The Federal Government’s disposition to technically ban everything from ethanol to milk is creating huge uncertainty and distortions in the economy, with investors unsure of Nigeria’s economic direction and government’s next policy pronouncement.
Protectionism refers to policies that restrict or restrain international trade for the benefit of a single domestic economy, according to Investopedia.
The Central Bank of Nigeria in September stopped providing foreign exchange for the importation of cassava, starch, ethanol and other derivatives into Nigeria.
The bank took this decision despite the local production capacity for ethanol products being lower than demand.
For the records, annual local production of ethanol, which serves as raw material for several industries from pharmaceuticals to breweries, is less than 30 million litres while national demand is over 400 million, leaving local production at just 7 percent, according to data from the Federal Ministry of Industry, Trade and Investment.
In Nigeria, the biggest producers of a special type of ethanol called food-grade ethanol are Lagos-based Nosak Distilleries and Unikem Industries Limited. These firms, like sugar manufacturers, import raw ethanol and process it into super fine ethanol for use by other manufacturers.
When BusinessDay contacted Osaro Omogiade, managing director, Nosak Distilleries, he said there is a huge gap, acknowledging that local production is just 7 to 10 percent.
“I hope people won’t try to smuggle it due to the FX restriction,” Omogiade said. “For us, there is a plan. We are setting up a backward integration project in Benin. We are working with some technical experts from the United States.”
BusinessDay gathered that the industry is in chaos now as ethanol processors and end users are playing a wait-and-see game.
“Does this government know that it takes over N10 billion to set up an ethanol processing plant of 100,000 litres alone? If the government is aware, it would, perhaps, like they did for the cement industry, give a timeline. They are just disrupting the economy,” a senior manager of a company in the ethanol value chain told BusinessDay.
Ethanol is not the only victim of government’s protectionist policies. Forty-three items are already ineligible for FX ranging from palm oil to roofing sheets.
Annealed cold-rolled steel, a raw material used by wheelbarrow and aluminium drum makers, is on CBN’s list of items not eligible for foreign exchange despite the fact that no firm currently produces it.
Due to banks’ reluctance to provide Form M for willing importers of annealed cold-rolled steel, many manufacturers of wheelbarrows have exited the market.
Grif, Federated Steel and Universal Steel – all wheelbarrow and aluminium drum manufacturers – have suspended production.
Wahum Industries told BusinessDay that it is struggling and may exit the market soon.
The bug of protectionism seems to have caught Olamilekan Adegbite, minister for mines and steel, who recently said, during official visit to Kamwire Industry Limited in Ilorin, Kwara State, that the government would consider total ban on steel importation to encourage local steel manufacturers.
He, however, hedged his bets by adding that before the government does that, it will ensure local manufacturers are able to satisfy local consumption and export. However, facts on ground show that the minister should have no business at the moment talking about a steel ban.
Eighteen of the 30 functional steel firms in Nigeria produce about 2.2 million tonnes a year with scraps and billets imported mainly from China. Total demand is above 7 million. Nigeria spends $3 billion on import of steel, according to data from Adegbite’s ministry.
Oluyinka Kufile, chairman of Qualitek Industries, a roofing sheet maker, told BusinessDay that most manufacturers of steel barely exist today owing to a cacophony of wrong policies.
Milk is also restricted from accessing FX. According to the Lagos Chamber of Commerce and Industry, research shows Nigeria does not have many dairy cows like India, Botswana, and the US.
Findings show that the dominant milk producing system in Nigeria is the Fulani nomadic system whose cows have a milk yield of a litre per day. But the average milk yield per day from exotic/crossbred cows in India, United States, the Netherlands, Turkey, China and India is between 30 litres and 90 litres per cow per day, statistics show.
Nigeria produces 700,000 metric tons (MT) of dairy products annually but demand stands at 1.3 million MT, according to the Federal Ministry of Agriculture and Rural Development. This means there is a shortfall of 600,000 MT.
“It is just about protectionism,” Ike Ibeabuchi, managing director of MD Services Limited, said. “It is not helping investors to plan. Who knows the next item they will ban?”
The Federal Government has shut borders to halt smuggling of rice and petrol. But price of rice has risen astronomically to N25,000.
Buhari’s policies since 2015 have not led to high growth rates as Nigeria became the world poverty capital under his watch, according to the World Poverty Clock. The country slipped into recession in 2016, the first in 25 years. Inflation is at 11.02 percent, while unemployment is at 23.1 percent.
“It has grave consequences for investments and jobs,” said Muda Yusuf, director-general, LCCI, while speaking on protectionist policies, especially border closure.
“Many industries have invested in products registered under the ECOWAS Trade Liberalisation Scheme (ETLS). These are investors whose business models were anchored on market opportunities in the ECOWAS. The investments have been completely disrupted and dislocated,” he said.
ODINAKA ANUDU
