MAKING NIGERIA GREAT

Nigeria 2017 | INDUSTRY | REVIEW

As global oil prices remain depressed, Nigeria is looking to its manufacturing industry to pump new life into the economy.

With a large, vibrant economy and a young, relatively untapped population, Nigeria has the potential to become one of the globe's most important manufacturing hubs. Government officials, private industry, and community leaders all see manufacturing as the key to lasting and sustainable growth, and they hope to leverage Nigeria's 182 million-strong population and its immense economy to catalyze a manufacturing renaissance.

Government officials are eager to jumpstart investment, and various programs aimed at drawing investors into the country are being developed and implemented. Red tape and bureaucratic inefficiencies, two things that have long hampered growth in Nigeria, are two of the government's main focuses, and in an exclusive interview with TBY, Hon. Aisha Abubakar, Minister of State for Industry, Trade & Investment, explained the government's new approach. “Nigeria is open for business and our main focus is on improving the business climate by creating a friendly environment for doing business," said Abubakar. “It is in that regard that President Muhammadu Buhari approved the establishment of the President Council on Ease of Doing Business and saddled it with the responsibility of removing all the bottlenecks that impede smooth business operations in the country." With this renewed focus on easy and efficient business operations, the future for Nigerian industry is bright.

Automotive

As Nigeria reimagines its manufacturing sector, it has looked to the automotive industry as a potential driver of growth. According to the National Automotive Council, Nigeria imports almost all of its vehicles, which, according to PwC, is around 400,000 vehicles a year with an estimated value of USD3.45 billion. Overall, the cost of importing vehicles and components into the country is roughly USD9 billion a year. Though there is production capacity of around 100,000 vehicles per year in Nigeria, only a little over 10% of it is being utilized, figures that chagrin many in the sector.

The industry, though, is in the midst of a revolution that promises to change that. According to Bloomberg, the industry is expected to explode, growing from roughly 10,000 units in 2014 to 500,000 over the next five years. 36 firms have been issued production licenses, and Honda, Nissan, Ford, and Hyundai are just some of the international manufacturers setting up shop. This expansion will be a boon for the Nigerian economy, and the National Automative Design and Development Council (NADDC) estimates that the industry could create 70,000 direct and 210,000 indirect jobs, up substantially from the 2,600 it currently employs. However, in order to realize the government's dream of turning Nigeria into an automotive hub, certain peripheral issues like consumer financing, border control, and quality control still need to be addressed. According to PwC, 63% of Nigerian consumers cannot afford to buy a car and financing options are very limited.

Food and Beverage

According to the Nigeria Industrial Revolution Plan (NIRP), 40% of land in Nigeria is being used to cultivate crops of one kind or another, and total agricultural output is expected to exceed 20 million metric tons in the very near future. Taken together, the food processing sector represents the largest manufacturing group in Nigeria. To more fully capture the value of these products, Nigeria intends to expand its midstream and downstream processing facilities, strengthening core agro-allied sectors like beverages and packaged food production, sugar, palm oil processing, cocoa processing, leather products, rubber products, and textiles and garments. In order to smooth operations in these sectors, NIRP calls for the development of a bulk buyer scheme that will allow private-sector firms to purchase efficiently from both small holders and large industrial operations.

Major operators in this segment have already been making headway in these areas. In an exclusive interview with TBY, Peter Ndegwa, Managing Director & CEO of Guinness Nigeria Plc, explained the role local ties can play, noting that a “major area that is sometimes overlooked, but is really important, is the sourcing of raw materials." “We source a significant portion of

our raw materials locally and this contributes to growth in agricultural communities and puts cash back into the economy. Our goal is to source 75% of our total inputs locally by 2019." This commitment to local manufacturing and sourcing has allowed Guinness Nigeria to create more than 3,000 jobs across the country. By sourcing and producing in Nigeria, Guinness is able to keep value in Nigeria, spreading wealth across the growth chain.

Palm oil processing is another major sector of Nigeria's food and beverage industry, and though production currently sits at 1.3 million tons a year, representing roughly 70-75% of domestic demand, plans are afoot to dramatically expand capacity. Expansions to existing plantation infrastructure, new technology that improves yields, and new plants are forecast to push production to nearly 5 million tons by 2020. New processing zones being spearheaded by the government are expected to further boost processing activity in coming years and a number of firms, such as Presco Plc, PZ Wilmar, and Real Plantation Ltd. are already taking advantage of the incentives, according to Bloomberg.

The cocoa manufacturing sector is another vital piece of Nigeria's agricultural industry, and Nigeria is currently the world's fourth-largest producer of this delicious bean. Nearly 300,000 tons of the bean are produced every year and the country accounts for 9% of the globe's total production. While much of the nation's USD900 million dollars in cocoa beans is exported, there is a vibrant cocoa-based processing infrastructure that has the potential to become a true regional leader. As the private sector and the government look for other avenues to offset declining oil prices, cocoa manufacturing is considered a viable and underdeveloped alternative, and a number of new chocolate brands and product offerings have been introduced to the market.

Basic Metals, Iron & Steel

While the metals industry is not yet where industry leaders and government officials believe it can be, steady progress is being made. With abundant iron ore, tin, lead, zinc, and others, Nigeria possesses some of the richest material deposits in all of Africa. According to NIMP, Nigeria has the world's 12th-largest iron ore reserves and 44 minerals that exist in large enough quantities to be sustainably extracted. The steel and aluminum industries alone represent sizable portions of Nigeria's metals industry, bringing in an estimated USD3 billion and USD300 million, respectively, every year. Additionally, each of these areas have significant room for expansion, as average per capita consumption for steel and aluminum are 10kg and 0.3kg, respectively, and global averages are 150kg and 5kg.

With renewed investment in the metals industry, other manufacturing areas, i.e. auto manufacturing and construction, could benefit greatly from higher quality, cheaper, and more advanced products. As chance would have it, low domestic and regional demand has dampened production levels, and firms are looking to make up for lower volumes by producing more value-added products. In an exclusive interview with TBY, Raj Gupta, Chairman of African Industries, described his company's strategy for riding out the current period of low demand. “We are looking at putting value-addition into our steel and going downstream," said Gupta. “We are not increasing capacity, but we are working toward increased integration." African Industries, which accounts for nearly 70% of Nigeria's total steel production, roughly 1 million tons of steel a year, is feeling the strain from the country's poorly maintained infrastructure and transport networks, and, according to Gupta, “the country is desperate for infrastructure." He went on to note that “exports will not increase if there are not better ports and better roads," adding that “it sometimes costs more to transport cargo from Lagos to Ghana than it does to bring it from China." As the metals industry in Nigeria strives to cement its status as a regional powerhouse, improvements in transport and energy infrastructure are integral pieces of this process.

Defense

A relatively new development in Nigerian manufacturing, defense contractors have begun producing advanced military equipment in recent years. In an effort to cut down on weapons imports while simultaneously maintaining the requisite equipment to fight insurgent terrorist groups and defend the country, Nigeria has been developing a domestic military industrial complex. With nearly USD2.3 billion in annual military expenditures by the Nigerian government and an ongoing war with Boko Haram rebels in the north of country, the defense sector offers significant opportunities for growth for manufacturers across the country. With two independent manufacturing facilities, one in Ogun State and the other in Port Harcourt, and one joint operation with the Defence Industries Corporation of Nigeria (DICN) in Katsina, Proforce Defence Limited produces nearly 900 armored personnel carriers every year. The company has a workforce of 8,000, 2,000 of which are directly employed, and it tries to use Nigerian sourced materials in many of its products. Proforce is committed to utilizing Nigeria's resources, and it views itself as not only a defender of the country's physical safety, but a defender of the country's economic strength as well. In a recent interview with TBY, Ade Ogundeyin, CEO of Proforce Defence Limited, explained the wisdom of using Nigerian workers and technicians. “Expatriates should not be the solution because after having them for two years they want to go," said Ogundeyin. “Instead, we prefer to train Nigerians well and bring down costs." After signing a recent MoU with DICN, Proforce Defence Limited is planning to begin production on fighter jets, warships, drones, armored aerial vehicles, and other advanced military machines. Self-sufficiency in the defense industry has long been a goal in Nigeria, and with every passing day it is one step closer to reality.

Imeobong Utuk
IMEOBONG UTUK
Managing Director & CEO, Aluminium Gold Engineering Company Limited
Parvir Singh
PARVIR SINGH
Managing Director, Stallion NMN