Multinationals and conglomerates are developing backward integration projects to raise their local raw materials sourcing.
Manufacturers told Real Sector Watch that they have been consistently doing this to lower costs, key into government vision and forestall constant pressure on the foreign exchange market.
Local raw materials sourcing averaged 60.29 percent in 2018, from 63.21 percent in 2017, according to data prepared by the Manufacturers Association of Nigeria (MAN), which has over 2,000 members.
Backward integration occurs when a company buys its suppliers or internally produces segments of its supply chain.
Dangote Group has pumped several billions into several backward integration programmes in sugar, flour, cement and others.
In 2017, Dangote Sugar signed a $450 million deal with Niger State.
The $450million deal was to see the company producing raw sugarcane on 16,000 hectares of land at Lavun Local Government through an out-grower scheme.
Dangote Sugar Grou and Nasarawa State government also, in 2017, entered into a $700m sugar agreement for the purpose of setting up a backward integration project and state-of-the-art refining facilities.
Aliko Dangote, president of Dangote Group, had said the integrated sugar complex, to be located in Tunga, Awe Local Government Area of Nasarawa state, comprised 60,000ha sugar plantation and two sugar factories with capacity to produce 430,000 tonnes per day of refined white sugar, representing about 30 percent of the country’s consumption. It also has projects through its Savannah Sugar plc in Numan, Adamawa State, North-East Nigeria.
Nigeria President Muhammadu Buhari commissioned FMN’s N50 billion Sunti Golden Sugar Estates in March 2018, featuring 17, 000 hectares of irrigable farmland and a sugar mill processing 4,500 metric tons (MT) of sugarcane per day.
At full capacity, the estate can produce 1 million tons of Sugarcane which roughly translates into 100,000 MT of sugar yearly.
According to John G. Coumantaros, chairman of Flour Mills of Nigeria (FMN), the Sunti Golden Sugar Estates achieved its first development target of reaching 2,836 hectares of land under cane in July 2018. He said the company completed the construction of three drain pump stations with the heightening and strengthening of dyke along 10 kilometres on the North-Eastern side of the recurrent challenges of flood.
BUA has nursery plantations in Lafiagi, Kwara State. Others with backward integration projects in sugar are McNichols, and Confluence Sugar.
PZ Wilmar, which is a subsidiary of PZ Cussons, has acquired over 50,000 hectares of oil palm plantation in Cross River State. The firm acquired the defunct Calaro Oil Palm Estate, formerly owned by Cross River government, as well as the 12,805-hectare Kwa Falls oil palm plantation, formerly owned by Obasanjo Farms. It also bought the 5,450-hectare Ibiae Oil Palm Estate and another 8,000 hectares estate in Biase.
For the purpose of backward integration in palm oil, Flour Mills subsidiary Agri Palm Limited has plantations at Ugbogui and Iguiye near Benin City in Edo State, and has expanded to 4,000 hectares (ha) of established palm in the first phase of local palm oil production needed to support the upstream needs of the group’s oil refining operations in Ibadan.
Lafarge Africa, Nigeria’s second largest cement maker, has continued to explore limestone and gypsum locally.
FrieslandCampina WAMCO, producer of Peak Milk and Crown Milk, currently has five locations in Oyo State where it houses and supports local herdsmen who provide milk from local cows. In 2015, the dairy maker engaged and trained over 920 women and 726 men Fulani milk producers and potential small-holder dairy farmers in Oyo State. The dairy maker is also expanding to other states.
Olam has made backward integration investments in wheat and noodles and has also achieved forward integration through its acquisition of the entire equity stake in Titanium Holding Company, the parent company of OK Foods, according to a 2016 KPMG report.
Okomu Oil, palm oil maker, is planting 5,000 hectares of oil palm in Edo State.
In 2018, the company disclosed that it was planting 11,400 hectares at a new Extension 2 Plantation in Ovia North East Local Government Area in Edo State. This was after acquiring two additional machines that produce 30 metric tons per hour mills, valued at $50 million.
Manufacturers say this is an indication that they have confidence in the Nigerian economy.
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ODINAKA ANUDU
