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Local sourcing of raw materials by FMCGS reach 71%

Four ways FMCG distributors can use embedded finance to grow trade within supply chains

Manufacturers in the Fast Moving Consumer Goods (FMCG) industry are consolidating on their strides in sourcing raw materials locally, as their domestic input sourcing grew by 11 percent to 71 percent in the first half of 2020. This is according to the H1 2020 Economic Review compiled by the Manufacturers Association of Nigeria (MAN). It is a significant improvement from 62.9 percent recorded in H1 2019 and 65.2 percent recorded in the corresponding period of 2018.

“A very consistent observation from the various survey conducted is that firms look more inward for raw-materials in periods of exchange rate difficulty. It was also discovered that the Nigerian land border closure has increasing impact on the utilization of local raw-materials by manufacturers’’ says, MAN.

According to the association, the costs saved from such are being used to answer other needs in the factories. Such needs include changing of machines and equipment, purchases of other production assets and working capital.

Despite the numerous challenges manufacturers face in operating businesses, local sourcing of raw materials in the sector has grown significantly since 2015, an improvement occasioned by government policies including the implementation of resourcebased industrialization and backward integration policy contained in Nigeria’s Industrial Revolution Plan (NIRP), FX restriction on some items by the CBN, the border closure exercise among others.

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Although manufacturers say this is expensive to operate, in the long run, it reduces production costs and exposure to unnecessary foreign exchange risks. Many manufacturers are also working with suppliers, providing them with funding, technical support and market.

Some notable companies that actively engage in backward integration activities include Nestle Nigeria 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.

Similarly, Dangote Sugar is pumping billions in sugarcane plantations across northern states to enable it cut raw sugar imports. The sugar maker’s $ 700 million project in Nasarawa State is expected to see its plant in Tunga, Nasarawa State, producing 450,000 metric tons and generate 90 megawatts of power annually when completed.

Guinness Nigeria is supporting over 30,000 smallholder farmers, who supply it with sorghum, to enable them move from basic to more efficient and productive yields.

This improvement was also seen among players in the wood and wood products sector, having increased their domestic sourcing of inputs by 13 percent moving from 60.3 in H1 2019 to 69.7 percent in H1 2020, following closely is the Basic Metal, Iron & Steel and Fabricated Metal sector, having jerked up their local content of inputs to 68 percent in H1 2020, from 57.3 percent recorded in H1 2019. Generally, in the sector, local sourcing of raw-materials increased to 58.4 percent in the period under review from 57.0 percent in H1 2019.