The number of manufacturing companies silently shutting down or exiting Nigeria is rising by the day, underlining the need for a comprehensive review of some of the policies guiding this sector.
Recently, Grif, maker of aluminium drums, exited Nigeria because the company could not get annealed cold-rolled steel which was its key raw material.
The cold-rolled steel is one of the items on the Central Bank of Nigeria’s list of 41 items banned from accessing foreign exchange since 2016. Yet, as of today, nobody manufactures annealed cold-rolled steel, meaning that the company lost its rhythm as it could neither import nor source the essential input locally.
Also, Federated Steel from China, maker of iron rods, has exited Nigeria and sold its assets to MNIL Limited.
Another iron rod maker, Universal Steel, has shut down. Sources close to the company attributed its closure to smuggling and unbridled import of iron rods, which come 20 to 30 percent.
“When you import plain aluminium, you pay 5 percent duty. But when you wish to import your input like galvanised sheets, for instance, you pay 35 to 45 percent duty,” a chief executive of a steel company, who did not want his name in print, said.
“So, it is more expensive to import finished goods than inputs because people who do not have the capacity to produce the industry needs told government that they do,” said the chief executive.
BusinessDay gathered from industry sources in the steel sector that Industrial And Farm Equipment Company, a maker of wheelbarrow, has exited.
Nigeria had 21 enamel makers in the 1980s but only about five companies barely exist currently. Like Grif, Wahum is about to shut down as it can’t produce because it is unable to get cold-rolled steel.
First Aluminium is also in dire straits as the company continues to be hobbled by cheap aluminium products.
Qualitec Industries, a major maker of roofing sheets, is nearing shutdown, having downsized workforce by over 50 percent in the last four years. When BusinessDay visited its factory at Ota, Ogun State, only few workers were in its rolling mills and caster section.
“We are really struggling. In the metals industry, the majority of the companies are dead,” Oluyinka Kufile, chief executive of Qualitec Industries and chairman of Manufacturers’ Association of Nigeria (MAN) Basic Metals and Steel Group, told BusinessDay.
“Except government re-classifies all the HS Codes in metals and steel and puts them in proper classification, some may continue to manipulate the duties and people will keep bringing in substandard products that kill the industry,” he said.
Nigeria exited recession in 2017, which claimed at least 50 manufacturers, mainly SMEs, according to MAN. Much of the problem was caused by poor access to dollars to import inputs.
The business environment is tough, as Nigeria ranks 146 out of 190 countries in the 2019 World Bank Doing Business Index. The country is full of opportunities, with demography of 201 million people, half of who are under 18 years.
But issues like multiple taxation, hurdles by government agencies and poor infrastructure hurt investors.
In July 2018, the dominant player in the diaper industry, Procter&Gamble, shut down its $300 million Agbara plant. P&G shutdown arose from issues relating to inability to meet expected targets due to multiple taxation and harsh treatment in the hands of Nigeria Customs Service, which regularly acts as a revenue earner rather than a business facilitator.
The Lagos-based Kimberly Clark, which produces Huggies, a brand of diapers, is exiting Nigeria.
“There are many substandard diapers flooding the Nigerian market. They pack them in white bails, sell them to Nigerian merchants at ridiculously low prices and bring them into this market. What we need is to stop this kind of products from coming into this market because they cause rashes and infections and they are not of good quality,” Paul Odunaiya, managing director, Wemy Industries, told BusinessDay in an interview.
Pharmaceutical companies are also in the shutdown party. Evans Medicals has shut down. Pharmaceuticals are struggling with importation of excepients and other inputs as Nigeria does not have a strong petrochemical industry that should produce them.
Energy constitutes 40 percent of manufacturers’ expenditure. Gas is dollarised, say manufacturers.
“We need a new energy policy. We need to review our energy policy,” Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said in a recent interview.
In a recent CEO Confidence Index (MCCI) for Q1 2019 conducted by MAN, 92 percent of the CEOs said multiple taxes were the biggest issues, as 63 percent voted that banks were reluctant to lend to them.
However, analysts say apart from challenges in the economy, poor business practices also contribute to closure of firms.
“I know of a company which shut down because of financial recklessness,” Ike Ibeabuchi, an economy analyst, said.
“I also know of another which was a result of inability to cope with competition. So, in a developing, uncertain environment like ours, tread with caution,” he said.
ODINAKA ANUDU
