Nigerian aluminium industry choked by imports, high energy/labour costs

Nigeria’s aluminium sector is beset by a number of problems, prominent among which are influx of cheap and substandard finished aluminium products, poor raw materials quality, high cost of energy as well as rising cost of labour in the industry.

Other key issues that threaten the industry are lack of government incentives to players in the sector; desire to reduce quality to compete with cheap and sub-standard products from China, and high taxes, according to informed industry sources.

Most operators, who spoke with Real Sector Watch, lament rising energy cost, which has prompted some of them to close down operations in the past and is still threatening to cause fresh shut-downs.

The situation has equally led to high lay-offs, they say.

They add that the new electricity managers have been unable to ramp up power supply not only across the country but also to industrial zones.

“We had to close down operations in December 2012, because production was and still is uneconomic owing to high energy cost,” said Robin Neville, managing director, First Aluminium plc, in an exclusive interview.

“We lost 200 employees in 2012 as a result. We had a situation before we went off. Our gas was cut off for six weeks, and we could not do anything. That was in 2011. In 2013, 22.7 percent of our costs went to power. We spend N20 million every month on power,” he said, adding that the cost had currently reduced by 75 percent because his firm had to stop the rolling side of the business which often consumed much energy.

Apart from high or rising energy costs, which are not peculiar to aluminium makers, industry sources told Real Sector Watch that the brazen attitude of importers of sub-standard pink coils (key ingredients at factories) leaves much to be desired. According to them, since the cost of converting raw materials to pink coils was often huge, importers had resorted to bringing in cheap and poor quality pink coils and other raw materials from China, thus leading to poor quality roofing sheets used in housing construction. They also say that complicity by corrupt Customs officials as well as lack of government interest to protect the industry have increased the activities of importers of standard finished aluminium products, with the attendant consequence of making locally made products uncompetitive.

Owing to this trend, players in the industry in 2013 agitated for the review of aluminium standard to a minimum of 0.25/1000mm for the short span and 0.30/1200mm for the long span, according to the Manufacturers Association of Nigeria, in its 2013 annual sectoral report. However, the minimum thickness of aluminium roofing sheets in many parts of the world is 0.4mm, findings have shown. The agitation for reduced thickness is predicated upon the fact that producing aluminium products with less than 0.4mm thickness will reduce production costs, while enhancing the capacity of local products to compete effectively with imported ones.

“I believe this is an economic argument from manufacturers. We have to compete in this environment where government seems unconcerned about the aluminium industry,” said an industry source, who preferred anonymity.

Some stakeholders in the industry still bemoan rising cost of labour. Although Nigeria may not have the highest wage bill in the world, the cost of hiring technical workers has been on the rising scale, they say.