How pressure on Buhari over Forex affected Nigeria’s local raw materials
London, Jan. 7, 2019 (AltAfrica)-The constant cry by Nigeria’s manufacturers and the entire business community on the need for Buhari administration to relax its “iron fist” Forex policy has badly affected local sourcing of raw materials
With the availability of the Forex, it means manufacturers have been encouraged to bring in more foreign raw materials at the expense of local alternatives. In 2018 alone, imported raw materials gulp N837bn in 11 months while reducing local sourcing same year
Buhari had on assumption of office instituted foreign exchange restriction on 41 items popularly known as ’41 items policy’ in line with government’s Resource Based Industrialisation Policy
Manufacturers Association of Nigeria, MAN reported that following the implementation of the resource-based industrialisation policy of the Federal Government, local sourcing of raw materials increased to 65.7 per cent in 2017 from 59.98 per cent recorded in the first half of 2016
Unfortunately, local sourcing of raw materials has dropped significantly since the country emerged from recession and manufacturers could access foreign exchange.
The Manufacturers Association of Nigeria confirmed this in its perspectives on the 2019 budget.
“The aggregate local sourcing of raw materials by the manufacturing sector dropped to about 57.87 per cent in 2018 from 63.21 per cent recorded in 2017,” according to the President, MAN, Mansur Ahmed
Data from the National Bureau of Statistics published in December 2018 showed that the volume of raw materials imported between January and November 2018, stood at N837.5bn.
A further breakdown of the figure showed that N284.81bn worth of raw materials were imported in the first quarter, N261.10bn in the second quarter and N291.57bn in the third quarter.
Import in the first quarter represented 1.93 per cent increase over the volume recorded in the fourth quarter of 2017, which was N279.41bn and an increase of 9.89 per cent over the figure of N259.17bn recorded in the first quarter of the same year.
The volume imported in the second quarter, however, represented a decline of 8.3 per cent over the volume imported in the first quarter and 14.2 per cent lower than the volume imported in the corresponding quarter of 2017, which was N304.43bn.
The third quarter import represented 11.67 per cent higher than the volume imported in the second quarter and 2.19 per cent higher than the volume recorded in the first quarter.
The volume of manufactured goods imported in the first quarter of 2018, the NBS said, stood at N1.19tn, a decline of 1.65 per cent over the previous quarter, which stood at N1.20tn, but an increase of 12.11 per cent over the same quarter in 2017, which was N1.061tn.
Again, 21.1 per cent of the imports came from China, 12.1 per cent from The Netherlands, Belgium 10.6 per cent, and the United States had 6.5 per cent while India had 6.3 per cent.
Following the 2016 recession, the subsequent rationing of the dollar by the Central Bank of Nigeria and the restriction of importers of 41 items from access to forex, manufacturers in Nigeria embarked on aggressive local sourcing of raw materials and backward integration.
MAN reported that following the implementation of the resource-based industrialisation policy of the Federal Government, local sourcing of raw materials had increased to 65.7 per cent in 2017 from 59.98 per cent recorded in the first half of 2016.
Also, the Backward Integration Programme created opportunities for big firms to establish local outlets for their raw material suppliers and to go into the production of the raw materials needed in their factories.
Local raw materials utilisation also increased across the sectors.
Unfortunately, the raw materials sourcing had dropped by 5.34 per cent in the third quarter of 2018, while capacity utilisation in the sector slowed to 54.6 per cent from 57.14 per cent recorded in 2017.
The Economic Analyst at MAN, Mr Ambrose Oruche, confirmed that the drop in local raw materials sourcing was because manufacturers were importing more than they were sourcing locally.
Asked if this was not a negation of the concept of local content promotion, Oruche responded that in raw materials sourcing, manufacturers were more concerned about plant specification.
He said, “The plant specification cannot be compromised because if you do that, you will waste materials and that will affect your bottom-line.
“If the plant specifies a certain formula and it is not available locally in the quantity and the quality that is prescribed, you have to import. It is not about patriotism, business owners are in business to make a profit so you cannot jettison your profit for patriotism.”
He added, “But we have a programme that will take off this year, where a link would be created between the Small and Medium Enterprises and the large corporations, to be raw materials suppliers to the large corporations.
“The SMEs will be guided to supply the quality and quantity of raw materials that the large corporations need.
“We are confident that this programme will greatly increase the local sourcing of raw materials.”
Exports of raw materials, however, decreased by 13.62 per cent in the first quarter of 2018 (N32.70bn) compared to the fourth quarter of 2017 (N37.85bn) but increased by 47.71 per cent compared to first quarter of 2017 (N22.13bn).
Raw materials exports decreased by 2.98 per cent in the second quarter of 2018 (N31.72bn) compared to the first quarter, which was N32.70bn but increased by 19.7per cent compared to the second quarter of 2017 (N26.50bn).
Manufactured goods exports in the second quarter of 2018 were N69.86bn, representing a decline of 83.9 per cent over the previous quarter (N434.37bn), and an increase of 0.9 per cent when compared to the second quarter of 2017 which was N69.26bn. (Materials from Punch)