The value chain involves interlinked value- adding activities that convert inputs into outputs which, in turn, add to the bottom line and help create competitive advantage, according to the Business Dictionary.
A manufacturing value chain is interested in establishing a harmonious link between input and output. It starts with the raw materials processes and ends when the output reaches the final consumer.
In Nigeria today, there is a poor link between the input and the output processes.
Many manufacturers struggle to acquire raw materials in the right quantity locally owing to issues around availability and quality. Due to lack of funds, low technology adaptability and absence of hi-tech machinery, farmers do not often meet the quantity and quality requirements of manufacturers, especially multinationals.
For instance, Nigeria is the biggest producer of cassava in the world but manufacturers are making little use of the crop. Using cassava starch is often expensive and sometimes may not reach the acceptable quality.
In fact, producing cassava starch is expensive for smallholder farmers and processors because equipment cost is high.
Yet, cassava starch has alternatives that can be imported. Even when manufacturers embark on backward integration to get raw materials locally, issues around land disputes, insurgency, herdsmen onslaught and high cost of agricultural inputs ( seeds, and fertilizers, among others) make the entire exercise very expensive.
This is one reason why manufacturers are among the biggest importers—theirs are, of course, raw materials. For cement, ceramics and glass makers whose inputs are solid minerals, inputs like limestone and gypsum, among others, are readily available, but they are not always there in the right quantity and quality.
It is true that no country gets all of its raw materials locally, but it is also true that in a country where local currency and purchasing power of consumers are getting weaker, manufacturers would do well to get its inputs locally. Constant scramble for foreign exchange further weakens the Naira and creates jobs in countries where raw materials are brought in from.
Experts believe that many more manufacturers must fund and partner local farmers. Nigerian Breweries has done well by supporting Psaltry International to produce high quality sorghum and cassava. Nestlé Nigeria is also doing well in this area.
By providing the necessary environment for farmers to thrive, companies can get their inputs cheaper while leveraging the expertise of local farmers. Moreover, experts say the Nigerian government needs to attract investors to explore the solid minerals still lying fallow.
One key reason why raw materials have low quality is the seed type. Research institutes in Nigeria struggle to come up with good seeds and findings regularly owing to poor funding.
Consequently, Nigeria’s smallholder farmers are yet to make significant increase on their yield per hectare as the nation still records the lowest in this area among its peers.
For tomatoes, the average yield per hectare in Nigeria is 7 metric tons (MT); Kenya’s average yield for the crop is 20MT, tomato yield in Ghana is 8MT, and South Africa’s average yield for the crop is 76MT, according to the Food and Agricultural Organisation (FOA)’S 2017 data.
Similarly, for maize – which is the most consumed grain on the continent— Nigeria’s yield per hectare is 1.6 MT on the average despite being the second largest producer of the crop in the world. Kenya and Ghana have same average yield of 2MT per hectare while South Africa’s average yield is 6MT per hectare.
For potato, which is the best rounded and nutrient root in all of Africa, Nigeria’s yield per hectare for the crop is 3.7 metric tons (MT) per hectare. Kenya’s average is 15.5MT and South Africa’s average yield for the crop is 38.8MT.
Nigeria’s average yield per hectare for rice paddy, which is the most consumed staple in the country, is 2MT, while Kenya, South Africa and Ghana have same average yield per hectare of 3MT.
Analysts want improved funding of agric research institutes and exposure of farmers to modern best practices in crop planting. The country must also checkmate the type of seeds imported, especially from Asia, as they are often cheap but substandard, experts say.
Logistics is also a critical issue in the value chain. Importing inputs and taking them to the factory is a big issue today. The state of Apapa and Tin Can ports in Lagos leaves much to be desired. Businesses lose billions every day in Apapa where the federal government makes over N10 billion each day.
“Of particular concern and importance to us (MAN) are the challenges we face in moving our raw materials and goods to and from the ports,” Seleem Adegunwa, chairman, Manufacturers Association of Nigeria (MAN), Ogun State chapter, said at a recent CEOS business luncheon at Agbara, Ogun State.
He said that the resultant effect is that the production costs of members have increased tremendously.
He added that if the trend is not checked by the relevant government agencies, it could result in collapse of more factories and businesses, noting that some factories and businesses have already shutdown their operations and relocated to neighbouring countries.
Solving this is not a rocket science as Nigeria has the capacity to develop other ports across the country. The Lagos Chamber of Commerce (LCCI) said in a report that about 5,000 trucks seek access to Apapa and Tin Can ports in Lagos every day.
The LCCI report noted that 25 percent of cashew nuts exported from Lagos to Vietnam in 2017 went bad or were downgraded owing to delays at Lagos ports. Similarly, only 10 percent of cargoes were cleared within the set timeline of 48 hours while the majority of cargoes taok between five and 14 days to clear. The report even noted that some cargoes took as many as 20 days to be cleared at the ports.
“The concessioning of Onitsha seaport should be finalised, while government should improve the security situation along and within the Warri port in order to ward off militants and touts. Stakeholders request that government should approve and publicise a bouquet of incentives to importers and exports that patronise ports outside Lagos,” Babatunde Ruwase, president of LCCI, had said.
Generally, Nigerian roads are bad and apart from Abuja-kaduna track, railways are almost nonexistent at the moment. It is said that it is cheaper to move goods from Lagos to China (Nigeria to Asia) than move them from Adamawa to Lagos (both in Nigeria).
At the factory, energy is provided by the manufacturers themselves at very high costs. Expenditure on alternative energy sources by members of MAN in 2018 was N93.1 billion, according to the association’s economic review. Manufacturers believe that the country will make headway only when energy is cheap and regular.
Funding is also a crucial issue. Nigeria’s benchmark interest rate is among the highest in Africa at 13.5 percent. Ethiopia’s is 7 percent; Kenya is 9 percent; South Africa is 6.75 percent; Zambia is 10.25 percent, and Cameroon is 4.25 percent.
Similarly, Rwanda is 5 percent; Mauritius, 3.5 percent; Algeria is 8 percent, and Senegal is 4.5 percent. Manufacturers are asking the Federal Government to re-capitalise especially the Bank of Industry, which reliably provides single-digit funding to them. Doing this, they say, will increase lending to the real sector.
Manufacturers’ production cost is also high, and they sell to a population that is majorly poor. Nigeria has almost 100 million people living in extreme poverty and purchasing power of even the middle-class has been on the downward slope since economic recession of 2016.
Analysts believe Nigeria must begin to think less socialist by chanelling resources to areas that boost human development index while removing petrol subsidy and allowing the market mechanism to determine electricity charges. Resources must be channeled to infrastructure, education, and health. More so, Nigeria must harmonise multiple regulatory agencies and deregulate the foreign exchange market to attract foreign capital and boost employment.
