The decline of Denel would compromise South Africa’s strategic independence, says chief restructuring officer (CRO) Riaz Saloojee, making the ... timely disbursal of the R3.4bn ($196m) lifeline thrown to the entity critical.
More than 20 factories have halted production activities in the last five years after several failed efforts to purchase dollars from commercial banks at the official rate to order raw materials, machines and spare parts from Asia and Europe.
About 48% of raw materials are imported into Nigeria by manufacturers in 77 sub-sectors of the economy, according to data from the Manufacturers Association of Nigeria (MAN).
The Africa Report can confirm that Innovative Packaging Limited, located at Otta, Ogun State, Nigeria, has withdrawn from MAN and shut down due to “government policies on foreign exchange” after failing to procure dollars to import polypropylene, polyethylene and other inputs required to produce plastic packaging products. The company had more than 65 staff members.
Francis Ajukwu, CEO of Kanyi Agro Processing Limited, tells The Africa Report that his group has closed two out of three subsidiaries due to high input prices. “We had three agro-based businesses: a poultry farm, a cassava processing unit and an egg processing factory,” he says.
“For the poultry farm, we used to buy chicken feed from the open market. But sometimes prices would change up to four times in a week because the feed or its raw materials are imported with dollars.
We used to get dollars from the black market, but it is quite expensive and unsustainable
“Our biggest challenge is the egg processing unit. We wanted to procure two egg processing plants from China and the US, but we could not find $150,000 to buy them, so we had to shut down both the processing plant and the poultry farm,” he says.
Asked why he did not seek locally made machines to hedge against currency risks, he said he used locally available machines for some time, but they were not efficient. The company has over 80 direct and indirect workers.
Moak Industries, a producer of table water, has also shut down and has been delisted from MAN.CEO, Tunde Akintunde, tells The Africa Report that he exited the Nigerian manufacturing space due to dollar-induced costs of producing nylons and plastic bottles – which both serve as water packaging products.
Great Eagle Cement and Everite Integrated, a wire producer, have also both recently delisted from MAN, while chemicals producer Sufficient Industries has run out of gas and exited the Nigerian manufacturing space due to a severe dollar scarcity.
“We used to get dollars from the black market, but it is quite expensive and unsustainable,” says Ike Ibeabuchi, the former CEO of Sufficient Industries.
“The margin between the official market and the parallel market is over N160 and no one can find dollars at the official rate,” he says. The company did not seek local alternatives because they were not available, he said.
Hedging against currency risks
Although some companies have shut down, others are devising means to hedge against currency risks. Some companies have reached agreements with creditors to convert their dollar debts into naira while many are expanding their local raw materials sourcing to reduce exposure to dollars.
Lagos-based Unilever Nigeria sources 90% of its packaging materials locally, says the company, while PZ Wilmar, a palm oil producer, has acquired 26,500 hectares of land for oil palm plantations to enable it source inputs locally.
The local content is still low because of the cost involved
Dangote Sugar Company has set up sugar plantations in Nasarawa and Adamawa states in order to reduce its exposure to currency risk arising from the raw sugar importation. Similarly, FrieslandCampina WAMCO is already sourcing raw milk from its numerous milk collection centres in Oyo State, Nigeria, but it is planning to expand.
Nevertheless, the percentage of local sourcing is still low and the cost of embarking on it ranges from $1m to $10m – depending on the size of the company and product in question – according to figures from companies that have made investments in local raw materials sourcing.
“The local content is still low because of the cost involved,” says Michael Ola Adebayo, Director, Haffar Industrial Company.
Patrick Oaikhinan, a professor of Ceramics Engineering, suggests government financial support to manufacturers investing in local raw materials sourcing.
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