Forex closure, restriction expose poor local content in manufacturing

Recent Central Bank of Nigeria’s foreign exchange policies have exposed the poor level of local input content in Nigeria’s manufacturing sector. In simple terms, the policies have shown that the level of raw materials sourced abroad dwarfs whatever is obtained locally.
The CBN had, in February, announced the closure of the Retail and Wholesale Dutch Auction System (official) foreign exchange windows, targeting sanity in an exchange market struck by speculative demand and round-tripping. This policy simply meant that importers could only access dollar then at an upward of $/N198, rather than $/N168.
Immediately after the decision was taken by the banker’s bank, Frank Jacobs, president, Manufacturers Association of Nigeria, told Real Sector Watch that such a unilateral decision could close down a number of manufacturing firms.
“Many manufacturing firms will simply close down,” Frank S.U. Jacobs, president, Manufacturers Association of Nigeria (MAN), told this writer on the telephone.
“Is it that the CBN does not know that a lot of manufacturers get the foreign exchange from the market?” Jacobs querried.
“We say there is the need to diversify the economy. But how can you diversify without manufacturing. How can you diversify the economy by doing things that will rather destroy the sector,” Jacobs added.
The Lagos Chamber of Commerce and Industry (LCCI),  some of whose members are manufacturers, issued a release projecting that the move would add pressure on the cost of production, leading to retrenchment in many firms.
Similarly, the apex bank recently restricted importers of 41 items from accessing foreign exchange from the Nigerian markets. The move was meant to encourage domestic production and create jobs, according to the CBN. However, the implication of the policy is that importers of iron rods, cold rolled sheets, wire rods, reinforcing bars and polypropylene granules, among others, will now have to source the foreign exchange on their own. This means they could source same from anywhere higher than $/N220.
However, some of these products on the CBN list serve as raw materials for local manufacturers. For example, cold rolled steel is used in many iron and steel firms for the manufacture of roofing sheets, home appliances, metal furniture and filling cabinets, tables and chairs, among others.
“Such exclusion is not in the interest of members as we do not have enough capacity at the moment. I feel they would have given them some time to enable them have enough capacity,” Jacobs told this writer.
But what it all points to is that Nigerian manufacturers source more of their inputs abroad than locally, implying the need to develop local raw materials to the internationally acceptable levels.
Hussaini Doko Ibrahim, director-general, Raw Materials and Research Development Council (RMRDC), lamented last year that despite the huge availability of gypsum, the industrial sector is yet to take full advantage of the economic potentials of its value addition and linkages.
However, findings show that most of the raw materials sourced abroad, which are found in the country, sometimes do not meet acceptable standards. Sources told Real Sector Watch that cement makers sometimes import gypsum and limestone, which are abundant in the country, owing to poor quality content of the locally available ones.
Already, the federal government has reduced import duty to five percent for brewers that import barley malt and concentrates. Waivers have also been granted them, owing to the fact that the quantity imported is huge.
“Unfortunately, in recent couple of years, ban on importation of malted barley was removed and was allowed to be imported as production raw material at five percent duty only.
Multinational brewing companies embarked on massive importation of barley malt from their own malting plants in Europe where agriculture is highly subsidised,” said Sudhansu Sinha, managing director, Food, Agro and Allied Industries Limited in  chat with BusinessDay.
Latest input content data from MAN show that local input preference dipped to 47.6 percent in the first half of 2014, from 59 percent obtained in the last half of 2013.
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, while reacting to the CBN’s restriction of raw materials importers to the inter-bank  market earlier in the year.
In an earlier interview, Joe Hudson, immediate past CEO, Lafarge WAPCO, told Real Sector Watch that there is the need to develop local raw materials to save foreign exchange and grow industrialisation.
Analysts say government should create the right policies that will make it easy for the private sector to move in and develop local raw materials.
ODINAKA ANUDU
 
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