Saving tomato paste industry…
The apex bank of Nigeria CBN had explained that the move to restrict 41 items including triple concentrate tomato paste became necessary to “encourage local production of these items”, adding that “implementation of the policy will help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation.”
The Government through the policy intends to force manufacturers to develop a local supply chain. It is important to recognize triple concentrate tomato paste imports are estimated to be in range of $50 million per annum.
Looking at the government policy, the Federal Government may have to do more to convince Nigerians and key stakeholders that its economic policies are not crafted to sink the country’s manufacturing sector as not all stakeholders appear to be on the same page with the government as far as this is concerned. There are more negatives than positives. If we look at the outcomes we have had in the past months, they are quite drastic on the negative side. (GDP) is declining; underemployment and unemployment are on the increase, the general level of economic activities is getting weaker by the day and also the capital market is quite unstable. Considering the position the nation was able to attain after the elections, there came a heightened level of goodwill from both the local and international arena which we had all the opportunity to tap into. Unfortunately, foreign investment has stayed flat from the level we had last year.
In using import prohibition as a major trade policy instrument, Nigeria has hoped that its balance-of-payments problems would be alleviated, and that the protection offered would induce increased output and employment of the domestic industry. Against these postulated positive outcomes must be set several possible negative consequences of import prohibition, including raising the domestic prices of CBN restricted products, disrupting other sectors which use the CBN restricted products as raw materials, depriving government of tariff revenue and creating vested interests among domestic producers of prohibited products and among smugglers.
Nigeria’s balance-of-payments situation is determined primarily by developments in the world oil market; hence it has not been amenable to changes induced by import restrictions. In any case, it seems clear that protection of domestic producers is the real force behind the use of this policy instrument. But there is little evidence that it has produced the desired result here either. For instance, a survey of manufacturing-sector performance conducted by the Manufacturers’ Association of Nigeria does not support the view that the level of capacity utilization was positively related to the degree of local sourcing of raw materials — one of the major channels through which import prohibition was expected to promote increased output and employment.
The tomato paste Industry has a total market of 150,000 MT of tomato paste per annum (GTIS 2014) with total value of this imported tomato paste is $170 million as triple concentrate is not produced in Nigeria, these have to be imported as raw materials to meet the market demand to meet the huge vacuum of 150, 000 MT which will take years to fill in a progressive and sustainable manner.
Majority of the farmers in Nigeria specialized in the plantation of fresh pepper, tomatoes etc, face a tough time nurturing & growing this farm produce to a ready-for-consumption stage. However, the effort to effectively preserve the harvests while preventing colossal wastage in the absence of the triple concentrate Tomato paste poses a serious economic challenge never to be ignored. It is important to realize that this is an area where Nigeria has little or no strength in preservation of tomato without the use of concentrate.
As enormously blessed as the country Nigeria in the area of adequate fertile land bringing forth healthy agricultural produce; however, there still lies a huge gap in the area of processing the fresh produce into a finished product to meet the culinary needs of the end consumers. A typical example in the tomato paste industry is the unavailability of the triple concentrate tomato paste in Nigeria, which is the major composition essential in the production of a tomato paste asides the use of fresh tomatoes which can easily sourced locally.
Presently there is not a single company in Nigeria producing triple concentrate tomato paste for use. Hence this raw material needs to be imported for reprocessing and pack for retail sales. This is why members of the Organised Private Sector (OPS) and the manufacturers differ with the apex bank on the classification and definition of some of the products restricted from access to forex market, stating that some of them are raw materials used in the course of production in their factories.
The private sector operators, under the aegis of Lagos Chamber of Commerce and Industry (LCCI), raised the alarm at different occasions that many companies are on the brink of collapse because of inability to access foreign exchange for raw materials and other critical inputs. They claimed that many small businesses have moved to neighbouring countries to effect transfers to their suppliers abroad, a situation that encourages operation of offshore bank accounts to the detriment of the Nigerian economy.
Presenting an impact assessment report on CBN forex policies, LCCI President, Remi Bello, noted that the real sector has been battling some challenges since the implementation of the forex policy as several investments are at risk, with possible job loss. According to him, the policy has negatively affected various sectors of the economy.
“The Lagos Chamber of Commerce and Industry (LCCI) and the business community are concerned about the consequences of the CBN approach to the management of foreign exchange market over the last few months. Tough choices have to be made. But we have serious reservations over the policy choices of the CBN in managing the current crises. Significant disruptions, distortions and dislocations have been created in the business environment by the CBN. Nigeria is under pressure, but you cannot shut all the doors and windows”
Nigerian farmers are working hard to meet up the consumption and raw material demands of tomatoes but the major issue is the fresh tomato yield in Nigeria. The yield presently is about 5.7 MT/Hectare which is too low compared to China’s 51 MT/Hectare and USA’s 80 MT/Hectare. It is pertinent to note that because of increased costs of farmer, primarily driven by low yields, costs of fresh tomatoes remain high as farmers expect better returns because of inefficiency in the farming process. This is going to remain the biggest challenge for any out-growers scheme even in a normal scenario. The shortage will increase market prices for fresh, creating further gap and upward pressure on out growers selling price. Ultimately consumers will suffer and inflation will go up.
The economy is feeling the impact as there is inadequate supply of tomato, and desperate food producers’ will use non qualified tomato concentrate thereby jeopardizing public health and safety. The future industrial growth is being threatened because tomato was and is one of the widely used raw materials and migration of industries and investments in Nigeria to other neighboring countries will surely affect the economy.
According to Bello, expressed concern that many of the products on the list of the 41 products are intermediate goods for example triple Concentrate tomato paste which is a critical input for tomato manufacturing firms as well as other raw materials critical for other sectors of the economy.
He said facilities granted to investors affected by the shock of this policy are also at the risk of going bad.
Forex is required for the enhancement of the nation’s capacity to process raw materials into finished goods, such as factory production lines which help in the economic growth of the country.
When these and many more segments of the nation’s economy need the scarce foreign exchange to acquire items and equipment that will result in value creation and a concomitant accelerated growth of the overall Nigerian economy, it is therefore risky to jump to policy making without consultation.
Due to the resultant effect of the forex policy, Nigeria today is losing investments worth billions of naira. So as the low production and high demand for the product both domestic and industrial needs continue to generate much agitation, importation is inevitable for the sustenance of the country’s industrial image.
For now, importation of the triple concentrate tomato paste concentrate serves, as the best alternative to the non availability of the raw material produced in the country. There should be a progressive building of local capacities to ensure a steady and robust transition to substitute importation in long term. This shall motivate serious and organized manufacturers who have got impacted by CBN policy to survive and create more employment in times to come. Government should let tomato paste manufacturers to survive and bring about fiscal changes to motivate the industry to participate in backward industry in a structured manner.
– Isadiran is an economic analyst based in Lagos
Adeolu Isadiran