The local content act as it pertains to the oil and gas sector is set to stimulate the slowing paint industry, whose cumulative profit in the half year (HY) 2014 only increased by three percent.
Local operators are increasingly being engaged by oil and gas companies for painting and coating of oil platforms, pipelines and vessels, thanks to the local content act.
“The present enforcement of the local content act in the oil and gas industry is helping local manufacturers of paints and coatings,” said Sulaimon Tella, president of the Paint Manufacturers Association of Nigeria and chief executive officer, IPWA Plc, said recently.
“A large chunk of importation has stopped,” he added,
According to Tella, the paint industry is also being driven by a number of construction and housing projects going on in places like Lagos and Abuja. He added that construction of tank farms for the storage of petroleum products, which requires coating, and a number of furniture works also going on in the country, are key industry drivers.
Nigeria’s paint industry is still bedeviled by over-reliance on imported products, poor finance access, and high production costs, thus making it difficult for the industry to have a much better outlook. Moreover, industry players still say some oil companies are yet to have confidence in the local paint industry on account of quality.
There is also the challenge of unstable power supply, as a lot of firms have to switch to diesel oil to power their alternative electricity generators, culminating in higher cost of production.
The cumulative revenues of the three dominant paint makers (Berger Paints, Portland Paint and Premium Paints ), as reported in their HY 2014 results remained flattish at N3.45 billion.
The cumulative pre-tax profit of the dominant firms increased by a single- digit three percent to N325.79 million, from N314.83 million the preceding year. The 24 percent spike in operating expenses further slows the industry bottom line performance.
Based on BusinessDay analysis, these firms however had a better control of cost of production, as cumulative cost of sales slid by 7 percent to N1.89 billion as against 2.03 billion in the preceding year.
Industry analysts say the boom in the housing and real estate industry, fuelled by rapid urbanisation and a growing middle class is expected to drive the demand for paint.
It was learnt that Berger Paints is replacing its aging manufacturing infrastructure with modern paint technology that would lead to improved efficiency and boost turnover and profitability.
Analysts say the growth in the oil and gas sector will bolster both top line performance of the paint firms, as the former is the greatest contributor to the paints and coatings market.
Rotimi Aluko, managing director, Voda Paints Limited, said if the uptick in infrastructure developments and upgrades by the public and private sectors continue, the paints and coatings industry stands to benefit a lot.
“State governments such as Lagos and Kano are taking provision of houses very seriously. Kano State is building three estates simultaneously. Osun and Oyo states are doing a lot in terms of renovation of schools and upgrade of infrastructure.
“ Now that mortgage is coming back to Nigeria, it is getting a lot of people interested in property development. Those are going to be drivers of the industry going forward,” he said.
ODINAKA ANUDU & BALA AUGIE
