Manufacturers to expand local sourcing of raw materials in 2017

The foreign exchange crisis of 2016 is forcing a paradigm shift in the Nigerian manufacturing sector as many players have pledged to pay more attention to the locally available inputs this year.

According to manufacturers who spoke with Real Sector Watch, no company is ready to go through the pains of searching for dollars to import the majority of its inputs.

“I can tell you that what happened last year was an eye opener. Manufacturers now want to source more of their inputs in the country and less from abroad,” said Ike Ibeabuchi, CEO of MD Manufacturing Limited, a producer of chemicals.

Manufacturers fought their biggest battle in the outgone year as they battled to get the scarcely available foreign exchange from the local market.  Firms opened their letters of credit in 2016 and were forced to wait for 30 to 90 days to get dollars needed for the importation of raw materials, spare parts and inputs.

Firms were likewise forced to halt production owing to the non-availability of raw materials, pushing them into issuing sack letters to thousands of workers.

Joseph Babatunde Oke, immediate past chairman, A.G Leventis, complained that the firm got only two percent of its dollar needs throughout August 2016.

Oke said Leventis Foods, which used to produce 1.5 million loaves of bread every week by June 2015, now churns out only 400,000 loaves weekly because of dollar challenge.

The foreign exchange crunch forced the closure of 54 manufacturing firms in the country in 2016, according to Frank Jacobs, president of the Manufacturers Association of Nigeria (MAN).

However, Frank Jacobs told BusinessDay recently that firms were going into backward integration and seeking local alternatives to imported raw materials.

He said manufacturers were equally fabricating more local machinery that would suit domestic inputs.

Abdulsamad Rabiu, chairman, BUA Group,  said in a statement that the firm had gradually divested from business areas that were largely dependent on foreign exchange to businesses whose raw materials could be sourced at least 90 per cent locally.

Ikpong Umoh, chairman of the Cosmetics and Toiletries Group of MAN and managing director of Stellarchem Nigeria Limited, said he is aware that some members of the group are doing a lot more work to utilise the available local raw materials.

“But don’t forget, some of these raw materials are in their raw stages and need to undergo one or two modifications to be suitable for use. The process of doing that is not that easy. You need machinery, you need capital, and banks won’t give you loans,” Umoh told Real Sector Watch.