Forex policy on triple concentrate: Consumers, local industry joint casualties

In this report, Daniel Obi and Anthony Elikene  assess the impact of the policy on foreign exchange that excludes triple concentrate tomato paste and other 40 items from sourcing forex in the interbank market.

On June 23rd, 2015, Central Bank of Nigeria, came out with a policy on Foreign exchange that excludes 41 items including triple concentrate tomato paste from sourcing for forex in the interbank market. Using import prohibition as a trade policy instrument, the government aimed at solving its balance-of-payments challenges but ended up feeding the hydra headed monster that has been plaguing the country for so long, unemployment.

The unemployment rate in Nigeria was placed at 12.1 per cent in the first quarter of 2016 and rose to 13.3 per cent in quarter 2 according to the National Bureau of Statistics (NBS). In more explicit terms from 24.4 million unemployed people as at the end of the first quarter to 26.06 million persons.

These figures might not be appreciated until a real live template is used. The truth is, for every breadwinner who loses his or her job, at least five dependents suffer one way or the other. Some of the side effects are reflected in the inability to pay school fees by parents resulting to children staying at home, families go hungry, crime rate escalates and reduction in taxable workforce also reduces state income, a case of shooting oneself on the foot.

Director General of Lagos Chamber of Commerce, Mudashiru Yusuf said the 41 items banned from sourcing Forex in the interbank market are like 728 items to local manufacturers. The defining essence of this statement is that raw materials are regarded as an item by government and the public but raw materials are more than being just any other item. This is because one single imported item as raw material for local manufacturing triggers increase in production and consumption of local products and services.

Take for instance cassava that is grown in Nigeria, this crop is used for many other things aside food. Even as food it can be purchased for diverse kinds of food. Sugarcane is not just for food consumption, it is also used to make ethanol fuel for vehicles and other machineries.

The demand for Triple Concentrate Tomato Paste is not for itself as a concentrate, but its derived use to add form and utility in the production of finished products such as tomato paste, ketchups and sauces. There is significant addition of value in the process of conversion and given the capacities which has evolved over time, Nigeria can become the hub of tomato paste re-processing for the surrounding less developed neighboring countries, thus replacing Chinese finished products imports in these places.

Nigeria produces an estimated 1.5 million tons of fresh tomatoes every year, making it the 13th biggest producer in the world. Most of it goes to service the fresh tomato market in the country.

Tomato paste plays its role, primarily as a substitute for fresh tomatoes, when there is reduced availability of fresh tomatoes,tomato paste variants are used to shore up supply and reduce scarcity. Tomato paste is also a very good way to store tomatoes that would ordinarily go bad in their natural and fresh state being a seasonal crop with Nigeria still lacking adequate storage facilities.

Nigeria had developed a vibrant local processing industry but the importation of finished tomato paste products over the years has been affecting the growth of the industry. Hence out of the imported $170 million  tomato paste in 2014 around $50 Million  was for the triple concentrate. Since the Triple Concentrate Tomato Paste is not produced locally, this has to be imported and then value added by local processors with benefits such as employment, taxable income to state, production technology, growth of local industry and the county’s economy.

While attempts at local production of Triple Concentrate Tomato Paste, by some companies including Dangote since 2012, there is a lot to be done to organize the industry in terms of suitable seed varieties, farming technology and inputs, so as to get the right quality and quantity to process fresh tomatoes to Triple Concentrate.

It is also virtually impossible to feed the local demand for Triple Concentrate till the local processing industry evolves over time to acquire and execute the required backward integration to make this possible. The U S, European and Chinese tomato paste industries are examples, which took many years to establish and standardize.

  The decision to include Triple Concentrate Tomato Paste amongst 41 prohibited import goods is still raising dust amongst consumers, labour and manufacturers alike and many have been expressing frustrations over the forex policy.

Director General, Nigeria Employers Consultative Association (NECA),  Olusegun Oshinowo, asked succinct questions in an interview “what is it that has made the CBN to prohibit tomato paste manufacturers from the foreign exchange that should not be extended to numerous products including petroleum. Right now NECA is trying to determine how many companies are set for redundancy. This cuts across all sectors.”

“There are companies thinking of 50 per cent slash on their staff strength as a first exercise not the final exercise. It is that bad. WAMCO sacked 40 staffers, Flour Mill sacked 800 workers, Seven-Up Bottling Company laid off 150 workers.” Oshinowo said.

Petroleum maybe the mainstay of the economy today but the future of that sector looks very dim and bleak as global pricing for crude oil keeps falling. This is perhaps the major reason  the government has intensified its drive to diversify Nigeria’s economy in a bid to shore up the county’s revenue.

Oil aside, the consistent fall in Naira’s value has not spelt good tidings for entrepreneurs who have been producing and groaning from the already hostile production environment. Manufacturers especially those in the tomato industry are merely holding on to the last straw as they do business but with the exclusion from forex activities it is tantamount to an execution of the tomato industry.

President of Manufacturers Association of Nigeria (MAN), Franks Jacob said “several of its member companies are presently operating below capacity and only few may be able to survive.

The Forex policy is not just killing the tomato industry but does more than that as it effeminates the purchasing power of the consumer and this consumer-impotence is replicated all over the country as they cannot afford to buy because of inflation and loss of jobs. The policy also eliminates the possibility of sales increase as the few people with jobs have to cater for those who just lost theirs.

According to the President, National Union of Food, Beverages and Tobacco Employees, Lateef Oyelekan, “all the companies involved in the Forex exclusion should be given the latitude to plan for backward integration, as one of the downside of the policy is that it has started leading to massive job loss.

Hence the best approach would be a phase-wise implementation which will facilitate local backward integration of the key players through sound and stable policies and support measures. This will also retain and build the local processing capabilities of the downstream re-processing industry, so that in the long run, not just Nigeria but the entire region can be serviced using local capabilities.

The President of the National Union of Shops and Distributive Employees (NUSDE), Kelly Ogbaloi added to the list “CFAO sacked 36 employees, Dana laid off 42, Daylong sacked 10, Kevalrams asked 48 workers to go home, Dizengof terminated 6 staffer’s appointments and Goldig sacked 53 breadwinners.

While the Lagos Chamber of Commerce and Industry (LCCI) and the business community have expressed concern about the consequences of the CBN approach to the management of foreign exchange market over the last few months, one wonders how the consumer is coping with all the realities militating against them, at the same time not forgetting that the country is still in recession. The festive season is here again not minding empty pockets and children in their innocence are nudged by their mothers to start singing the annual “Papa Christmas is here you go buy cloth for me” song.

The year 2016 is winding down for corporate bodies who are now planning for the coming year and what further unpleasant uncertainties it may bring;but for many workers and consumers in the tomato industry, 2016 wound up in 2015 when CBN came up with the policy on Forex to exclude 41 items including Triple Concentrate Tomato Paste.