Post-lockdown local raw material sourcing declines 8%

Local sourcing of raw material among manufacturers in Nigeria declined by 8 percent in 2021 as scarcity, logistics challenge and inse

curity took a toll on the supply chain, according to reports from the Manufacturers Association of Nigeria (MAN)

In the recently released economic review for the second half of 2021, MAN revealed that local sourcing of raw materials averaged 52.4 percent in 2021 which is a drop from the 57.5 percent achieved in 2020 during the pandemic.

“Since the full opening of the economy following the lockdown associated with COVID-19 pandemic, local raw materials and other manufacturing inputs have been relatively scarce and costly, this has also affected the output of the sector negatively,” the report stated.

This drop was particularly noticeable in the chemical and pharmaceutical subsector as it fell to an average of 46.5 percent in 2021 from 52.8 percent in 2020, similarly, the Non-Metallic Minerals products group dropped from 63.2 percent in 2020 to 50 percent in the review period.

In 2020, the COVID-19 pandemic caused a disruption in the local and global supply chain which manufacturers across all sectors are yet to recover from, especially makers of essential products who saw a surge in demand.

Read also: Nigerian manufacturers cut 4,451 jobs in one year

In the fourth quarter of 2021, the top two challenges identified by manufacturers were the high cost of local and imported raw materials as well as rising insecurity which they said adversely affected their operations during the year.

According to experts, Since the security situation became intense a few years ago, it became more difficult for manufacturers to access factories, relevant locations for local inputs especially the FMCG firms whose suppliers (farmers) abandoned their farmlands owing to escalating issues of kidnapping, banditry, herder-farmer conflicts, terrorism and other forms of insecurity in major crops-producing states

Muda Yusuf, Chief Executive Officer Centre for the Promotion of Private Enterprise [CPPE] said insecurity in some parts of the country is 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 unfavorable FX situation and current supply gap,” he said.

Jide Babatope, Lagos based analyst said the chances of utilizing local raw material sourcing going forward is slim seeing that 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 quantity,” he said.

This has also fuelled scarcity of raw materials hence dragging the production process, according to experts.

As a recommendation, MAN called on the government to create plausible incentives for investment in the development of raw materials locally through the Backward Integration and Resource based industrialization initiatives.

“We recognize an urgent need for investment and production of Active Pharmaceutical Ingredients (API) in the country; this should be adequately incentivized to encourage significant private investments,” the report said.