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The biting foreign exchange (FX) scarcity is forcing manufacturers to retool their factories and modify their machinery to suit the use of more local inputs in the face of the prohibitive cost of importing raw materials.
“What our members are doing is to retool and modify their machines to suit local inputs,” Frank Udemba Jacobs, president, Manufacturers Association of Nigeria, told BusinessDay.
“We are increasingly looking inwards, embracing resource-based and import-substitution industrialisation. While we keep exploring local inputs, we know this could need retooling and adjusting of machinery. We encourage those with the capacity to go into backward integration due to foreign exchange challenges,” Jacobs, who is the CEO of Jacobs Wines, said.
Several large corporations have already changed their machines, while a number of players in light industries are using domestic fabricators to produce cheap equipment that could fit into domestic inputs, according to John Kachikwu, CEO of John Tudy Interbiz, a food processor and exporter to the United States.
“We are changing machines because the foreign equipment we have cannot blend with local raw materials we are now getting,” said Kachikwu, who is also the head of SMEs at the Lagos Chamber of Commerce and Industry.
Matthew Ibeabuchi, CEO of Klopp Water Cure, which produces water purifiers, said he is fabricating more of light machines locally, while using more of local inputs currently.
Nigerian manufacturers invested N137.15 billion in plants and machinery in the first half of 2015 and N98.4 billion in the second half. Investment in plants and machinery was highest when compared with those of land and buildings, furniture and equipment, vehicles, assets under construction, according to MAN’s data.
The oil market crash means manufacturers now have fewer dollars for raw material import. But this is now a boost for domestic inputs, as manufacturers now explore ways of developing locally available raw materials.
Local input sourcing or preference in the Nigerian manufacturing sector rose from 47 percent in the second half of 2014 to 52 percent in the corresponding period of 2015.
“For us to remain in business, we may need to continue developing inputs ourselves,” said Jacobs.
Tunde Oyelola, chairman, MAN Export Group, told BusinessDay recently that manufacturers are naturally thinking of ways to develop local inputs as they backward integrate and invest in processing where necessary.
According to MAN’s latest data of second half of 2015, food, beverage and tobacco sourced 73.36 percent in the second half of 2015, from 69.75 percent recorded in the corresponding period of 2014. Local raw-materials utilisation in the sector averaged 69.05 percent in 2015 as against 66.08 percent of 2014, indicating 2.97 percentage point increase over the period.
Players in the wood and wood products, including furniture makers, raised their local raw material sourcing to 58.75 percent in the review period, from 57.64 percent of the corresponding period of 2014.
Similarly, domestic and industrial plastics, rubber and foam raised local raw material sourcing to 58.84 percent in the second half of 2015 from 37.03 percent of the corresponding period of 2014.
Basic metal, iron & steel, fabricated metal sectoral group also edged up in its utilisation of local raw-materials in the review period to 66.6 percent, from 57.18 percent of the corresponding period of 2014.
“We need to beneficiate some solid minerals to free inputs to factories, especially those in ceramics and other non-metallic products,” said Patrick Oaikhinan, professor of ceramics engineering and CEO of Epina Technologies Limited.
ODINAKA ANUDU
