Devaluation underscores need to develop local raw materials

Recent devaluation of the naira has underlined the need to improve the quantity and quality of local raw materials, if the country is serious about achieving the objectives of the Nigerian Industrial Revolution Programme (NIRP).

Devaluation has raised dollar-to-naira exchange rate to $/N168 at the official market, and between $/N185 and $/N192 at inter-bank and parallel markets, respectively. But manufacturers have been the hardest hit as they rely heavily on dollar to purchase their raw materials from abroad. In fact, analysts have consistently pointed out that any commodity, including raw material, imported from abroad will logically cost more than its pre-devaluation rates.

There has been an unprecedented outcry in the manufacturing circles, after the Central Bank of Nigeria (CBN) placed raw materials on the category of finished imported goods, thus restricting manufacturers to the inter-bank, rather than official market, where they can buy dollars cheaper.

Manufacturers say their outcry is hinged on the fact that the CBN move has further driven up their production costs, as they consistently have to import raw materials to produce and meet consumer demands.

“You know we import raw materials from abroad. We also import machinery. So, we have written a letter to the CBN, asking for an explanation,” said Tunde Oyelola, chairman, Manufacturers Association of Nigeria Export Group, and vice chairman, PZ Cussons Nigeria plc.

Keith Richards, chairman, Promasidor Nigeria, said local manufacturers have had to take the pains to import raw materials from abroad because of persistent problem of shortages in terms of quantity and quality.

“Who would go to the cost and trouble of importing if local raw materials were available at the required quality and quantity?” Richards asked in his article in BusinessDay.

Clearly, the cost of funding imported materials becomes an even greater problem during the kind of economic turmoil we are experiencing.

In an exclusive with BusinessDay, Joe Hudson, immediate past CEO, Lafarge WAPCO, had told Real Sector Watch that Nigeria needed to pay closer attention to the development of raw materials. He said this in respect of the fact that cement manufacturers still import gypsum, an essential raw material at the factory. The country needs to invest heavily in research and development (R&D), he said.

Following this, J.M. Babajide, lecturer of food science and technology at the University of Agriculture, Abeokuta, Ogun State, had said there were many locally available substitutes for imported raw materials, especially in the food and beverage industry, which local manufacturers should begin to look at. For instance, she said malted barley used by brewers can be replaced with maize, sorghum and rice, while milk powder used by diary firms may be substituted with local fresh milk or soy milk.

The current exchange rate condition offers some advantage to industries with high local value addition, as it makes them more competitive than their foreign or import dependent counterparts, according to Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), stressing that the situation is an opportunity to encourage industries to look inwards for products that are hitherto imported.

Odinaka Anudu