macroafricaintel | Manufacturing in Nigeria (2)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

According to Nairametrics, a business intelligence firm, five local vegetable oil brands currently dominate the Nigerian market due to the government’s import ban. They are Sunola Oil, Grand Oil, Power Oil, Mamador and Devon King’s. To increase patronage and accessibility to their products, local vegetable oil producers have been implementing bulk-breaking strategies, adding sachet packs to their array of packaging.

There is not similar success with the cocoa processing sector, however, which is currently burdened by debt and utilizes less than 20 percent of its installed capacity. As Nigeria is the fourth largest exporter of cocoa, this is probably an opportunity for financially buoyant foreign investors. There is certainly at least 80 percent of the industry’s 150,000MT capacity that could be filled momentarily. This could be done by either taking over existing firms or setting up greenfield operations. Incidentally, even at full capacity utilization, there is much more cocoa processing that could be done for export and thus rival neighbouring Ghana and Ivory Coast, which have been coordinating their efforts lately. Besides, the authorities’ import ban of cocoa butter, powder and cakes ensures almost guaranteed domestic custom for the output of the existing processing capacity.

For spaghetti manufacturing, the government’s import ban has not been as effective as would be desired. Foreign spaghetti brands occupy as much shelve space as local ones. Local noodles manufacturing has been a huge success, however. At about 1.8 billion servings annually, Nigeria is now the 12th world’s largest instant noodles market. Owing largely to the government’s import ban on instant noodles, almost all of the noodles consumed in the country are locally produced. In fact, the success of the policy in the instant noodles manufacturing sector is believed to be one of the reasons why the Nigerian government has been hesitant to sign the African continental free trade area agreement (AfCFTA).

Fruit juice production is another venture of interest that could be worth the while of interested investors. According to the Raw Materials and Research Development Council (RMRDC), local firms currently meet less than 25 percent of the 550 million litres local fruit juice demand. With imported concentrates accounting for most of the currently meagre local production, a noted preference by consumers for naturally produced fruit juice should be a boon for manufacturers with local resources and capacities across the entire value chain.

Local cement production is perhaps the best example of how the authorities’ import ban policies have benefited local industry and entrepreneurship. Africa’s richest man, Aliko Dangote, owes his stupendous wealth to cement manufacturing in Nigeria. Dangote Cement accounts for more than 60 percent of the estimated 33 million metric tonnes (MMT) local cement demand in Nigeria, with margins as high as 70 percent when the cement import ban was first instituted; albeit they are now below 50 percent. With local producers now churning more cement than is needed, Dangote Cement, in addition to exporting its excess cement to neighbouring countries, has since broadened its horizons further afield, with operations in numerous African countries.

Government efforts to encourage local tomato paste production has not met with similar success. As Nigeria imports at least 400,000 tons of tomato paste annually, there is a huge opportunity for the manufacturer that can get it right. Incidentally, Dangote Industries is making an attempt at local tomato paste production. It set up a plant in northern Nigeria in March 2016 and entered into suppliers’ agreements with 5,000 farmers to guarantee supply of tomatoes. Shockingly, even as it agreed to pay above the market price, the local farmers could not deliver the goods. In one season, for example, the produce was destroyed by a pest. And that is beside the fact that half of the output tend to get spoilt en route factories from farms due to bad roads. The Dangote experience in this regard is not an isolated one. Its example is, however, significant because if there is one local conglomerate that can make a success of tomato processing, or any other local manufacturing venture for that matter, it is the Dangote Group.

The author, Dr Rafiq Raji, is a consultant at the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. This article was specifically written for the NTU-SBF Centre for African Studies. This article was published on How We Made It In Africa on 27 September 2018.

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