.

“Before Psaltry, we were only farming to survive,” the Baale of Alayide, Psaltry’s host community, BusariDauda, told THISDAY. “We had no tractors, but our hands and hoes. She encouraged us to farm in commercial quantity. She bought us improved cassava seeds and we started to farm and see the difference. She dug us a borehole, even before the company started. She also helped us gain government funding. Farming was suffering, but when we started selling to Psaltry, I bought a car the second year. That’s what has encouraged many of us to go into commercial farming.”

Four years after starting production, Psaltry has emerged as one of the biggest cassava processing companies in the country, with two lines that each produce between 20 to 30 tonnes of food grade starch per day; about 10,000 metric tonnes per annum.

“We are looking to grow bigger and trying to increase capacity,” Iranloye said. “We have about 300 staff and run this plant non-stop, except when we shut down to clean and do maintenance. We have staff quarters that house about 40 per cent of our total staff. We have a clinic and a canteen that offers employees one free meal per day and we have a small gym where workers can exercise.”

Ask Iranloye, a graduate of Bio-Chemistry at the Federal University of Technology, Minna, and a Masters Degree from the University of Ibadan, to tell you how she has been able to move this far and she will be delighted to state that it was her ability to stay motivated when the odds did not look good.

In a recent encounter with journalists, on the extent of backward integration projects in the real sector, President of MAN, Dr. Frank Jacobs, said: “MAN has gauged the performance of local raw-materials utilisation in the sector over the period 2014-2016, and the outcome of the survey showed that local sourcing of raw-material increased to 53.17 per cent in 2016 as against 48.75 per cent of 2015 and 47.18 per cent of 2014. The increase has been the highest since 2013 when it was 54.73 per cent.

“The beauty of increased investments in backward integration projects by manufacturers is that they would, in the short and long run have positive trickle down effects on foreign exchange (FX) conservation, FX earnings through export proceeds, the demand for US dollars, value of naira, employment and wealth generation

“The beauty of increased investments in backward integration projects by manufacturers is that they would, in the short and long run have positive trickle down effects on foreign exchange (FX) conservation, FX earnings through export proceeds, the demand for US dollars, value of naira, employment and wealth generation, etc. “No doubt, local raw-materials development is critical to sustainable growth of the economy and the manufacturing sector. The short-run effect is already being felt. Manufacturers are now able to source more raw-materials locally thereby conserving FX for importation of other inputs that are not locally available at the moment.

From the recent experience, going back to the old order, whereby companies look within for raw material may be the solution needed to rescue the economy and crash price of goods. In a way, this will also go a long way in positioning Nigeria as a country that is not all about oil and importation.
Speaking at the BRANDish Meeting of Minds in Lagos last week, the Managing Director, LUCENT Consulting, Mr. Lampe Omoyele, captured this mood. Speaking on the paper titled; ‘Evolving A Market-Led Positioning For Nigeria’, Omoyele advocated for the consumption and appreciation of made in Nigeria goods.

While calling on the country to look beyond oil, the expert stated that in developing the positioning strategy for Nigeria, it would help to do a SWOT analysis of the nation, in order to gain insights into what can be.
“Nigeria has assets such as our people, music, movies, natural resources, a burgeoning IT industry and more” he stated.