FX scarcity raises local input sourcing to 52% – Businessday


The scarcity of foreign exchange in Nigeria is helping companies which supply local raw materials to manufacturers raise margins and capacity, prompting domestic input preference numbers to see an upward movement.
Data from the Manufacturers Association of Nigeria (MAN) seen exclusively by BusinessDay, confirmed that local input preference, which refers to the rate at which manufacturers use domestic inputs, has risen from 46.71 in 2014 percent to 51.88 percent in 12 months.
MAN says the acute shortage of foreign exchange for importation of manufacturing raw materials and the fast depreciation in the value of the naira, which followed 2015, prompted the association to encourage its members to look inwards for  raw materials.
The association says it expects the volumes and margins of raw materials sourced locally to surge further, as the months go by, on the back of this deliberate inward looking effort.
MAN says its drive to develop local raw-materials for the industry was also in response to the Central Bank of Nigeria (CBN) policy which prohibited some basic raw materials from accessing FX from the official market.
Some of the 41 items banned from FX market in 2015 include iron rods, tomato pastes and fresh tomato, cold rolled sheet, among others.
Some of the companies supplying inputs to manufacturers that have reported positive returns include: Okomu Oil Palm Nigeria (palm oil), Presco Plc (palm oil), Tempo Paper Pulp & Packaging Limited (packaging materials), SREN Chemicals Limited (chemicals),Psaltery International (cassava starch), Dangote Sugar, Azeeco International(cocoa), among many medium and small-scale farmers and miners.
Oluwasesan Taiwo-Tijani, group operation manager, SREN Chemicals Limited, said recently that several companies now buy SREN Chemicals for use at their factories, adding that this has raised the company’s sales and productive capacity by 30 per cent.
According to Nassos Sidirofagis, deputy managing director, Tempo Paper Pulp & Packaging Ltd, producer of packaging materials, the firm has been able to increase its production capacity from 50 percent to 70 percent, as domestic manufacturers now patronise it.
“The demand for our products has suddenly increased. We have also raised our export volumes to repatriate foreign exchange into the economy,” Sidirofagis further said.
The 2016 half year financial results of Okomu Oil Palm Nigeria Plc shows sales increased by 51.16 percent to N7.54 billion, from N5 billion last year. Net income rose by 95.12 percent to N3.59 billion.
Net margin, a measure of profitability and efficiency, spiked to 47.61 percent in June 2016 from 35 percent as at June 2015.
Presco Plc, a Nigerian palm oil producer, recorded a 60.46 percent jump in sales to N7.51 billion June 2016 as against N4.68 billion as at June 2015. Net margins rose to 40.07 percent in 2016 as against 25.42 percent last year.
Oil price lows have hit the Nigerian economy hard, halving its gross domestic product (GDP) and pushing the Africa’s once biggest economy down to third, after South Africa and Egypt. Oil production has crashed from 2.2 million barrels per day to about 1.3 million, owing to the activities of militants in the Niger Delta. This is worsening the country’s capacity to attract FX, making the import-dependent economy worse for investors.
Manufacturers have been the hardest hit, as they still import several raw materials that are not available or not yet fully developed in the country.
“For us pharmaceuticals, we move out to import because there is yet no functional petrochemical industry in Nigeria,” Okey Akpa, chairman, Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria (PMG-MAN), told BusinessDay recently.
Data obtained from the Raw Materials Research and Development Council (RMRDC) say Nigeria’s manufacturers sourced raw materials worth N800.10 billion between June and August 2015.
The data show that these economic activities were carried out by 83 large, 38 medium, 47 small and 16 micro manufacturers in food and beverages; domestic and industrial plastic, rubber and foam; chemical and pharmaceuticals, as well as basic metal, iron, steel and fabricated metal product sectors, among others.
Companies that sourced more of their inputs locally within the period included: Dangote Cement ( limestone, gypsum & others), Lafarge Africa ( limestone, gypsum & others), Wempco and West African Ceramics Limited(feldspar, iron, silica, quartz, clay, others), Erisco Foods ( fresh tomatoes) and Dufil (starch, palm oil, flour, others).
Others were A&P Foods and Beloxxi Biscuits (flour, sugar, salt, butter, flavour), Flour Mills ( wheat, starch, oil ,others) and Honeywell (wheat flour), Unilever (starch, oil), Cadbury (cocoa powder, sugar,), among others.