Economists and industry stakeholders have lamented the food companies’ prevailing unfavourable operating climate and called for urgent need for the federal government to address the constraints and challenges facing the Fast Moving Consumer Goods (FMCGs) sector in the country.
Such steps they reasoned would boost the economy and bring about improvement in the ease of doing business in the country.
Speaking on the Business Morning programme of the Channels Television Network yesterday, the Chairman of Financial Derivatives Company Limited, Mr. Bismarck Rewane, in response to a question, listed some bottlenecks facing the under-performing companies in the above-mentioned sector, which have affected their financial performance.
To Rewane, these constraints include infrastructural constraints, low purchasing power and an unpredictable business environment. His response also corroborated the factors identified by the Group Managing Director/CEO of Flour Mills of Nigeria Plc, Mr. Paul Gbededo in a his state of the industry position recently in Lagos.
Gbededo, in the detailed interview, had also enumerated challenges facing flour millers and the need for government to encourage inclusive, sustainable and enforceable policies to encourage local investors. He also called for greater control on the quality of imported and home-grown wheat and better infrastructure, especially access routes at the factories and ports.
Rewane said, “Some of these constraints are self-inflicted. Take for example the Apapa gridlock, take for example the cost of funding, and low productivity. So we have all of these things. But more importantly is that in the National Income Identity Equation, you have government expenditure, but the most important component of this is investment. Total investment in Nigeria is about $65 billion; it is less than 17% of the total Gross Domestic Product (GDP).
“A combative regulatory environment; an extortionary regulatory environment and policy making environment is what kills investment. And investors are not interested in what you say because what you do is more important than what you say. What you are doing could be combative or disruptive while what you are saying is creative.
“Talking about flour, price of wheat has gone up by almost 30% in the last year or 18 months. But the price of wheat now in Nigeria has gone up by almost 10%. The result is that, and the exchange rate has moved, okay now positively and they have the availability of foreign exchange; good news. But the reality is that Flour Mills of Nigeria has shown a 10% drop in revenue, and a 15% drop in PBT (Profit Before Tax). Honeywell has 2%, 3% dropped in revenue and 83% drop in profit. Everybody is suffering this.
“The problem is that there is low purchasing power. You know we haven’t done the minimum wage review for the past 8 or 9 years. There is low purchasing power; there is drop in productivity and there is high-interest rate environment. So people are confronted with all of these things and therefore you need to do something dramatic”, Rewane advised.
The financial expert said, “The cost of the Apapa gridlock is about N2 billion a day while the cost of the subsidy is about N4 billion a day. If you add those two together, it’s N6 billion; in fact that is 50% of the budget of Nigeria. If you just deal with those constraints of the Apapa gridlock and the subsidy, deal with it.”
On how government can correct the anomalies involving the Apapa gridlock, Rewane said, “first of all you have to recognise the guys who have a stake in the grid. The Dangote Group, for example, has a refinery, so if 40% of the trucks going into Apapa are going for petroleum products, you have a pipeline. If you have a pipeline, then you stop that. Then more importantly is that you improve Calabar, Port Harcourt and all.
“So you have got to fix the roads which are some of the things that the government is doing or it intends to do. Then, you begin to see the effect but it takes time. You have got to send the right signal; you have got to encourage the people to invest in those areas,” he added.
“The cost of moving flour from one part of the country to another is significant. And bread is a very important staple for people, not only bread, we have pasta and all the other flour-related products like noodles and so on. There is so much involved in that and the behaviourial pattern of the younger generation, the millennial generation, they take noodles, they take pasta; they don’t take the regular things. So they are moving and shifting and we have got to be ahead of the game to ensure that we keep them happy”, Rewane added.
Gbedebo said, “The size and growth rate of Nigeria’s populations is a clear indication of the growth potentials of agro-processing and manufacturing sectors. Nigeria must continue to focus on growing its local content by encouraging, innovation, implementing backward integration policies and creating an enabling environment that will encourage and stimulate investments in the real sectors. We need to focus on increasing capacity, especially in areas or comparative advantage and continue to actively encourage, the development and purchase of ‘Made in Nigeria,’ products.”
“Other than the obvious danger to investments in the sector, and likely threat to jobs, and the loss of local capacity utilization; perhaps most worrisome is impact some these imported flour brands will have on consumers. For starters, local flour is fortified with vitamins A & C, unlike the imported flours that lack fortification. Government needs to encourage inclusive, sustainable and enforceable policies to encourage local investors. There must be conscious effort to address not just the issues of dilapidating infrastructures like road, rail, and power, but also to build capacity in the real sectors,” he added.