The Managing Director/CEO of Cosmas Group, Mr. Cosmas Okafor spoke to journalists on the experiences and lessons learnt navigating Nigeria’s capital-intensive manufacturing sector. Chinazor Megbolu brings the excerpts:
What was your motivation behind diversifying into manufacturing business?
We started as a freight forwarder in 1994 and at a point we felt the need to diversify. At this crossroads in my career, I turned to God. He showed me this polythene manufacturing business in a dream. I wanted to start a business that can be passed on to my children, an enduring legacy, and this vision struck me as a step in the right direction. So, I shared my vision with a banker friend who introduced me to an Indian customer with more knowledge of this business line. His contact eventually suggested we travel to India to acquire more knowledge of the business. After we returned from India, we were confident of our understanding of the systems and processes involved and started this manufacturing business.
What are the products you deal in?
We manufacture a range of polyethylene bags, be they shopping bags, packing bags or pure-water bags. We also provide printing services for bags, for instance, for big retailers like Shoprite. We manufacture their bags and then print the required logos, images and text on them. Our products are widely accepted in the market. We started on a good note, especially in terms of quality, because we invited some expatriates from India and learnt from their entrenched experience in this manufacturing business line. Having created a good, first impression, we continue to deliver quality products because of our firm belief that quality is the hallmark of a successful business. Our customers tested us, were satisfied with us, and have stayed with us.
What were the initial challenges you faced?
There’s no business line you enter where you will not encounter some challenges. Every business, especially in a competitive market like Nigeria, is bound to attract challenges. For instance, access to finance is always a key obstacle for a small business. Like I said, I started with what funds I had, but soon discovered that the manufacturing sector is capital intensive and this realisation made us look for a loan. Apart from the difficulty of finding a lender for a capital-intensive manufacturing start-up, I faced other challenges as well. For instance, when I first came to Lagos, I faced the challenge of settling down in a new city. I saw a fatal accident where a lady was hit by a car. The second day when I passed through that road, I still saw the dead body. Nobody cares about the dead. Again, on the third day, the corpse was still there. I then asked myself whether this indifferent attitude, even in the face of death, stood for how things were here. So, I started getting discouraged about the business until I remembered my vision and the clarity of purpose in the vision made me stay. Another thing that could have put me off was an encounter I had three months after starting the business. One man just passed by my signboard, stopped and strolled back, and came into my office. I thought that he was a customer but he told me he had something to sell at a giveaway price, an auction of sorts. Closer interaction revealed it was the same business that we started three months ago. So, my team and I went to Otta, Ogun State, to inspect the business, and could see it was indeed the one that I had set up. I asked myself: Is it how my new business will fare, where a few months later, I will be looking for buyers? So, that experience, again, wasn’t encouraging but I persevered and here I am with a success story to tell.
How did you find the strength to overcome these challenges?
When I was on the verge of getting discouraged by these challenges, I remembered how Isaac fared. When he started the work God told him to, he did not do so on a good note, but God had willed it. That was how he prospered, no matter the challenge. The Bible says each time Isaac dug a well, the Philistines closed it. He had to dig a well seven times, before the Philistines let him continue with his chosen task. So, I put all these things behind me and persevered. For the future, I know that challenges will surely arise, but by the grace of God I will certainly overcome them.
At what stage did you come across a willing financier?
Just like I said, to begin with, I found courage to face the challenges in the knowledge that the vision came from God. Three months into the business, we suffered a major setback. There was a windstorm that damaged the building considerably. In fact, it was razed to the ground. So, I started to look for money in the form of loan to help me start again. And that was how I met GroFin, the pioneering SME financier, with a local office in Lagos. And, like I said, the business is capital intensive – you need large sums of money to buy raw materials, machineries and access maintenance services. GroFin is a God-send because when they give you a loan, they follow it up with a tremendous boost to the business. They give you advice and regularly visit you to see how you are faring, and fine-tune their advice to new developments. They encouraged me a lot in doing my business better. When I first received the loan, the impact was very profound. In fact, I see them as a source of succour to the small-scale sector in Nigeria. When we started, the interest rates from commercial banks were going through the roof. Somebody introduced me to them and from then on, the process of getting the loan was very easy. The moment you furnish them with the requested information, they will proceed with their checks, give you the loan and follow it up to make sure you use the loan for the stated purpose.
Other than GroFin, how is the Nigerian landscape for SME finance?
Unfortunately, the Nigerian landscape for SME finance is otherwise very bleak. The government has not been able to assist much with entrepreneurial ventures, especially in the capital-intensive manufacturing industry where external finance is most needed. There are not many avenues or channels for the Central Bank of Nigeria to give us soft loans, at low interest rates. When you go to bank, you will not hear interest rates going less than 30 per cent, or even 31 per cent, at times. So, how do you survive as a small business owner? But in some other countries, like China, for instance, the government has the capacity to extend concessional loans at seven per cent , or at most 10 per cent, to stimulate small enterprises. Compounding the issue of limited access to finance in Nigeria is the erratic supply of electricity.
Speaking of electricity, what are the infrastructural challenges you face? Also, are there any other challenges that your business is subject to?
In Agbara, Ogun State, where our factory is located, you hardly get regular power supply. We run our operations on a generator which uses a huge volume of diesel. You can imagine the amount we spend on diesel these days given that a litre sells for N210. When we started it was less than a third, at N65 per litre.
Secondly, the Agbara road is riddled with pot-holes. Our customers must literally pass through hell to reach us. At times, when you call your customer, your customer will ask you to deliver your goods to their area or services point. That will lead to your adding haulage or spending on distribution vehicles which means additional cost that you could ordinarily have spent on raw materials, were the road any good.
Moreover, our foreign exchange rate is not stable and that has added to our cost of doing business, especially in the import of machines and their maintenance. We can just hope and pray that our foreign exchange becomes stable so that we are able to project our requirements and costs ahead. Last year, there was a time we bought raw materials at a very high rate, at about N510 to USD1, and after about two months, the market rate came down drastically. We met with a great loss because our cost price and selling price were almost the same. Since then, we have been managing the situation. But clients are not as readily available as before because of the bad economy.
Finally, lack of domestic availability of raw materials is another challenge for manufacturers like us, as we have no choice but to import raw materials. We import virtually all the raw materials and we pay five per cent duty over and above the high purchase prices in dollar rates. Some of the raw materials are produced here in Nigeria at Eleme Petrochemicals, Rivers State, but at times they shut down. Two years ago, they halted production for almost six months at a stretch. At times, they do produce the raw materials we need but are not able to do so in the required quantities to meet the overwhelming demand. Again, we might get only one or two – Low-Density Polyethylene and High-Density Polyethylene – out of the four raw materials we need for production. Others must still be imported.
What are your expectations in terms of support to meet business challenges?
We urge the government to repair the road because it costs us dearly, both in terms of higher cost of doing business on the one hand, and low patronage on the other. Secondly, we would request the government to consider a reduction in interest rates for bank loans, especially from commercial banks. By the time you pay for the loan at 30-31 per cent, no profit is left for the business. That is one of the reasons I am happy dealing with GroFin, because their interest rates are lower. Also, coming to electricity, we need steady power supply. We cannot depend on a generator all the time. Also, for a small-scale industry, we are left feeling the pinch of high corporate tax rates. So, we would urge the government to reduce tax incidence for small scale businesses, if not sanction an outright tax holiday, to help grow the industry.
The reason we expect the government to intervene is that small businesses like ours help to alleviate the problem of unemployment. Presently, we employ about 75 workers and are well on our way to reach a staff strength of 80 workers. Our workers in turn support many livelihoods.
What advice would you like to give other SME owners?
My advice to fellow entrepreneurs is to have focus. Let them have the zeal that will drive them to achieve their vision. As I told you earlier, I had no successful precedent from the polythene manufacturing space when I went into business. Put zeal and passion into your vision and eventually you will succeed. You also need patience and self-motivation, because, as we say in Nigeria, ‘when the cloud is full, rain must surely fall’. Keep in mind that there is nothing so small that it cannot be made big, and there is nothing that is so big that it cannot be made bigger. Progress is the way of life.
Look at us, for instance. We started on a small scale and without encouragement from God and support from GroFin, we wouldn’t have diversified into this successful business line. We started with a low margin of returns because we had only one machine. Even the first expatriate that we invited into Nigeria to assist with setting up the business was left eying my start-up, with just that one machine. Next, when we went to buy the raw materials, we thought only one raw material was needed, but it turned out there were five. To top it all, when they added the total, I didn’t have the money to pay for all the five raw materials. So, the expert helping me set up the business was discouraged and asked me why I started it at all. I laughed and told him it was God that led me into the business and that he would see me through. And this is the fifth year of operations, and surely God is at work. We have grown from one machine to many machines and our turnover is running into billions of Naira, but it cannot be denied that we started small.
Any final words?
What will make our business sustainable is a much-needed reduction in the cost of doing business. We spend a lot on diesel to power our generator because of erratic power supply. Lack of adequate and uninterrupted power supply is a major setback. Also, we need better road infrastructure, given that the current network of roads is very bad. Again, if the government can reduce interest rates on borrowed funds or, if possible, create a special SME fund that provides loans at concessional rates, it will help SMEs like us to truly spread our wings. Finally, we need strong partnerships with many more finance and support companies such as GroFin for SMEs to grow at capacity. If these things are taken care of, we can produce at a lower cost, increase capacity and create more employment for the economy.