Saturday, March 19, 2016 10:27 am
President of the Manufacturers Association of Nigeria, MAN, Frank Udemba Jacobs tells Funsho Balogun in this interview that the body of manufacturers should have been consulted towards backward integration before 41 imported items were banned from receiving CBN Forex. But he adds that rough edges have been smoothened after dialogue with CBN and government officials and members are now accessing foreign exchange
What is the level of cohesion between MAN and the government in terms of consultations and policy making?
In terms of consultation between MAN and CBN in particular, as far as the banned 41 banned items is concerned there was really no consultations and we reacted by telling CBN that that wasn’t the right way to go. Because if you are going to make such a policy that would affect the economy to a very large extent in a terrible way, it is always proper to consult. Not really consulting in terms of changing what you want to do, but to carry us along as stakeholders so that whatever you want to do would be suitable, not just for the CBN but for the entire economy. Concerning the issue of the 41 items, we’ve taken it up with the CBN. We have told them our position and the CBN Governor explained to us that if the funds were there, nothing stops him from acceding to our request, but they don’t have the funds. And this policy is deliberate in the sense that they wanted Nigerian attitude to change away from import orientation to looking inwards. They said even though some industries and companies whose raw materials are involved may suffer, they are ready to live with that error or position.
There is nothing we can do about that. We have gone to the presidency and discussed it with the President, the Vice President, as well as some of the other ministers that are related to the economy, and everybody knows our position. But it does appear that the CBN Governor just seems to say he doesn’t have the funds. Lately we went to the press and said that about 200 companies were going to be out of business and close shop at the end of this quarter. CBN reacted by inviting us and we had a good and very satisfactory discussion where they then agreed to ensure that the foreign exchange requirements of our members will be met as at when required, even though they may not be able to meet them 100 per cent. They said they would meet the requirements somewhat to make sure the manufacturers are not out of business.
There is another issue concerning the 41 items. Members are not even allowed to source foreign exchange from other sources, in order to open Form M or letter of credit. Especially Form M. So we agreed in that discussion I had with the CBN Governor that concession would be given to our members to have access to Form M and import if they have their own funds or are able to get the dollar from other sources. To us, we see that as a compromise, that at least it is addressing some of the issues of our members. So generally the relationship with CBN now is quite cordial. Members have been reporting that they’ve been getting the foreign exchange allocated to them following my engagement with the CBN Governor. To that extent, I won’t complain now that they are not sensitive to our request.
But tomato paste manufacturers in particular are still crying concerning their fate due to government’s policy on the 41 items that affects their production. Has government offered the reprieve they require by giving them more time?
The thing is that government seems to be rather adamant about these 41 items. That is what I can say. If there had been consultation before the policy came out, we would have suggested to government to allow us time. Up till now we are still saying allow us time, 18 months to two years within which we can backward integrate. This country grows a lot of tomatoes but what we don’t have is the machinery to convert it into tomato paste. There are crude methods of doing that that mothers at home can do but that is not enough to satisfy the commercial need of the country. What we are still telling government whenever they care to listen is that they must allow us time to backward integrate. Without that, there might be anarchy somewhere down the line. There might be anarchy because when people can no longer get what they use for their food, like the ingredient for their cooking, we don’t know what the response of the people would be. So I think government should allow adequate time.
Some of the companies are already going into backward integration, but they need time. Because when those machines begin to roll out the products, they are going to run out of the raw materials they have presently. And when those raw materials are completely gone, they won’t be able to produce, people would be out of work and the consumers would begin to cry that they can’t find tomato paste. Imaging what a great disgrace it would be to the Nigerian government that consumers cannot find common tomato. So I think government has to revisit its position on the tomato paste import. But for now, all government is saying is that the 41 items are sacrosanct, you cannot touch them.
Has that really been enforced already, considering the fact that the tomato paste manufacturers still appear to be producing without hitches?
Of course they are enforcing it. Although, in any system where you create scarcity there are bound to be abuses such as smuggling that would be going on which we know today. Tomato paste is being smuggled into the country from China. And in fact it is even hurting the local producers. Until they police our borders adequately, I think some of these policies are going to be undermined by smugglers.
Manufacturers have always complained about the state of infrastructure being a factor working against progress in the real sector, do you think efforts being made by the current government to improve on what is on ground is commendable?
In terms of the infrastructure, including power, the roads and the rail system, government budget is supposed to be signed into law soon, and until that budget is signed, they cannot spend money on any of these areas. We have sat down with government to talk about this infrastructure at various levels and we’ve been promised that the moment this budget is signed into law, we would see a difference. Though it cannot be immediate, we have been told it is going to happen, because a good sum of money has been allocated to infrastructure.
What about the recent increase in electricity tariff and the effect this may have on manufacturers?
In terms of the increase in tariff, although the consumers are going to bear the brunt of that increase, when we sit down to think about it, we are also businessmen. Nobody would want to invest in power or any type of venture where they would not be able to get profit. In Nigeria, we are already used to getting handouts, and when situations like this come up, we complain. We have engaged NERC concerning this matter, and they have convinced me-maybe not all the manufacturers-about the reason for the increase in electricity tariff. It is because that is the only way we can be sure of sustainable power supply. And when you compare the increase to what we spend in generating our own power, it is a far cry. To that extent, we are beginning to see reason with them, even though there are some of our members that still feel we should push harder. We are coming to a position where there will be some kind of compromise. Already, MAN is in court with all the electricity distribution companies nationwide as well as NERC and we have injunction that they cannot increase rates. However, we engaged them recently, with an agreement for out of court settlement. A committee was set up to hammer out the conditions for that. We are meeting with the NERC executive soon to further discuss this, so that they can really convince us about the reasons why they must increase tariff. And then we would see how we can come halfway concerning what they want to do, so that it would be a win-win situation both for the consumers, the Discos and the Gencos.
Considering the present plight of the real sector, are there enough indications now for you to really believe that government’s pronouncement on diversification should be taken seriously?
Based on the pronouncements of the President and the statements he made when we paid him a courtesy visit, there is reason to believe that they are serious about diversification. And they want to achieve diversification through empowering the agriculture, solid minerals and manufacturing sectors. We manufacturers see agriculture and solid minerals sector as the source of our raw materials. So we urge government to develop those areas and make them attractive for investors to go ahead and exploit the natural resources that we have in this country to generate the raw materials that manufacturers use. We believe the government is serious and that at the end of the day, manufacturers would be the beneficiaries of the development of agriculture and solid minerals.
Besides, there is no other way to go. There is no other way in view of the dwindling oil prices in the international market. Nigeria must diversify the economy, and we have to start from the basics. The basics are the sources of raw materials to be used by the manufacturer which is from agriculture and solid minerals.
How about difficulties in accessing financing windows and the eligibility of aspiring and even established manufacturers to take advantage of such facilities?
For both the big and small players, it is the same. When the interest rate is generally not less than 20 per cent and the big players also have it for between 15 and 20 percent, the interest rate regimes are still very high. And we have been saying it, whenever government is ready to listen, that the only and the best way to go is bringing the interest rate to 5 per cent or less. And in a situation where the monetary policy rate, MPR goes for 11 per cent, there is no way the banks would lend at 5 per cent.
Government should do whatever they need to do to lower the MPR down to 1 or 2 per cent. If this is done, it may be possible to lend at 5 per cent. Without lending at that 5 per cent which is obtainable in other climes, there is no way we can diversify this economy. It doesn’t matter how anybody looks at it. Intervention funds cannot do it. The CBN has rolled out intervention funds and placed very stringent conditions in accessing the funds. With those conditions, we cannot access those funds.
If the cost of funds is too high, it scares people away from this venture into the diversification we desire. That is why most of the moneybags in this country, people who steal money from this country, take the money overseas rather than investing in this country. Nobody really wants to go into manufacturing because of the operating environment. There are so many challenges that manufacturers have to face. In fact I see manufacturing business as a patriotic duty and not something through which you can make money in this country. In other climes, yes, it could be to make money. But here, when you borrow money at 20 per cent or higher, you are working for the banks. You don’t make anything for yourself. So I think something must be done about the high interest rate regime.
What are the variables that make it so difficult to achieve lower interest rates in this country, considering the progress that it would have brought to the manufacturing sector?
I think that the variables obtainable in other climes may not necessarily apply to Nigeria, because in Nigeria corruption is very deep. And corruption can be a major variable in determining these rates in one way or the other. Meanwhile, our policy makers have gotten stuck to the classical, traditional economic principles and they are not ready to think out of the box. If they were ready to take the risk and try something different, something unusual, even if it breaks all the economic laws, something may have happened. Maybe the interest rates may have gone down today and whatever the consequences, we would have been able to work around it and see how to deal with it.
Nigerians go to Asia to bring in goods manufactured to their specified standards to compete with locally made products. To what extent has this been a problem for indigenous manufacturers?
It is a major challenge for manufacturers in this country. We know that many of the products of our members are taken to China, massed produced and brought back into the country. Sometimes the products are inferior, other times they might be the same quality. But the operating environment can enable them produce at relatively cheaper price. But they can’t do this on their own. There are some unscrupulous Nigerians that send these products to them to counterfeit and bring back. Until Nigerians become really patriotic and think about our actions and the effect of our actions on the overall economy, we would continue to have such challenges. I always call on Nigerians to be more patriotic in the way they transact business because at the end of the day what is important is what benefits the country and not what benefits me as an individual. Because when the country benefits, I being a member of that country would benefit. But when I worry about benefits for myself alone, that benefit would be short-lived.
Funsho Balogun can be reached via –firstname.lastname@example.org