Nigeria’s drive to achieve 100 percent local sourcing of raw materials through partnership with local producers and backward integration activities and reduce the heavy reliance on the global supply chain, especially by firms in the Fast-Moving Consumer Goods (FMCG) industry, is threatened by the rising insecurity in the country, experts have said.
The growing insecurity in the country in recent years has affected agricultural activities, which most FMCG firms benefit from, as many farmers had to abandon their farmlands on the back of kidnapping, banditry, herder-farmer conflicts, terrorism and other insecurity challenges in major crops-producing states.
The Manufacturers’ Association of Nigeria (MAN), in its Manufacturer’s CEOs Confidence Index for the second quarter of 2021, said 42 percent of the manufacturers surveyed said local sourcing of raw materials in the sector had not improved.
The MAN data showed that local raw materials utilisation in the manufacturing sector declined year on year by 9.2 percent from an average of 58.4 points in the first half of 2020 to 53 percent in the same period of 2021.
Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said insecurity in some parts of the country was posing a major threat to fostering local sourcing of raw material as well as the backward integration plan of the Federal Government despite huge investments made and the commitments of companies.
“Access to location is becoming more risky and it is affecting the kind of output anticipated, especially from the agro-allied sector, and it is putting a lot of pressure on companies in the FMCG industry because if they cannot get raw materials locally, they will continually rely on imports despite the unfavourable FX situation and current supply gap,” he said.
According to Jide Babatope, a Lagos-based analyst, the chances of sourcing local raw material sourcing are slim as insecurity is becoming more intense especially in the North, where most raw materials are sourced.
“The thing is these companies have an alternative, which is imports; it is just more expensive. Another thing they can do is look to the other parts of the country to source these inputs; however, some of it may not be available or it is produced in lower quantities,” he said.
In recent years, insecurity in Nigeria has worsened, especially in the northern part of the country, with data from the Global Terrorism Index showing Nigeria as the third most terrorised country in the world, after Afghanistan and Iraq, with record terror-related deaths estimated at 1,245 in 2019 and 1,606 in 2020.
Data from the 2021 Economic Value of Peace report by the Institute for Economics and Peace shows that the cost of violence in Nigeria was $1.34 trillion from 2007 to 2019.
“First, general insecurity is affecting the ability of farmers to produce commodities and distribute it to the market, some of which are these companies; it affects the production process and they are forced to explore alternative options,” Abiola Gbemisola, assistant manager, equity research at FBN Quest, said.
According to him, as the rising insecurity takes a toll on local raw material sourcing and backward integration activities of these companies, it will cause a ripple effect, which includes an increase in unemployment as the local supply chain suffers.
The Nigerian government is interested in the local sourcing of raw materials by companies so as to sustain favourable foreign exchange, boost local capacity, create jobs, enhance skill acquisition and reduce the importation of raw materials.
Some of the efforts channelled towards this include the implementation of resource-based industrialisation and backward integration policy contained in Nigeria’s Industrial Revolution Plan, forex restriction on some items by the Central Bank of Nigeria, and border closure.
One of the companies actively engaged in backward integration activities include Nestle Nigeria Plc, which sources 80 percent of its maize, sorghum, millet, soya, cassava starch, cocoa powder, and palm olein from more than 41,600 local farmers and processors scattered across the country and has over 30,000 farmers who supply 100 percent of the grain requirement for Golden Morn Maize, one of its products.
Dangote Sugar Refinery Plc is pumping millions of dollars into sugarcane plantations across northern states to enable it to cut raw sugar imports. The sugar maker’s $ 700 million project in Nasarawa State is expected to enable its plant in the state to produce 450,000 metric tons and generate 90 megawatts of power annually when completed.
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Many manufacturers are also working with their local suppliers, providing them with funding, technical support and market.
Guinness Nigeria Plc is supporting over 30,000 smallholder farmers, who supply it with sorghum, to enable them to move from basic to more efficient and productive yields.
Other than partnering with local suppliers of raw materials, some FMCG firms have pumped over $1 billion into land acquisition, nursery plantation and acquisition of expensive equipment as investments in their local sourcing of raw materials.
Flour Mills of Nigeria invested billions into oil palm, wheat, sugar and cassava, among others. The company said its agro-allied subsidiary had invested up to N15 billion supporting companies in the local value chain, while hoping to save up to $180 million in foreign exchange through its localisation effort.
Hans Essaadi, managing director of Nigerian Breweries Plc, said recently that the company had invested about N78 billion in sorghum and cassava cultivation over the last five years. He said in 2021, the company spent a total of N20 billion on the sorghum value chain, appropriated through direct purchase from commercial and smallholder farmers in Nigeria.
Michael Olawale-Cole, president of Lagos Chamber of Commerce and Industry, said at a recent press briefing that concerns were raised seeing that insecurity had been on the rise and was affecting the business environment, especially in agriculture and supply chain.
“The Lagos Chamber of Commerce and Industry is concerned with the current insecurity crisis because of its impact on businesses and the economy; the agriculture sector showed some evidence of impacts from heightening insecurity and lingering supply chain disruptions and has continually triggered inflation in Nigeria in the past months,” he said.
According to him, if the country does not commit to a new order and a more enabled and innovative security architecture, soon, security will suffer a heavier blow once politics takes centre stage in governance.
He highlighted the need for a surveillance infrastructure that is monitored in real-time to respond to emergencies and foil planned crimes.
