Onafowokan: Re-investing Our Earnings Stands Us Out

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Managing Director of Coleman Cables, Mr. George Onafowokan, spoke with select journalists on the firm’s inroads in the manufacture of cables. Jonathan Eze brings the excerpts:

What has kept Coleman Cables afloat for years now despite challenges that confront manufacturers annually?
Of course, people cannot do without cable because electricity is a vital part of development in any country. The main sustainability is our own structure which has been survival based on long term views rather than short term gain. In businesses, what I have seen over the years is that as Nigerians we do not invest in ourselves, but we spend too much time looking at our profitability and how we will enjoy the money rather than long term view of reinvesting. I will say for Coleman, in the last 15 years, we have reinvested almost 95 per cent of our earnings back into the business. It is very few companies that can tell you they have done that consistently for 15 years, you rarely find those that have done it for two years and that is why we grew so fast because we kept reinvesting majority of our earnings.

To me, it’s a long term view. Where do you see the company 10 years ago and where do you see the company 10 years from now rather than where we see ourselves in two years. Nigeria has crisis and this is not our first recession, but the key is how do you survive crisis? Your business strategy must be right especially in the industry and it must be long-term based because what happens, when policy goes wrong and you have not equipped yourself to handle the fall out; most businesses close down during this period. This happens almost every five years; it is calamity in one way or the other. The key thing is what you did in between the five years to prepare yourself for the next calamity? I hope we don’t drive ourselves into calamity, but we must put our business first, take a long term view of our business and strategically that will keep us from issues when they happen.

What are some of the challenges affecting manufacturers besides power in Nigeria?
The infrastructural problem of Nigeria has never ceased to be a bane to the industry or sector in Nigeria, nevertheless, I think in the last two years, it has been worsened by devaluation and policy inconsistency, but things are gradually turning around which is good. But for us, what drives the business is the passion for what we do as manufacturers of cable and we have been in this business for the past 22 years and I have been in the business for 16 years. We have grown from a small company to be the biggest player not only in Nigeria, but in West Africa.

When you leave this country and see what industrialisation is all about in other countries, it gives you a sense of pride actually by bringing those technology into your country and you apply them here and you see Nigerians get trained in it; because we are a company that believes more in local content in terms of raw materials and in terms of the people. If we do not train our people, we cannot really say we have local content. In Coleman today, we normally invite expatriate to train our people, but we put them on a short period, they must train our people. So, we depend almost 99 per cent on locals for our production. We are a highly technology based industry and that gives us the greatest pride that we are not only local content in terms of raw material but we are proud that we are one of the Nigerian companies that believe in our people.

How did you cope with scarcity of foreign exchange during recession?
We did not cope with it well; I must be sincere with you. As a business that at a point depend 95 per cent on import we could not get hold of it. During the recession, we lost a lot and we were down in capacity of about 95 per cent and producing five per cent. We were down in staff strength by almost 40 to 50 per cent at a point. So it did not go down well with us in terms of exchange rate, but the good thing today is that there is a bit of stability in the exchange rate but the best part is that we move from 95 per cent dependent on importation to 85 per cent local dependence.

We are only having an exposure of less than 20 per cent of our business to foreign exchange which is far better when your business totally depend on import and that has changed the dynamics of how we think also locally. As much as exchange rate is high today, we are not too perturbed by that because it is only a minor part of our business that is still imported. I think in the next one year, we expect that to drop to five per cent.

The recession in its way was positive because it forced backward integration in our industry, although it is expensive in the beginning, it has become more reasonable to buy today. If recession did not happen, most of those industries that came out as backward integration would have been very difficult to achieve because there might not have been competitive, but because they had indirectly a closed window that did not allow us to get hold of forex, it made it as a bit of protection without knowing and the cost likely added a lot of margin and at that point we had no choice but to buy.

This allows you to think on terminologies, in a way that you never thought of in Nigeria just in time. Today, you are buying forex as you need so you are not much on working capital as you were importing a lot. It has been a great improvement to us on availability of raw materials and it has reduced our dependency on the exposure of the forex.

How do you generate power and at what cost?
The cost of power is so high. Power today is one of the major reasons industries have not grown the way they should because we depend on power for cable factory. We are one of the countries in the world that run drawing machine on generator; this machine is heavy on power. One single machine can use 500KV to run not to talk of the rest factories.

In those places, this type of machine runs on power. This makes it heavy on investment. So our business is so heavy on power. If you look at it today, in Coleman, in terms of diesel power, we are generating in excess about 10MGW and eight megawatt in gas; so that is two separate ways investment in power plant. As good as what you have might be investment in power itself can build a competitive cable industry. The rest of the infrastructure, it is low on it but power accounts for almost 30-40 per cent overhead cost in your capital expenditure.

How are you coping with substandard products?
Coping with brand imitation, faking, adulteration, has become the bane of the industry not only for Coleman, but basically what we try to do is push for availability first and foremost trying to produce as best as we can to make sure that our products are seen and available because one thing about adulteration is in fighting adulteration, you must also meet capacity available for replacing what you removed as adulterated product or as fake. This means your capacity must be capable of feeding the actual market and I think that was our own first problem. Secondly, we are also actually checking the market growth. We go to the market to survey ourselves.

Surveying of market should be the function of SON or does the industry self-regulate itself too?
Unfortunately, it is not only the job of SON because we see that there is stretch on so many areas, so the industry itself almost self regulates itself and gives feedback to SON where we see any deficiency. To stop adulteration and faking and substandard cable in the market is very easy to achieve even by SON. The easiest thing to pick is the length of the cable which is 100 meters. In today’s Nigeria, the standard of SON for coil cable is 100 meters, but when you go to the market, you see 100 yards, 100 feet etc. rather than chasing them for cable substandard, first check the standard. Today, Coleman makes every cable 100 meters because there is nothing plus or minus in the standard.

I can vouch for our cable; those that have done their research said our cable is more than 100 meters. The only thing is to standardise market length because those who fake the products are making excess money more than what the manufacturers make. Here, the adulterator reduces the length of the cable and shortchange the customers. The people now want to make use of made in Nigeria brand to sell. The most annoying thing is that majority of these importers have houses, they buy standard cables to build their own houses, but they don’t want to put their own life at risk so they buy standard brand.

What percentages of local content are in your products?

Our percentage of local content after recession has improved greatly. We have gone from 80 to 85 per cent local content in our product due to backward integration in the last three years. Copper is now available, locally which accounts for 80 per cent of our product and it is still growing and about three additional manufacturers are coming up this year that is making us locally sufficient for copper. Aluminum is also coming up, it will be produced locally this year and that will improve local content to about 95 per cent. That has greatly changed the dynamics of cable production in Nigeria, which I would say started about more than 55 years ago. For us today, we are proud to say local content is more than 80 per cent in our product.