Nigeria’s giant industries are silently disappearing (Long and insightful investigation)

THE first part of this investigation, which can be read here,  mentioned names of manufacturing companies that have gone into extinction in the last six years, thanks to the policies of the current administration.

The second part of this investigation continues to name companies that are silently shutting down while the government chooses to do nothing – a case of Nero fiddling while Rome burns.

In today’s Nigeria, investors who have made plans to set up local manufacturing plants are making U-turns.

GODSON Obinani, a Christian pastor, set up Errand Products Limited in 2019.  His intention was to leverage opportunities in the Nigerian economy but also to create jobs for young people. The company was located at Nwagbala Estate in Nnewi, Anambra State industrial hub.

It was established to assemble tricycles (completely knocked-down and semi-knocked down) and sell them at cheaper rates, mostly to youths interested in moving into commercial transportation. After putting the plans together and setting up buildings for it,  the company waited for months to import its machines and raw materials but to no avail. Reason? There was no foreign exchange to import them.

“We could not get dollars to bring in machines and other essential raw materials that we needed,” Obinani told The ICIR in a telephone interview.

“I left the whole thing because it was impossible to continue with the plan,” he said.

Table 2

Company Year of Closure Reason (s) for Closure
Errand Products 2019 Foreign exchange scarcity
Phonenix Specialties Nigeria Limited 2018 FX, difficulty in accessing raw materials
Technoflex Company Limited 2017 Rising production cost
Evans Medicals 2017 Bank debt
Kenfrancis Farms Ltd 2017 FX pressure
GlaxoSmithKline Nigeria 2021 High production cost
Iso Glass 2019 FX, raw materials scarcity
Universal Rubber 2019 Policy inconsistency
Multi-Trex Integrated Foods Plc · 2015 Bank debt
Standard Biscuits 2020 Poor operating environment
 Nasco Fibre 2020 Poor business environment
UTC Foods 2020 FX, poor operating environment
Deli Foods Limited 2020 Poor operating environment
Rasa Industries 2017 Poor operating environment
Vee Oil 2018 FX scarcity
Triumph Nigeria Limited 2018 Poor operating environment

Source: ICIR Investigation

The implication of this is that Nigeria once again lost an opportunity to increase its capacity in tricycle assembly and create jobs in the value chain. In Nigeria, only very few firms are in tricycle assembly. Those familiar with the situation said the country lost at least 50 jobs from Obinani’s decision.

Consider the case of the proposed Phonenix Specialties Nigeria Limited. It was to produce drugs and other pharmaceutical products in Onitsha, Anambra State. In 2018, investors came to Onitsha from India for feasibility studies. However, they travelled back to their country the same year.

Those who were familiar with the deal told The ICIR that their exit was because it would be difficult to access dollars to import raw materials as petrochemical plants that should produce those inputs were not available locally. Coupled with that was the heavy challenge of navigating the Apapa and Tin Can port gridlocks in Lagos as well as the usual lack of coordination by the Nigeria Customs Service.

Apapa/ Tin Can Port pic taken in October 2020

As at 2018, Apapa and Tin Can ports had no scanners for container examination and were carrying out inspections manually, resulting in delays and importers paying huge demurrages, according to Chief Executive Officer of Jon Tudy Enterprises, Jon Kachikwu.

In some cases, owners of manufacturing companies, tired and exhausted from  issues that seem impossible to resolve, sell their companies’ assets and relocate with their families.

This was the case of Technoflex Company Limited, which was a player in the industrial plastic and foam sub-sector. The ICIR gathered from reliable sources that the owner, Obiora Okafor, shut down the company in 2017 and relocated to the United States the same year due to a rising production cost.

Evans Medicals Plc, Credit : Daily Post

Kenfrancis Farms, an agro-processing company, began in 2016 and shut down the following year. The company, which planned to process and export agro products, was hard hit by dollar scarcity and high cost of raw materials. The company owners told this newspaper that they had moved on and were in other sectors with fewer hassles.

“We could not survive the Tsunami. We would buy raw materials at N300,000 today and spend N400,000 to buy the same quantity the following day,” Chief Executive Officer of the now defunct company Francis Okereke told The ICIR.

“We have left the company and moved into other things. I do not think we are serious with production in this country. Even when you are failing, government will watch you fail, die and lose everything,” he said.

GSK, Agbara Credit: beverageindustrynews

Like Procter & Gamble, GlaxoSmithKline Nigeria shut down its drug production plant at Agbara, Ogun State, in the third quarter of 2021, with tens of jobs lost. The company has gone into contract manufacturing arrangements with Fidson Healthcare, another local manufacturer.

“Following an extensive review of its product supply operation, the Board of Directors has approved a restructuring of GSK’s current operating model to better serve the Nigerian patients and consumers. The restructuring, which will be effective in Q3 2021, involves working with local contract manufacturers for the supply of GSK’s products, where possible. This will support the building of local expertise, transfer of technical knowledge, and improve local production capacities in the country,” the drug maker had announced in 2018.

However, those familiar with the company told The ICIR that the decision was a result of ballooning production cost facing the company at that time, which made continued manufacturing unsustainable.

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In 2018, GSK’s consumer health care segment recorded a loss of N112.49 million. The segment also posted a loss in 2017. Its pharmaceutical segment reported N1.89 billion loss in 2016.

Nigeria’s pharmaceutical companies are facing serious challenges as the majority of their inputs are imported. Apart from scarcity of foreign exchange needed to import these inputs and lack of local petrochemical industries to produce excipients, poor patronage is also a major issue, according to Chief Executive Officer of SKG Pharma Limited and former Chairman of the Manufacturers Association of Nigeria Pharmaceutical Manufacturing Group (PMG-MAN), Okey Akpa.

The ICIR also gathered that Standard Biscuits Nigeria and Nasco Fibre Limited, both in Jos, Plateau State, have closed down in the last three years.

President of the Food Beverage and Tobacco Senior Staff Association (FOBTOB) Quadri Olaleye confirmed that Standard Biscuit was no longer in business, revealing that UTC Foods Limited and Deli Foods Limited were also out of business.

He said the Federal Government was sleeping while Nigeria’s industries were dying, urging it to wake up.

In Ibadan, Oyo State, South-West Nigeria, one of the manufacturing companies that have shut down is Iso Glass. For years, the company manufactured decorative, automotive, security and architectural glasses but it shut down in 2019 owing to dollar scarcity and inability to have access to raw materials at the required time, sources close to the company said.

The company’s website is no more active and two phone numbers on its website “are not assigned to a customer,” according to MTN, a telecoms company.

Universal Rubber in Ibadan is also out of business owing to policy inconsistencies. In Kano, several companies have also gone out of business, including Rasa Industries, Veee Oil and Triumph Nigeria Limited due to reasons ranging from poor operating environment to foreign exchange scarcity, The ICIR findings have shown.

There are companies that shut down as a result of internal board politics or mismanagement within the last six or seven years, but they are not part of this story.

Some have lost assets due to debt

Evans Medicals was once one of the largest pharmaceutical companies in Nigeria. It had procured machines and upgraded its production facilities to ensure it achieved the World Health Organisation (WHO)’s prequalification that would enable it to compete in international contract rounds.

The company was excited and told this reporter at that time that it was bullish about its prospects and projections.

In 2017, however, a court ordered that the drug maker’s assets be taken over by First Bank and the defunct Skye Bank due to bad debt. This ended Evans’ dreams.

Similarly, in June 2015, one of Nigeria’s largest cocoa processing plants with 65,000 metric tonnes per annum was shut down over an N8.5  billion Eligible Bank Asset (EBA) bought by the defunct Skye Bank.

Multi Trex Integrated Foods Limited, Lagos.  Photo: Thenewsnigeria

Multi-Trex Integrated Foods Plc performed optimally until funding problems started. The company was forced to borrow from the defunct Skye Bank to stay afloat, but that decision turned out to become its Achilles heel.

The Asset Management Corporation Organisation of Nigeria (AMCON) eventually took over the business, but the company’s productivity fell drastically. In October 2020, its original owner Dimeji Owofemi died. The company was not returned to him before his demise and the company has not remained the same.

Controversial policies

The current administration has unveiled a number of policies that are considered controversial. First is the foreign exchange policy, which manufacturers believe has done more harm on them than good.

The Manufacturers Association of Nigeria (MAN) said over 50 member-companies had shut down owing to issues related to FX scarcity and its members’ inability to import raw materials.

The MAN’s Director-General Segun Ajayi-Kadir explained that manufacturers would often get $50,000 or less after requesting $1 million or more from the Central Bank of Nigeria (CBN) through the banks.

The CBN still restricts 45 items from accessing foreign exchange from the official market, which means importers of the items cannot access FX where a dollar exchanges at N410-N417. A dollar exchanges for N560-N590 at the parallel market.

Some of the items on the CBN list are raw materials, meaning that industries need to source dollars from the expensive black market to import inputs.

Experts accuse the CBN of concentrating on demand management of the foreign exchange, rather than supply management.

Next is the excise duties on locally-produced alcoholic and non-alcoholic drinks. A new Finance Act signed into law by President Muhammadu Buhari on December 31, 2021, approved N10 per litre excise duty on carbonated drinks.  

“There’s now an excise duty of N10/ per litre imposed on all non-alcoholic and sweetened beverages,” said Minister of Finance Zainab Ahmed while announcing the implementation of the policy.

“And this is to discourage excessive consumption of sugar in beverages which contributes to a number of health conditions including diabetes and obesity, but also used to raise excise duties and revenues for health-related and other critical expenditures.”

The Federal Government had, in 2018, imposed new excise taxes on tobacco and alcoholic drinks such as beer and wine. For 2018, in addition to the 20 per cent advalorem rate, a specific rate of N1 was imposed on each cigarette stick. In 2019, the specific rate increased to N2 per stick (N40 per pack of 20 sticks) and N2.90k per stick (N58 per pack of 20 sticks) in 2020.

In 2018, 0.30k per centiliter was imposed on a centilitre (cl) of beer and stout. The amount was increased to 0.35k per cl for both 2019 and 2020. For wines, N1.25k was levied  on each cl in 2018, which rose to N1.50k per cl for both 2019 and 2020. For spirits, N1.50k was imposed by the government on each cl in 2018, N1.75k per cl in 2019 and N2.00k per cl in 2020.

These did not go down well with manufacturers. 

“Recent studies have shown that introducing excise on non-alcoholic beverages is
likely to cause a 0.43 per cent contraction in output and about 40 per cent drop in total industry revenues in the next five years,”   Ajayi-Kadir said in an emailed response on the new excise duty sent to The ICIR.

“One is particularly worried about the ripple effect on the introduction of the excise, despite evidence-based advice to the contrary. This will have unpleasant impact on
employment, households and consumers.  As seen from previous impact analysis, excise affects production outputs, revenues and profits. This causes companies to pursue cost-cutting measures to reduce the effect of diminishing revenue and profits by reducing employee salaries or  introducing retrenchment.”

Chief Executive Officer of Centre for the Promotion of Private Enterprise Muda Yusuf  said the taxes were ill-timed and could put many factories out of business.

“The manufacturing sector offers good prospects for job creation and lifting more Nigerians out of poverty in line with the government aspirations. But if the burden of tax becomes excessive and unbearable on this critical sector the realisation of these outcomes by the government would be difficult.”

Moreover, the present government has introduced a new automotive policy, which has not gone down well with vehicle assemblers. In 2013, the immediate past government introduced 35 per cent duty and 35 per cent levy on newly-imported cars. The essence of the policy was to encourage local vehicle assembly plants to find the country attractive.

On the strength of that policy, 21 automakers, including Peugeot and VON, signed commitments with technical partners to set up local assembly operations in 2014. In 2020, however, the current government slashed the import duty on vehicles from 35 to five per cent, thereby encouraging the import of cheaper vehicles and threatening local vehicle assembly plants.

Not just Buhari administration

Though the focus of this story is the manufacturing firms that have shut down in the life of the current administration, it was uhuru during past administrations.

Former President of MAN Bashir Borodo said that 820 firms shut down between 2000 and 2008.

Olusegun Obasanjo was president of Nigeria between 1999 and 2007 and these shut-downs occurred during his government. Late President Musa Yar’Adua was president of Nigeria in 2008.

Former President of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, NACCIMA, Herbert Ajayi, said in 2012 that 800 manufacturing firms shut down between 2009 and 2011 owing to the poor operating environment.

The three years were led by late Yar’Adua and Goodluck Jonathan as presidents.

But it is déjà vu

Manufacturers estimate that more than 300 factories have gone out of business and de-registered as manufacturers in the current administration.

They gave reasons why the situation is different under the current administration.

“What is peculiar now is that there is little effort made by the government to solve challenges faced by manufacturers,” a chief executive of a Lagos-based beverage manufacturing firm, who pleaded anonymity for fear of being targeted, said.

“Buhari promised us change and break with the past, but what we have seen in the manufacturing sector is the status quo,” she said.

“We have high production costs, but we sell to consumers who are among the poorest in the world,” she noted.

She explained that issues around Apapa and Tin Can ports gridlocks, multiple taxation, high energy cost, energy scarcity, infrastructure decays and high cost of credit in the banks were still the same situation for over 30 years.

In the fourth quarter of 2021, a Manufacturers CEOs Confidence Index was conducted by MAN. More than 400 chief executives who participated in the survey said the challenges were still the same.  About 75.1 per cent of the CEOs claimed that foreign exchange sourcing by the sector did not improve and the current lending rate discouraged productivity in the sector.

Manufacturers’ average borrowing rate in 2021 was 21 per cent, according to MAN.

The CEOs fingered high cost of raw materials as their biggest problem, followed by insecurity, inadequate skilled manpower, high transport costs, frequent changes in government policies and foreign exchange instability in descending order.

History of factory closures

Nigeria has had a long history of factory closures. Several analysts attribute factory closures to the oil boom of the early 1970s which led to the neglect of the manufacturing sector.

According to data from the United States Department of Agriculture (USAD), Nigeria’s share of the palm oil market in 1960 was 45 per cent, which has reduced to 1.40 per cent today.

Peter Kilby, a United Kingdom-based researcher, said Nigeria earned £40 million in foreign exchange from the export of palm oil and palm kernels in 1965. The situation has changed for the worse.

The story also extends to the textile industry. In the early and mid-1980s, Nigeria had nearly 200 textile mills employing more than one million people. There were United Nigerian Textile Limited (UNTL), Aswani Textile, Afprint, Asaba Textile Mills, and Edo Textile Mills, among others, but the number reduced to 25 in early 1990 due to neglect of the industry and influx of cheap textile materials into the country, according to the Nigerian Textile, Garments & Tailoring Employers Association.

Experts say there are fewer than three full-fledged textile mills today.

Similarly, tyre makers, Michelin and Dunlop, exited Nigeria in 2007 and 2008 respectively on account of poor power supply and lack of competitiveness due to smuggling. Dunlop has now transformed into DN Tyre and Rubber Plc, importing tyres into Nigeria.

In the 1970s and 80s, Nigeria had brake pads and lining manufacturers such as Feredo and Exide in Ibadan; Mintex in Kano; Fenok in Onitsha; Apex in Lagos; Edison in Nnewi; Uko  in Onitsha, and Ibeto in Nnewi. These firms collapsed in the 1990s and 2000s, owing to policy inconsistencies, especially on imports, according to experts. The list is endless.

“Where are our factories in Kano and Kaduna? Where are our Notex, KTL, Finetex in Kaduna? Governments after governments have ensured the deaths of these firms through wrong import policies,” said Adamu Mohammed, who said he was a former manufacturer in Kaduna.

Solution 

Experts and manufacturers have proffered solutions to the nagging challenges leading to factory shut-downs.

On the foreign exchange, Director-General of the Lagos Chamber of Commerce and Industry Chinyere Almona said the central bank should loosen its tightening grip on the foreign exchange market.

“Tightening measures have always failed to stabilise the exchange rate in Nigeria. It only redirects FX transactions to the underground arrangement, with unintended consequences of increased pressure on the exchange rate,” she said.

She added that Nigeria needed policies that would stimulate financial flows and diversify the economy.

Yusuf, earlier cited, said the CBN must remove all the items not eligible for FX and allow FX supply to be determined by the market. By so doing, the market would determine FX price and supply.

“What is happening in the foreign exchange market is a  consequence of the CBN policy choice of a fixed exchange rate regime and administrative allocation of forex,” Yusuf said.

Ajayi-Kadir, earlier quoted said, “We believe that a single FX window will eliminate the excesses of middlemen, save the value of the naira and allow for available FX to be allocated productively using the official banking protocols.”

On energy, Ajayi Kadir urged the government to prevail on gas marketers to sell in naira, especially as the dollar scarcity raged.

He also asked electricity suppliers to prioritise industrial clusters and zones to cut down manufacturers’ production costs.

According to MAN, the Federal Government should resuscitate Ajaokuta Steel to enable metal and steelmakers to get their raw materials.

MAN also called for a single-digit (less than 10 per cent) credit system to enable manufacturers to have access to cheap funds for expansion purposes.

Chief Executive Officer of Qualitec Industries and former Chairman of Manufacturers Association of Nigeria (MAN) Basic Metals and Steel Group, Oluyinka Kufile, said the government must ensure that its import duties did not hurt the local industry.

He cited situations where importers would evade paying tariffs after getting waivers from government ministries as an anomaly, stressing that such practices only ended up making locally produced goods more expensive than imported products.

He also urged for a resolution of the crisis rocking the Aluminium Smelter Company in order to enable players in the metals industry to get ingots and other raw materials.

On his part, Chairman of MAN Export Group Ede Dafinone urged the Federal Government to resuscitate the Export Expansion Grant (EEG) fully by settling arrears owed importers, urging the government to prioritise exports to boost FX supply.

A manufacturer in Ogun State, who wished to remain anonymous, urged the Ministry of Finance to always release its fiscal policy framework early to enable manufacturers to make decisions.

According to him, the fiscal policy would enable them to understand the kind of tariffs they would pay when importing raw materials within the year.

“Again, if you have manufacturers in your state as a governor, ensure that you make infrastructure better and better. The interest of some of the states is revenue, without corresponding infrastructure,” he said.

“For years in Agbara and Igbesa axis in Ogun State, there was no road and our vehicles were trapped. This should not be the case.”

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