42 BUSINESS DAY C002D5556 Monday 16 April 2018 REAL SECTOR WATCH Understanding Nigeria’s industrial strategy ODINAKA ANUDU One of the barely discussed concepts in modern development economics today is industrial strategy or blueprint. But it is hard to identify any upper middleincome or advanced economy that did not propel its growth or development through a clear-cut industrial strategy. China, for instance, is exportoriented. It is the largest exporter of steel, shipping 73.3 million metric tonnes to the world in 2017. The country is also world’s largest exporter of textiles and a number of other products. Even the ‘Go-Out Policy’ introduced by the country in 2009 is a reflection of its outwardly looking industrial strategy, targeted at exporting finished products to the world and investing overseas. India is following the same development pattern. Import-substitution, on the other hand, was adopted by Latin American countries, including Argentina, Chile, Uruguay and Venezuela, in the 1930s up to 1980s. It was hugely successful in these countries. It is a strategy in which local industries are established with a view to producing goods that replace imported ones. It means, for instance, encouraging the formation or establishment of fruit juice manufacturing companies in Nigeria to ensure that fruit juice is no longer imported. It is more inward-looking than outward. It requires imposition of tariffs, quotas and exchange controls to protect local industries from foreign competitors and make foreign goods expensive. Export- oriented or substitution industrialisation, on the other hand, is a strategy of exporting goods for which a country has a comparative advantage. This strategy has worked miracles for the Asian Tigers. Some countries have also adopted foreign private investment strategy, whereby incentives are put in place to attract multinationals and foreign direct investors. A typical example of a country with this policy is Ethiopia, even though it may be argued that the East African country is export-oriented or a mix of export-orientation and foreign private investment strategies. Some analysts argue that Nigeria does not have a specific industrial strategy and needs any of the three discussed above. Speaking at this year’s Manufacturing & Equipment Expo organised by MAN and Clarion Event West Africa, Aliyu Suleiman of the Dangote Group said the an industrial strategy had become important for Nigeria as new governments spent half of their tenures devising plans, with little room for implementation. “Last year, the United Kingdom produced a revised manufacturing strategy— a definitive roadmap. We can do that in Nigeria and MAN is in the best position to do this,” he stated. According to him, the industrial strategy should include the aspiration of industry in terms of how much GDP contribution targeted; where to play, with regard to areas of priority, and how to win, in terms of becoming competitive. Others have also pointed out that the country’s industrial strategy is vague, if it ever exists. There is another school of thought that believes that the country has never had any well-defined industrial strategy over the years. But a close look at Nigeria’s industrial history shows that the country adopted import-substitution strategy between 1960 and 1985. However, the objectives were never realised. According to Udo N. Ekpo of the Department of Economics, Akwa Ibom State University, inputs such as raw materials, machines, spare parts and the skilled manpower used in the local industries were imported. As a result of this, rather than cut imports, external dependence or save foreign exchange as expected, the policy hiked imports, perpetuated external dependency of industrial sector, and drained foreign exchange. More so, the envisaged transfer of technical skill and technology, which could have resulted in technological development in Nigeria and consequently boost industrial development, did not materialise because strategic technical position in existing manufactured firms were manned by foreigners, he added. At various times in the past, Nigeria made efforts to attract foreign manufacturers and multinationals to create jobs and utilise local raw materials. Olusegun Obasanjo and Goodluck Jonathan’s eras saw Like in the importsubstitution era in Nigeria, many of the raw materials are still imported today, even though local input sourcing is already over 50 percent ministers doing road shows outside the country to woo investors. There were also controversial waivers and incentives which several foreign companies got, especially during the Jonathan’s administration, targeted at promoting foreign investments. Currently, many government officials have used the expression ‘import-substitution’ many times, pushing analysts to wonder whether this is the country’s current strategy. However, the crash in Nigeria’s biggest foreign exchange earner—crude oil— in 2015 and 2016 pushed public officials into campaigning for export of Nigerian agro and finished products. The reason was not far-fetched: Oil price was low and consequently dollar inflows could not meet the demands of manufacturers who needed to import inputs; fuel importers who wanted to bring in refined fuel, among others. Like in the import-substitution era in Nigeria, many of the raw materials are still imported today, even though local input sourcing is already over 50 percent. This is why many think that Nigeria’s industrial strategy is either non-existent or it is import-substitution. However, checks show that there has been a new industrial policy in the country since 2014. In the Nigeria Industrial Revolution Plan prepared by the Goodluck Jonathan administration, adopted by the present government, the country’s strategy is what is called ‘resource-based industrialisation’. This means the use of locally available resources, such as raw materials, man power and natural resources, to grow domestic production. This has seen some success with local input sourcing ranging between 52 and 60 percent since the second half of 2016, according to numbers from MAN. However, the craze for export to earn foreign exchange and the constant use of ‘import substitution’ in the industrial circles are blurring this vision. Nigeria’s nonoil export today is still dominated by cocoa, rubber, sesame seeds, shea nuts, animal skins/leather and vegetables, which ordinarily should feed local industries. Frank Udemba Jacobs, president of MAN, believes on the focus is on import-substitution, exportorientation and resource-based industrialisation. Jacobs said export was important because of the need for foreign exchange in the country, adding that export would create more demand locally. “Our industrial strategy is clear. It is resource-based industrialisation. But all others are important. What we do not want is exporting commodities without adding value,” he said. Jacobs said the prices of Nigerian products were not low owing to high cost of inputs and power. Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI), pointed out most industries focused on both the local and export markets because the latter was bigger. Yusuf said import- substitution and export promotion could go together. He explained that resource-based industrial was more competitive because local resources were utilised, citing an example with the bright performance of food and beverage subsector which got most of its inputs locally as a case study. Oladapo Abiodun, chairman of LCCI SME Group, noted that import-substitution and export promotion could not be separated as one depended on the other for success. “The whole world is a global market. For you to enjoy economies of scale, you need to produce at an optimal level, satisfy the local market and export,” Abiodun said. He said a clear industrial strategy could only be noticed when the environment was good enough for businesses. Experts say what Nigeria needs is to further develop essential raw materials for industries by bringing back petrochemical industries, rejigging Ajaokuta Steel and attracting deep-pocket investors to the solid minerals sector. They say unless efforts are made in these directions, input importation will continue and resource-based industrialisation will become a will-o-the-wisp.
Monday 16 April 2018 C002D5556 BUSINESS DAY 43 REAL SECTOR WATCH Steel firms expand capacity, tap export opportunity to earn FX Stories by ODINAKA ANUDU Nigerian steel firms are expanding capacity and tapping into export opportunity in the neighbouring markets to earn foreign exchange. Aarti Steel Nigeria Limited, which recently completed a 120,000- tonnes capacity cold-rolled mill in Ota, Ogun State, exports steel to Togo and Mali and plans to expand to Central Africa, Ivory Coast and Benin to boost capacity, earn more foreign exchange and tap the growth potential in the continent’s market. Aniket Singal, Aarti’s vice chairman, told BusinessDay that the company was looking at expanding its export footprints, but said there was a need for a policy that would keep substandard roofing sheets at bay. African Industries, in October 2016, exported finished steel products to Morocco, Ghana and other parts of Africa for the first time. The company said its export of finished steel products would save the country over $650 million yearly. Alok Gupta, group managing director, African Industries Group, said that the quality of steel products of African Industries was at par with steel from Ukraine, if not better, adding that the company had become internationally competitive in exporting products Nigerian Breweries expanding local input sourcing operations, says MD The Nigerian Breweries (NB) says it is committed to raising its current 50 percent local raw materials sourcing to 60 percent before 2020. Speaking at the annual general meeting held last Wednesday in Lagos, Jordi Borrut Bel, managing director of NB, said the brewer would continue to improve on its value extraction from local raw materials, including cassava and sorghum. Bel stated that the company was determined to improve the sorghum value chain in the country. The brewer’s profit after tax (PAT) on the financial year ended December 31, 2017, surged to N33 billion, from N28.4 billion reported in the correspond- A cross section of participants trained by Nigerian-American Chamber of Commerce (NACC) on “Customer Relationship Management” in Lagos recently ers. He said the firm had cut water consumption for production by 28 percent in the last 10 years, sourcing 100 percent of its packfrom Nigeria. He called for Export Expansion Grant to enable the company to sustain its exports. He added that freight cost from Ukraine to Ghana was $40 per metric tonne (MT) while that of Nigeria to Ghana is $65/MT, which was expensive. Uche Iwuamadi, executive director of the group, said the company’s operational capacity was below 70 percent, stating that there would likely be excess steel in the country when African Industries reached 100 percent capacity. African Industries has 12 subsidiaries, including six big ing period of 2017, representing a 16 percent rise. Revenue for the period was N344 billion, as against N313 billion recorded in the previous year, representing approximately 10 percent increase. Bel said the board of directors of NB recommended dividend of N33 billion to shareholders, which was highest in the company’s history. The recommendation amounts to a total dividend of N4.13 per share for the 2017 operating year. Bell explained that the brewer gave out 100 per cent dividend as part of its dividend policy, consistent in its robust balance sheet. He explained that the company’s stable growth amid economic headwinds was a result of the company’s ability to cut cost. steel plants such as African Steel Mills, Ikorodu Steel Mills, African Foundries, and Abuja Steel Mills. “We produce one million tonnes of steel per year and our target is to export between 200,000MT and 400,000 MT this year. You can see we are earning foreign exchange when others are demanding it from the government,” Uche Iwuamadi, group executive director, African Industries, told BusinessDay. Standard Metallurgical Company Limited (SMC) is planning to launch a billet mill to produce standard wire rods in Nigeria for the local and ECOWAS market. Mohammed Saade, managing director, SMC, said was producing 300,000 tonnes of wire rods per year. “With phase two, we would produce 260,000 tons of billets in Nigeria. Nigeria today is a big market and we are committed to meeting local demands and the surplus can go to the ECOWAS market,” Saade said. Nigeria, Africa’s biggest economy, spends about $3.3 billion on steel imports every year. Eighteen of the 30 steel manufacturers in Nigeria produce about 2.2 million tons a year with scraps and billets Bel explained that the foreign exchange situation improved last year, but pointed out that double digit inflation impacted businesses and consum- imported mainly from China. An average of steel products such as standard plates, hot-rolled coil, cold-rolled coil and rebar is $464.7 using Chinese prices, which means Nigeria imports roughly 7.1 million metric tonnes of steel annually. Many of the exports are still scraps, billets, and nails . The publicly-owned Ajaokuta Steel Complex is in disrepair after government sinking over $5 billion into the plant. The government has been slow in handing over the behemoth to a private investor despite interests from foreigners. aging materials locally. Bell noted that development of employees was important for sustainable company performance, adding that early signs of improvement in the macro-economic condition were yet to reflect on consumer confidence. He said the firm remained committed to the market in the long term as the fundamentals of the beer market were strong and attractive in the both medium and long term. He pointed out that firm was well positioned to trade through difficult times by leveraging its innovative brands across different market segments. NB sources its sorghum through a company known as Psaltry International Limited, located at Alayide village, Ado Awaiye near Iseyin, Oyo State, Initiate policies to revive moribund textile mills, NTGTEA tells FG The Nigeria Textile, Garment and Tailoring Employers Association (NT- GTEA) has urged the Federal Government to initiate steps to revive moribund textile mills in Nigeria. By 1985, Nigeria had over 180 textile mills employing more than one million Nigerians. Some of the mills were United Nigerian Textile Limited (UNTL), Aswani Textile, Afprint, Asaba Textile Mills, and Edo Textile Mills, among others, but there are fewer than three full-fledged healthy textile mills in Africa’s biggest economy and most populous country today. Speaking in a telephone interview, Hamma Kwajaffa, director-general of NTG- TEA, said unbridled importation of cheaper but substandard textile products killed local firms, stating that 95 percent of the textile market in the country today is dominated by China. Kwajaffa said the very few surviving textile firms are struggling and cannot compete with China and India, whose production costs in their home countries are much lower than Nigeria’s. “Energy costs four cents per kilowatt in other African countries but 20 cents per kilowatt in Nigeria. So how can a struggling textile firm compete? We need government intervention to be able to compete,” he asked. The textile industry in Nigeria is currently made up of fabrics makers, cotton producers, rug and carpet manufacturers as well as fashion and designers. “We can produce military uniforms. We have bed sheets, blankets, towels and handkerchiefs. We can make good products, but there is a need for incentives for the industry,” he said. In the first quarter of 2016, Aisha Abubakar, minister of state for industry, trade and investment, toured three textile firms, which include Lucky Fibres Nigeria Plc, Spintex Mills and Nichemtex Plc in Lagos and Ogun states, promising to draw government attention to the challenges in the industry. However, smuggling, high production cost, poor patronage and lack of quality control on imports, which are age-old problems in the industry, continue with little or minimal government response.