Nigeria’s small-scale industries shrunken by power, raw materials
Nigeria’s small-scale industries are facing two critical challenges: high cost of alternative energy and raw materials.
The worsening power situation is mostly affecting small-scale industries, which cannot install expensive gas plants like their large counterparts.
Most Nigerian industries are small-scale, having less than 200 employees and assets worth below N500 million.
Many spend huge sums on alternative sources of energy as power supply across the country continues to dwindle daily.
Ikechukwu Ibeabuchi, managing director of a small-scale MD Services, producer of Klopp Water Cure, told Real Sector that 40 percent of his expenditure goes to alternative power.
“My plant is in an area in Enugu where there is scarcely steady electricity supply. I have to put generators off and on, a situation which does not augur well for a chemical production process,” Ibeabuchi said.
Owing to high cost of alternative energy in the country, Star Auto Industries Limited, a brake pads and lining manufacturing firm in the country, now runs skeletal production at its plant at Satellite Town, Lagos.
Production processes at the factory run for about eight hours daily as they use different sizes of generators for production.
“We spend as much as N155, 000 every week,” said Chidi Ukachukwu, chief executive officer, in an exclusive interview.
“We can provide more than 200 direct and indirect jobs, as people have to do the supply, marketing and other things. I have a passion for creating jobs for a number of unemployed graduates roaming the streets but that can only work if there is government support,’’ Ukachukwu said.
The Manufacturers Association of Nigeria is already resuscitating an independent power project (IPP) to reduce this problem.
Similar to the power problem is raw materials sourcing. Data currently show that manufacturers source only 48 percent of raw materials locally, implying that more (52 percent) of raw materials are imported.
The Central Bank of Nigeria’s closure of the official foreign exchange window and its recent exclusion of importers of raw materials such as cold rolled steel, cold rolled sheets, wire rods, reinforcing bars, polypropylene granules, glass and glass ware from the forex window have spiked the cost of raw materials.
Currently, many small-scale and large scale manufacturers source foreign exchange outside Nigerian forex markets at rates ranging from $/N225 and $/N235, rather than $/200 in Nigerian markets.
“We have seen in the last few months that many companies source their foreign exchange from the parallel market,” Paul Gbededo, CEO, Flour Mills of Nigeria plc and chairman of Food, Beverages and Tobacco Group of the Manufacturers Association of Nigeria, during the 2015 annual general meeting in Lagos.
“We know it is higher than what you get at the official market, and if you pay 12 or 13 percent higher for the foreign exchange, you will find it spreading on your cost of production,” Gbededo said.
Frank Jacobs, president, MAN, recently told BusinessDay that such increases in production costs stifle manufacturers, both small-and large-scale, and put them at the risk of collapse.
ODINAKA ANUDU