The foreign exchange crunch is creating crisis in the Nigerian factories, but it is a clarion call for manufacturers and the government to develop and revive locally available inputs.
“The government and the private sector must now play critical roles. Government needs to encourage farmers by offering them improved seedlings and soft loans,” said Jon Tudy Kachikwu, a Nigerian food processor who exports to the United States.
“Manufacturers in the food and beverage sub-sector should provide support for farmers or go into backward integration themselves. When the Federal Government banned importation of barley, Guinness and other brewers bought and leased large acres of land for farmers and also gave them soft loans. With this farmers increased output, which the manufacturers needed as inputs, “ Kachikwu said.
Oil price has crashed by over 50 per cent in the last 22 months, meaning low dollar inflows into Africa’s biggest oil producing country. This also means that manufacturers now have fewer dollars to import raw materials and feed their factories.
Many manufacturing companies currently buy foreign currencies at the parallel market where dollar exchanges for naira at over N460/$, as against the central bank’s rate of N305/$.
The dollar crunch forced the central bank in August to direct that 60 per cent of all available dollars be devoted to manufacturers.
This is, however, not enough as manufacturers complain they get far less foreign exchange to import inputs.
Joseph Babatunde Oke, chairman, A.G Leventis, told Real Sector Watch that the foods division got only two per cent of dollars needed to import inputs.
This led to slump in weekly bread production from 1.5 million loaves by June 2015 to 400,000 loaves weekly at the moment.
Haffar Industrial Company Limited, producer of sewing and embroidery thread used by other manufacturers, requested $300,000 in October to import textile inputs but got only $42,000 through the inter-bank market.
These challenges offer opportunities to look more inwardly to develop local raw materials to reduce the dollar chase by manufacturers.
Paints makers currently import 80 to 90 per cent of their inputs, according to Rotimi Aluko, chairman of Paint Manufacturers Association of Nigeria (PMAN).
Pharmaceuticals import between 80 and 90 per cent of their inputs, according to local drug makers.
This is also applicable to chemical producers and manufacturers in allied industries.
“We need petrochemical plants at the moment for industries like these to stop chasing foreign exchange,” said Ibrahim Usman, vice president of the Manufacturers Association of Nigeria, who also has a paint factory.
“Pharmaceuticals need calcium carbonate and other inputs from petrochemical plants,” Usman said.
Checks show that there are three basic outputs from petrochemical plants, which include olefins, aromatics and synthesis gas. Olefins include ethylene, propylene, and butadiene. Ethylene and propylene are important sources of industrial chemicals and plastics products. Butadiene is used in making synthetic rubber, Wikipedia says.
Further checks show that aromatics incorporate benzene, toluene, and xylenes. Benzene is a raw material for dyes and synthetic detergents, while manufacturers use xylenes to produce plastics and synthetic fibres.
Similarly, synthesis gas is a mixture of carbon monoxide and hydrogen used to make ammonia and methanol. Ammonia is used to make the fertilizer urea and methanol is used as a solvent and chemical intermediate, Wikipedia adds.
Dangote Group is coming up with a petrochemical plant and expects to complete it by 2018.
Steel makers are unhappy that the Itakpe Iron Ore Mining Company and Ajaokuta Steel Complex have not worked for years. Itakpe has been concesssioned to Global Steel Company, while Ajaokuta is waiting for concessioning, according to Kayode Fayemi, minister for mines and steel development.
“Most steel companies get all their raw materials there. They need copper ore and other steel products from the two plants. Development of critical raw materials is government-related, so they need to drive it fast,” Usman added.
Many manufacturers complain that some of the raw materials available locally do not meet standards or need further processing. Cement makers sometimes import limestone, which is locally available in large quantity, owing to changes in chemical reactions. Flour millers complain that locally available wheat sometimes does not meet their standards.
Patrick Oaikhinan, professor of ceramics engineering and CEO of Epina Technologies Limited, said there is a need to invest heavily in development of skills as well as processing and beneficiation equipment.
Oaikhinan said the ceramics industry is on a low point because, like many other industries, Nigeria lacks skilled manpower that will develop kaolinite, alumina and silicon carbide, among others. He urged the government to begin to look at that end, while battling to resolve the foreign exchange crisis.
