‘More investments in rubber can make Nigeria a tyre manufacturing giant’

Ede Dafinone is a chartered accountant of the Dafinone dynasty. He is also the CEO of Sapele Integrated Industries Limited, a key crumb rubber processor in Nigeria. He tells ODINAKA ANUDU, in this interview, what is needed to push the rubber industry and non-oil exports in general. Excerpts:

What do you suggest should be done to revive the rubber industry to once again attract value-adding tyre manufacturers, given the need to produce vehicle components in the face of the automotive policy already in place?

Walking backwards from the automotive policy as it relates to the rubber industry, the key components are the tyres. Nigeria actually has all the raw materials necessary to produce tyres significantly. The country has the raw rubber, and the carbon black, which is a by-product of crude refining.

What we need to make the rubber sector more vibrantly firstly is to encourage more investments in the creation, maintenance and replanting of rubber plantations. Due to its peculiar nature, rubber has a gestation period of six to seven years.

And the six to seven year period requires significant maintenance, fertiliser, labour and inputs that can make the trees productive at the gestation period. Equally, rubber is threatened by potential diseases and fire, especially in the dry season. So, there is the need to encourage investments either through cheap finance, through making seeds available, making technologies available or encouraging small holders in order to bring more players into the market.

Most significantly, the international price of rubber, which controls the pricing of the Nigerian output as it does all other countries, is out of the control of the local exporters and farmers, because the market is driven by the buyers. So from the exporter to the tapper, the international price on a daily basis is known and is used to drive the market for lumps, which are the raw materials, in the bush. So, where we have the downturn in the tyre market resulting from the downturn in the car market or the economy in general, we still have an oversupply of rubber.

The resultant position is a crash in the international rubber price, which affects the amount of rubber being tapped on a daily basis from the bush. As of today, a combination of a hard rainy season and also a downturn in the international rubber prices have meant that most factories are down to between 10 percent and 20 percent of their normal production.

How do players in this industry survive, given the long gestation period. I mean, do you plant trees and wait for six or seven years?

Yes, we plant trees and wait for six or seven years. It may sound difficult but I spent a few years doing research on rubber plantations in Ivory Coast. In that country, they understood that the rubber farm can actually form the pension scheme for a man. So, if at the age of 22 or 23 the young man gets a job, he stays for few years and buys a few hectares of land in his village. Over the next six to 10 years, he starts planting rubber. By the time he retires, he has planted rubber which is enough to feed him and his family thereafter. It is potentially a good means of saving; potentially a profitable investment.

With the gestation period, how do you meet your annual supply target, for example to Bridgestone?

There are two types of exporters. They are the international players who operate with large plantations of 20,000 to 30,000 hectares like Okomu and former Michelin. Throughout the cycle, they will get rubber from their plantations to feed their factories and export. For a smaller company like Sapele Integrated, we have a small plantation, 2000 hectares, and rubber from our plantations is only fit to keep the factory going for maybe one or two hours a day. So, for the rest of the day we have to buy from other plantations that are attached to factories or small-scale farmers who have small plantations of one or two hectares they farm for their private use. That supply keeps us going through the year.

Do you have issues with the quality of rubber available for exports?

Yes, not many exporters produce the rubber that meets the standards of international companies. Sapele Integrated is one of the few companies accredited by Bridgestone for the supply of rubber. There are one or two others, but quality is clearly a key issue in the industry.

What are some of the challenges exporters face?

The biggest would be price competition. For the Nigerian rubber, we have to produce in an environment that lacks the infrastructure that competitors have. The additional cost of buying diesel and generators, and maintaining it, is a significant cost. We also have issues with road networks. Transporting raw materials to the factory is a significant cost; transporting finished goods to the ports is again a significant cost. We have issues with security where most rubber companies have to employ the services of security agencies to secure their premises. These costs make us less competitive than our neighbours. Rubber is being produced in Cameroon, Sierra Leone, Ivory Coast and Liberia at 40 percent to 50 percent less the Nigerian price. Yet, we are supplying to the same international market at the same international price.

The Federal Government established the Export Expansion Grant (EEG) scheme some years ago. Government gave exporters who qualified grants as incentives to increase the amount of non-oil exports. Sapele Integrated is one of the beneficiaries of the grant. The grant has enabled us to expand our production significantly in the last 10 years.

But has the suspension of the scheme since August 2013 affected your business?

Yes, of course, significantly. We first have the Negotiable Duty Certificates (NDCCs) that the government has given us in lieu of cash as the EEG. These certificates are not exchangeable and not utilisable to pay duties because the scheme was suspended. And our cash flow is therefore tied to those certificates. There is some confusion in some quarters that the certificates can only be used to pay for duty on raw materials. We do not have imported raw material, for we cannot use the certificate we have for raw material duty import. If, as it is said, government is saying that they do not want the certificates to be used on luxury items, then they are creating a narrower market for the certificates.

So, rather than discount 40 percent, the scheme needs to be product-specific. When the sector expands to a level of being self-sustaining, they can stop to tail off grants in that sector. Government can say, let us focus on rubber export for the next two years. They will then begin to tail off grants when we have meet our target.