Manufacturers recommend special incentives for backwardly integrated companies
The Manufacturers Association of Nigeria (MAN) has urged the federal government to provide special incentives for companies embarking on backward integration.
“I appeal to the government to give special incentives to companies that embark on backward integration,” Frank Udemba Jacobs, president, MAN, said at this year’s annual general meeting of the association held in Lagos.
Backward integration occurs when a firm buys or acquires a company that previously supplied its raw materials. This has occurred in the cement industry, where producers acquired suppliers of limestone, gypsum and other raw materials. Dangote Cement, Lafarge Africa, WAPCO, the United Cement Company of Nigeria (UNICEM), Ashaka Cement, Bua Cement and Cement Company of Northern Nigeria (CCNN) have all backwardly integrated.
Sugar makers have also integrated cane farmers in a relationship that has attracted over $2.6 billion in investment over the last 18 months. The Dangote Sugar, Golden Sugar Company, McNichols, HoneyGold, Crystal Sugar Mills and Confluence Sugar, among others, have also backwardly integrated. There is also backward integration in sectors such as rice and palm oil.
According to Jacobs, backward integration and import substitution should be the central focus of Africa’s largest economy to ensure sustainable industrial growth and development.
At the AGM themed ‘The Future of Manufacturing’, Jacobs said the manufacturing sector’s 9.11 percent contribution to the gross domestic product (GDP) by the last quarter of 2014 was lower than those of several economies, stressing that the Nigerian economy must be diversified to ensure it realised the vision of becoming one of the leading 20 economies by 2020.
“Encouraging the growth and development of the manufacturing sector is the surest way to diversify the economy as the sector is essential to job creation, sustained growth and development of other key sectors such as agriculture and solid minerals,” he said.
He stressed that the Economic Partnership Agreement (EPA) between the European Union and West Africa would be “very disadvantageous to the Nigerian economy, if signed in its present form, as it will not only retard and destroy the fledgling industrialisation of Nigeria but will orchestrate serious social challenges as a result of job losses.”
Thabo Mbeki, former South Africa’s president, said it was clear that the economic successes Africa had achieved, based on the export of raw materials, underlined an unacceptable reality.
“That reality is that in a large measure and so many years after independence, we continue to maintain the system of economic relations with the rest of the world which was developed during the period of colonialism. This continues to make us producers and exporters of raw materials and importers of manufactured goods,” said Mbeki, who was the guest speaker.
The former South Africa’s president said Africa had learnt a necessary lesson from the drop in the prices and demand for raw materials, including oil and gas, adding that the continent was now convinced that there was an urgent and pressing need to diversify, industrialise, focusing on manufacturing.
“I would like to say that, by definition, young and developing corporations have great need to access affordable credit to be able to finance their operations. Clearly where the normal financial institutions are unable to respond to this need, government would have to intervene to address this requirement, hence my mention earlier of public sector industrial banks,” he added.
ODINAKA ANUDU