Forex Conservation through local sourcing

Business News

By Franklin Ocheneyi

Today, 99 percent of our packaging materials are locally sourced from GZ Industries, Agbara Industrial Estate, Ogun State, and Glass Force Limited, Aba, Abia State

 

The Minister of Science and Technology, Dr. Ogbonnaya Onu, recently disclosed that between 2000 and 2015, Nigeria spent as much as N49 trillion to import raw materials and products. This translates to about N9.8 billion yearly.
The Minister lamented that for too long, Nigeria has depended on the importation of raw materials and products and this has had very adverse effects on the economy particularly as it concerns job creation and the search for self-reliance.

According to him, such level of importation is unsustainable and that there is a need to move our economy away from that by utilising the abundance of local natural resources for industrial production in the country.

In response to this call, industry leaders in the Nigerian industrial sector have intensified backward integration towards local sourcing of raw materials amidst harsh foreign exchange environment.

Inquiries by Nigeria Industrial Digest showed that indeed, scarcity of foreign exchange (FX) and high exchange rate have forced big players in the nation’s industrial landscape to opt for local inputs as against imported raw materials.

According to Manufacturers Association of Nigeria, MAN, the acute shortage of foreign exchange, FX, that began in late 2014 due to low FX inflow into the economy following low crude oil prices brought the issue of local sourcing to the front burner and made it a clarion call of a sort.

Frank Jacobs, MAN President, noted that in response to the clarion call, some operators in the industrial sector have invested and are still investing heavily in backward integration projects.

They include Nigerian Breweries Plc; FrieslandCampina WAMCO Nigeria Plc; Nestle Nigeria Plc; Dangote Group, Flour Mills of Nigeria, De-United Food, Chi Limited, Presco Oil, Okomu oil and BUA group.

He said that as a result of the huge investments in local content by manufacturers, utilisation of domestic raw materials has increased to 53.17 percent, as at the end of 2016.

“According to the outcome of MAN’s survey, local sourcing of raw-material increased to 53.17 percent in 2016 as against 48.75 percent in 2015 and 47.18 percent in 2014.” Based on this, he said that MAN has been urging the government to ensure the sustenance of the policy through appropriate incentives to further encourage backward integration efforts by manufacturers.

Here is a closer look at one of the industry tops on local sourcing efforts- Nigerian Breweries Plc:

Mr. Patrick Olowokere, Corporate Communications/Brand PR Manager, Nigerian Breweries Plc, who gave an insight into the company’s local content efforts, said that the company has drastically reduced the volume of raw materials from Europe as it is now able to sustainably source 57 percent of the ingredients locally for brewing its beers and beverages drink.

“Our main raw materials are barley, sorghum, and hops. Barley and hops are imported because they are not locally grown due to our climate conditions while sorghum, cassava, and our packaging materials are locally sourced.

“When we started operation in Nigeria, we were importing raw materials from Europe. If you know what it means to ship empty bottles all the way from Europe to Nigeria, but then, we said to ourselves: it is not sustainable to keep bringing in cans and bottles from Europe. So, we looked for an investor and we found one and they agreed to set up a canning factory in Nigeria, at Agbara industrial estate, Ogun State.

“We worked with them and guaranteed their financial that if they make the cans, we will buy them and they started making them. Today, 99 percent of our packaging materials (bottles, aluminum cans, crown-corks, labels, crates, cartons, etc.) are locally sourced from GZ Industries, Agbara Industrial Estate, Ogun State, and Glass Force Limited, Aba, Abia State,” he said.

He also disclosed that the company is sourcing 60 percent of cassava starch from Psaltry International Company Limited, Ado-Awaye, Oyo State; and is also procuring sorghum 100 percent locally from farmers.

Nigeria Industrial Digest learned that the drive by the company to sourcing raw materials locally was in line with Heineken, the parent company’s target of achieving 60 percent of raw materials need in Africa by 2020.

“We achieved 47.4 percent local content in 2015, 57 percent at the end of 2016 and our target is to achieve 60 percent by 2020,” he said. Nigerian Breweries, in its Sustainability Report tagged ‘Enhancing the Sorghum Value Chain’, claimed to utilises 100 million tonnes of sorghum every year, and thereby creating jobs for farmers

Mr. Kufre Ekanem, Public Affairs Adviser, added that the company’s sustainable sourcing of local raw materials is tied to our corporate philosophy of “Winning with Nigeria.”

One of such raw materials suppliers to the brewery giant is Mrs. Oluyemisi Iranloye, Managing Director/ Chief Executive Officer, Psaltry International Company Limited.

Mrs. Iranloye, a Biochemist turned farmer, who disclosed that Nigerian Breweries is the biggest buyer of her cassava starch, noted that the impacts of local sourcing of raw materials on the economy are huge.

“Could you imagine the amounts of Dollars only our company is saving Nigeria in import substitutions? It’s quite huge -$4 million a year,” she said

Corroborating to this, Mr. Godwin Emefiele, Governor of Central Bank of Nigeria (CBN) confirmed that the implementation of the apex bank’s policy on 41 items has led to the considerable decline in Nigeria’s import bills, from an average of about $5.5 billion to $2.1 billion in 2016 and $1.9 billion by half year 2017.

Speaking during the 2017 Annual Bankers’ Dinner organised by Chartered Institute of Bankers of Nigeria (CIBN) in Lagos, Emefiele, noted that in spite of opposition to the introduction of the policy the faithful implementation of the policy had seen local manufacturers recording profits and increase in capacity utilisation due to the policy.

Citing the example of Psaltry International Limited (PIL), an agro-allied company based in Oyo State, he said the introduction of the policy had reversed the fortunes of the starch-producing company.

He noted that prior to the policy; Psaltry had only few customers and a huge backlog of inventory. However, due to the policy, the company now has over 50 multinational clients including Nestle and Unilever, thereby saving the country $7 million in foreign exchange drawdown over the two years of the policy.

“These are clearly verifiable successes of government’s attempts to create jobs locally, improve the wealth of our rural population, improve industrial capacities and ultimately attain economic growth in Nigeria,” he noted.

In the words of MAN President, the beauty of increased local sourcing of raw materials by manufacturers are that they would in the short and long runs have positive trickle-down effects on foreign exchange (FX) conservation, FX earnings through export proceeds, the value of Naira, employment and wealth generation, etc.

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