The Group Managing Director of Red Star Express, Dr. Sola Obabori, in this interview advises the federal government to focus on rebuilding the economy following the Covid-19 lockdown. In order to boost revenue from export, he advises the government to remove hindrances to export of perishable goods. Chinedu Eze brings the excerpts:
What is your take on the impact of the pandemic on the cargo sub-sector?
When the government said passenger transportation was halted, that we could do cargo, my first response was that the lifeblood of an economy is about people who are moving. There is a big role that movement of people has to do in terms of creating activities. The interplay between people, goods and services is the rhythm of dynamism that generates robust activities and propels the economy. It is the barometer for measuring whether the economy is growing or slowing down.
Therefore the closure of the airports didn’t permit human beings to move any more, and this had an immediate impact on the the quantity of goods and services on the move and of course overall productivity The supply chains of most companies were severely disrupted. For example, when you have lockdown of people in China who can’t go to work, that also means they don’t go to their factories and they don’t produce. So when they don’t produce there is nothing for the airlines and cargo operators to bring to Nigeria. So it is the human beings that must be at work for all of these other elements to be able to function and produce value.
So to answer your question. Yes, absolutely the fall outs from the pandemic and subsequent restrictions on the movements of goods have negatively affected the cargo sub-sector. Although the activities on the e-commerce side have accelerated comparatively, they themselves are dependent on some other factors and key economic signals. Fortunately for us at Red Star our successful diversification as well as the scale up of our logistics services have kept us ahead of the curve, but we also operate in the overall drag-down atmosphere.
But as people were not moving during the lockdown, they were ordering goods and other services online, which boosted online marketing and distribution of goods, especially consumables to homes. How do you assess that?
The courier service became even more indispensable in a lockdown situation, and helped people to survive the period. For example, if you were ordering things online, what would you be ordering? To a large extent, people order things from the Quick Service Restaurants, groceries and those types of things. I am not sure during lockdown anybody was ordering shoes, bags, suits, motor spare parts or other industrial goods. So if you check the macro economy of Nigeria you will see this scenario also reflected. What is the relationship between what we consume on a daily basis, which you now call essentials, and the things that are luxury or industrial good? Take for example the woman who sells clothes now. What has happened to her in the last three months? She hasn’t made a sale. Look at the hotels that are around the corner, they have been in lockdown since March 31st, they haven’t made a dime in terms of income. I drove in front of Sheraton the other day and I saw that for the first time since 1987 that I’ve been going to there, the hotel was locked. We are now in 2020, that is over 30 years! That says a lot about what can happen overnight to an established and thriving business.
So what will the motorcycle or trucks that is delivering goods do for such businesses? If 90 per cent of your economy is not working and only the agro or food related part of the economy is working, it shows you the amount of revenue that is also lost. Of course the courier companies are also struggling among themselves for market share. And these other fellows you mentioned now and hundreds of small time couriers who are new entrants into the business, have joined in the market scramble and share of the diminishing cake!
Let’s look at the logistics industry, what do you think the government should do and what should be the new drive in terms of government policies?
You know I have argued this on many other occasions and repeatedly appealed to Government to create some funding for the logistics industry and also to substantially reduce import taxes for commercial vehicles, trucks, and spare parts as the impact of the devaluation of the naira has eroded the purchasing power of most organizations and weakened their ability to rapidly retool or replace ageing assets. That accounts for the high mortality rate and the relics of players you see all over the place. I have argued on some other platforms, that it is imperative for the Government to further support our industry as we have a snowball effect on other industries and therefore the economy as a whole. Don’t forget that Government is supporting the pharmaceutical industry and quite a few other sectors. Even the medical diagnostic companies can now go to CBN and have access to some kind of loan to help their industry. By the time the aviation people will be coming back with their aircrafts, most likely they will get some palliatives as well or some stimulus package that will help them to make a successful come- back. Otherwise many of them will go out of business. If you check across Europe and America, you will find that government is already responding in this direction. As reported, Lufthansa for example was given a huge injection of capital by the Government which may be converted to about 30 per cent of equity in that company. That is what will happen globally. In fact, IATA (the International Air Transport Association) is also pushing and trying to ensure that governments across the world support the aviation industry to come back in these unprecedented times.
For the courier and logistics industry however, I am honestly very reluctant to ask for stimulus at this time from the government of Nigeria. Reason? You will end up killing the government with massive debt burden! So if agribusiness people are asking for stimulus package to enable them plant whatever they want to plant, and also to acquire essential equipment, fertilizer and other resources; then the airlines are also going to ask, followed by a number of other sectors, I don’t feel justified mounting additional pressure if we can manage to navigate the waters. Knowing that the government revenue base is obviously challenged from many angles, the best thing is for other industry players to figure out their best options. Revenue from oil has dwindled due to a massive drop in global demand. At one time, a barrel of oil in the US market went down to below zero dollar and below cost of production in other markets! We have never seen it like that before. Although the market is picking up, overall oil revenue has declined sharply. Similarly, income from the Ports, the Customs have also nosedived because goods are not coming into the ports as they used to. The income from aviation, including landing charges, passenger taxes and all of those related levies are also not coming right now. And companies that are supposed to manufacture and pay corporate taxes, VAT and so on are also not in a strong position to do so. Should I add more trouble to the government? I think I am not going to do that.
I believe it is imperative for every organization and every individual to strive even harder to play their part and contribute to the overall recovery efforts. The more impact that we can each make around this time, the better. I read a caption that was said to have been written by Jack Ma that says, “This is not a year to make profit, this is a year to stay alive”. He says also, “if you stay alive this year, you have already made profit”. There is a lot of depth in that statement if you consider the number of deaths being recorded globally on account of Covid-19. Therefore, the focus should obviously be survival not extreme profitability. Though that is a tough-sell to investors and shareholders of companies across the world.
So in essence, I am not asking for anything from government for our personal or companies’ benefits. What I can ask are the things we call “enabling environment” for businesses, which must be the priority now. Fix the roads to minimize unwarranted truck accidents on the highways, fix rail and airport infrastructures, decongest the ports to enable quick transit of shipments across the country, continue to tackle insecurity in many volatile parts of the country in order to protect lives and investments. If there are waivers that the government can give in terms of extended time for us to pay our taxes, employee support programs and other deferral initiatives to boost productivity and employee retention – these are the sort of things the government should be seriously considering at this time. In other countries they are doing exactly those and a lot more. I am sure you know or read that in some countries, they are even telling banks to reduce interest rates on loans and reduce any unnecessary charges. We read that in some parts of Africa that governments are saying to landlords to waive rent for a couple of months whilst also reducing rates charged on electric power supply. The government will have to review what’s affordable and respond to the exigencies of these times.
Do courier companies have strong association?
Absolutely we have and there are two major ones: Nigerian International Air Courier Association (NIACA), that is where we belong, and there is also Association of Nigerian Courier Operators (ANCO). So the first one constitutes most of the big organisations like Red Star, UPS and DHL. We are in that first category and a few other companies that have chosen to associate with us. ANCO is also very big, most of the indigenous companies that you we have are also in that category. And the two of them are really strong and we keep having meetings and engagements to talk about the industry from time to time.
Would you say the major hindrance to export of perishables from Nigeria is government policies and government agencies, how can we eliminate those hindrances so that Nigeria can export more perishable goods?
The issues and challenges around our airports and the sea ports, remain the biggest hindrances to exports and our aspiration to a more export-driven economy away from oil. You remember there was a time Nigeria was trying to send some containers of yams abroad, and they became rotten by the time they arrived at their destinations. The Minister was even involved in that laudable export initiative and they were at the sea port to do some kind of ceremony around the export of yam from Nigeria. Unfortunately this export endeavour did not have a happy ending – simply because of the complexities and bureaucracy around the ports.
So if you are going to send something from Lagos airport, for example, you have more than six or seven government agencies doing the same things at different times and virtually asking the same questions. Ideally the Customs which is a law enforcement agency arm of government plus the police with other minimal support should be more than enough to supervise the export process at the airports. Instead what do you find? We have a multiplicity of agencies including the anti-bomb agency, quarantine, customs, police, National Drug Law Enforcement Agency (NDLEA), and a few others.
All we need is what is called a one window outlet for export. Ghana our next door neighbour has this simple but effective process in their airports for fast exports. You only need to visibly have the customs at the airport to enable government get its due revenues and then quarantine services to ensure quality. But for as long as you have this layer upon layer of checks and inexplicable bureaucracy at the airports, our export aspirations will remain pipe dreams.
And beyond this, even the cost of exporting from Nigeria is not comparable with what you have cross West Africa. The neighbouring countries are far cheaper to export from, giving them a clear competitive advantage, especially for agricultural produce. Their governments also provide a wide range of waivers for such produce.
This is an area the Federal Government should urgently look into. I am told that Benue State is one of the highest yam producers of in the whole world. But how much of that are we able to export? If you go to London, Europe and North America, most of the African shops and even the Nigerian food outlets, you will see more of Ghana yam and Ghana palm oil on their shelves. Or plantains from the Caribbeans. Even some of the Nigerian yams or food items you find are flown out from other neighbouring airports, not Nigeria. Why is this so?
The process of exporting agricultural produce should be drastically simplified and incentivized as a matter of urgency. The charges on those perishable goods will also have to be substantially reduced. Kenya for example exports fresh flowers and many other fresh agricultural products into the European markets and they make a lot of money from agriculture. In terms of production capacity we are far greater than them. But with all the hurdles and hassles at the airports, our exports capabilities are shackled.
I am aware that there are various efforts going on right now to change this export situation. We also belong to a number of associations that are doing advocacy with the federal government to ensure that we can export. We have members of our team working with the government to suggest recommendations at improving the process at the airport and therefore boost exports. I am optimistic that these efforts will soon be fruitful. We will keep at it.
There was a time we were working on a project in Red Star Express which was to help Nigeria export much more than we have ever done in the country’s history. We were trying to work from Ibadan, an we got a large space where we can aggregate things from the whole of the South West of Nigeria into Ibadan. From Ibadan airport there will be flown or trucked into into Lagos for subsequent export to the UK. We also got a space in Akure so that fresh produce from the whole of Benin area, Ekiti and Ondo can converge in Akure, and then we can fly them or truck them into Lagos for exports to European markets. In addition, we set up a similar export chain in Jos and Bauchi, so products from all the agricultural areas in the North could be aggregated in Jos and flown out from there. Regrettable, we faced numerous obstacles. I am sure we are not the first to try and a number of companies have also hit the brick wall. The good news is that our plans in this export direction are still very much in place we are reworking our strategies accordingly.
What are the new investment and activities for Red Star Express?
One of the best things we did in the last the last 2019/2020 financial year was the raising of fresh capital. We had a Rights Issue which was to help us to raise additional capital to augment our working capital. We raised 102 per cent of target, reflecting investors’ confidence in the long term growth of the company. I am glad that we did, as COVID 19 would have made it impossible this year.
We have massively invested in new trucks and motorcycles as well as other essential assets. We have retooled successfully and we are well prepared for the next rainy season. We are also perfectly positioned to respond to the opportunities that will come post Covid-19.
We have spoken a lot about agriculture just now. We are trying to do co-chain trucks that will move fresh produce from the farm for people to the shop floor for retail stores that are all over the country. So, even if you run a poultry shop, for example and you are producing your poultry products, we can support your company by bringing co-chain trucks there to help you move these items from wherever they are produced to the shop floor where they can be sold on a retail basis.
We are also adding value to the pharmaceutical industry and entire health value chain. The Pharmaceutical industry is booming presently because more and more people are taking care of themselves from home with help from neighbourhood pharmacy stores. So there is a lot of movement of medicines and pharmaceutical products across the country. Red Star now has all the assets required to keep this going.
Not forgetting the e-commerce sector, which is probably the most important driver of growth in the new dispensation. Red Star is the backbone of this industry. All the e-commerce players that you mentioned a few minutes ago are largely dependent on us in many ways. We supply them with motorcycles in hundreds to help them move customers’ products from one place to another and keep the country’s daily economic engine running. So as far as positioning the company for the future is concerned, I think we have done quite a bit. We believe in the Drucker truism that the best way to predict the future is by creating it!