GREED DRIVES LOCALLY MADE GOODS MORE EXPENSIVE

http://thewillnigeria.com/news/opinion-greed-drives-locally-made-goods-more-expensive/

Dangote recently announced that he was going into rice production while promising to flood the market and bring prices down. Well, it is true that most promises made by businessmen in Nigeria in particular have not been fulfilled. Critics pointed to Dangote promises about cement whose price has not gone down just as his entry into tomato production. In the case of tomato, he was not the only Nigerian that made promises.

We have to accept that there are more market forces at play than the promises of one man. This writer is not a supporter of Dangote and has pointed out his disagreement with him in other cases. However, there is nothing wrong with making profit. Indeed, profit is essential as an incentive to increase production. Even in Cuba, the Government came to realize that if you allow farmers to sell their surplus after Government’s share, production increases.

When it comes to Nigeria, there is this endemic greed among our businesses to milk the masses as long as there are enough of them willing to pay outrageous prices. Those willing to make just a decent profit are frustrated out of the market to enforce their avarice. The case of the cement dealer in Akure makes a good point. Threatened and abused for low price, he had to call police. Many decent people like him all over the Country, are just afraid of their colleagues in business.

Before we come back to rice, tomato which is produced in surplus in Nigeria went begging at a low price when weather was favorable in Kaduna. Unfortunately, lack of adequate storage facilities as always, left most of them rotten and unsuitable for market in some Northern farms. Considerable efforts have been made since then to help Erisco Food, Dangote and others as priority by the Central Bank to provide forex out of dwindling reserve, to avoid workers lay off.

Tomato is a local product. The excuse for forex is that they need to import special seeds and machineries in order to float their manufacturing plants to avoid lay-off of employees. The same is true about the price of bread always going up. One would expect that since cassava is now an unsuspecting ingredient in bread, the amount of imported wheat would be reduced. Actually, after all these years, we should be growing enough wheat to meet our consumption.

O tio! Not in Nigeria. Erisco Foods has threatened to relocate to China and Dangote at one point almost blackmailed the Government into submission during the cement wars. These and other big businesses like Nestlé, Nigerian Breweries Plc and Coca-Cola dealing in sugar and water available locally should be sources of foreign cash for Government, not asking for allocations. Everyone is draining the Government either by looting or as foreign black market billionaires.

It boils down to the fact that our businesses are not willing to make reasonable profit when there are enough people in millions, no matter how few millions are they out of the 180 million or more population in Nigeria willing to pay any price! They raise their prices to those of imported goods and in many cases, importers are able to beat local prices. They complained that those imports are substandard and made from cheap materials.

While their reasons are not entirely unfounded, Nigerians are not the only ones making the best products in the world. Let Nigerians make great products as they are capable of and give consumers the choice between fine rice and ofada rice, fine shoes and Aba shoes, ripe tomato and green tomato as long as all of them are made in Nigeria. People in foreign country have this choice and they learn fast between durable and substandard goods made in the same country.

African mentality is that if it is foreign made, it must be better. Indeed, Nigerian businesses had to export/reimport lace and shoes from Cotonou to satisfy Nigerian taste for imports. Finally, Africans have now discovered that most of the goods from China are of low quality. Yet, we demonstrated that by killing our textile industry. The notion that it is cheaper to import cheap materials instead of manufacturing them at home will soon be busted as China’s wages rise!

The fact is that wages are still lower in most African countries including Nigeria, except South Africa, than in South American countries. So countries like Brazil and Mexico cannot compete with us in wages. Our businesses know this, yet they threaten manufacturing workers at home that unless the Government open the meagre foreign exchange to them, they will shut down.

Haba! Local prices must reflect workers’ low wage and owners of these businesses must cut their profit to beat foreign goods into our market. We beat Kentucky Fried Chicken in some locations! Nigerian businesses would rather close down than to entice more patrons with less expensive products. Take the cost of renting in major cities. Folks cannot afford the apartments and houses. Instead of lowering the rents, owners leave their properties empty.

One of the reasons is the way they came into business in the first place. Their seed money is either obtained illegally without bank loans and therefore without interest or monthly payments that were due. Normally if you have interest payment due, a good businessman would even find other source of income and add it to lower rent or product to make payment to the bank. Otherwise the bank would either take over the business or liquidate the property.

The cases of Innoson automobile without enough patrons is sad. This is a local manufacturer that should be patronized by both Federal and state Governments. Indeed, most Africans should find their cars and trucks so affordable that foreign cars would be driven out of business. But Nigerians want to sell their products at the same price as the imports. Regardless of the durability and style, there are more lower-middleclass than upper or rich people willing to buy.

However, in a country where there are enough looters mixed with hard working folks that made their money the old-fashion way, even if they are a few millions, goods are priced to meet their demand freezing out other genuine and serious poor buyers that can spur demand in the market. Therefore increasing output, production and employment of more workers. The question becomes: if Innoson Motors decrease prices, would they be able to meet demand?

Businesses would rather hoard goods to increase prices than cut prices to increase demand. But are willing to sell themselves cheap for export where they make pittance as long as it is foreign money to buy expensive toys. We never learn from foreign fluctuation in the price of cocoa.

Written by Farouk Martins Aresa.

This isn't news but "it's all Buhari's fault".

What you do comes back to haunt you.

Op, have you ever heard about Economics of Scale?
That's the reason why foreign good are sold at even cheaper prices than their local counterparts

Economics of scale has to do with advantages of mass production. Nigeria with it population advantage, bizmen could lower their prices to attract more patrons or buyers. Read the article again. It does not justify the brutal attack on the Akure cement dealer that was satisfied with decent profit and sold cement cheaper.

Gmajor:
Op, have you ever heard about Economics of Scale?
That's the reason why foreign good are sold at even cheaper prices than their local counterparts

Chairman, if you are into manufacturing in nigeria, you will understand better.

This has nothing to do with greed. Nobody invests billions in manufacturing with the hope to overprice or hoard their goods.

Business climate is very difficult in Nigeria. Manufacturers in china and other countries we import from do not have to deal with multiple taxation, poor electricity, police requiring bribe to transport your goods on roads, bad roads destroying goods on transit, poor forex supply to import raw materials, and the long list of other challenges.

Dangote does not hold a monopoly in cement. There are other companies and if they could sell their cement at 500 naira and make a decent profit, dont you think they will want a share of dangotes market?

I agree theres greed everywhere, but if we are to be honest, its cheaper and less risky for anyone to invest his billions in importation business than manufacturing. Manufacturing and business comes with a lot of risks, and i do not think many people go into it just because of greed, rather patriotism

Chief, I would like to agree with you if you had used "some" instead" of "nobody".

The main reasons people go into their own business are 1) to be their own boss 2) make money, same as decent profit 3) some for creating jobs. But do not fool yourself, job creation comes from demand. You cannot create jobs unless there is a demand. Business is not charity.

As for all the obstacles listed, nobody will deny that. But please note that Nigerians create manufacturing jobs in other African countries with worse obstacles, still sell for less and make profit. Unless you think jungle in the middle of nowhere in East Africa without roads, electricity, bribing misters etc. are better than Nigeria. This is what Dangote and others do in other African countries and still make profit while selling for less.

There is too much money circulating in Nigeria in the hands of a few millions that can afford those prices. So many refused to sell for less. Why take the trouble of opening many locations with more employees when you can make more money with less?

Business is not a charity, we do not go into it from the goodness of our heart. Its almost like a call, determination and ambition. We must always give respect to many that keep trying and have failed. Those ones do it not for charity but for dedication to their dream.

nwanna89:
Chairman, if you are into manufacturing in nigeria, you will understand better.

This has nothing to do with greed. Nobody invests billions in manufacturing with the hope to overprice or hoard their goods.

Business climate is very difficult in Nigeria. Manufacturers in china and other countries we import from do not have to deal with multiple taxation, poor electricity, police requiring bribe to transport your goods on roads, bad roads destroying goods on transit, poor forex supply to import raw materials, and the long list of other challenges.

Dangote does not hold a monopoly in cement. There are other companies and if they could sell their cement at 500 naira and make a decent profit, dont you think they will want a share of dangotes market?

I agree theres greed everywhere, but if we are to be honest, its cheaper and less risky for anyone to invest his billions in importation business than manufacturing. Manufacturing and business comes with a lot of risks, and i do not think many people go into it just because of greed, rather patriotism

banku:
Chief, I would like to agree with you if you had used "some" instead" of "nobody".

The main reasons people go into their own business are 1) to be their own boss 2) make money, same as decent profit 3) some for creating jobs. But do not full yourself, job creation comes from demand. You cannot create jobs unless there is a demand. Business is not charity.

As for all the obstacles listed, nobody will deny that. But please note that Nigerians create manufacturing jobs in other African countries with worse obstacles, still sell for less and make profit. Unless you think jungle in the middle of nowhere in East Africa without roads, electricity, bribing misters etc. are better than Nigeria. This is what Dangote and others do in other African countries and still make profit while selling for less.

There is too much money circulating in Nigeria in the hands of a few millions that can afford those prices. So many refused to sell for less. Why take the trouble of opening many locations with more employees when you can make more money with less?

Business is not a charity, we do not go into it from the goodness of our heart. Its almost like a call, determination and ambition. We must always give respect to many that keep trying and have failed. Those ones do it not for charity but for dedication to their dream.

Those East African jungles you mention actually do have good roads and steady electricity. That is why the manufacturers like Dangote can afford to sell for less.

I believe the law of demand and supply as well as operating costs guide the pricing of goods in Nigeria. If i produce cement and i can sell at 500 naira, you think i wont want to make more money from selling in volume rather than sell at dangote's price of over 2k because am trying to make more profit? As a businessman, you can make money from either selling in volume with less profit, or make more profit but sell less volume. Since Nigerians prefer foreign goods, local manufacturers might have to sell at a higher profit margin to cover operating costs because nigerians are not patronizing their goods as well as the foreign made ones. For example, toyota might sell 20 buses in nigeria before innoson sells 2 buses. Landing cost of toyota might be 5m. Toyota sell fr 6m. Innoson might produce at cost of 3 million. But because nigerians prefer toyota, to cover operating costs, he might have to sell for 6m as well. Mind you, when toyota buys tyres for their manufacturing, they buy millions of tyres and get discounts. Innoson buys less and might not be entitled to these discounts. Toyotas tyres are supplied by a japanese company too but innosons tyres might be imported, adding to the cost.

Therefore, yes i agree greed can be a factor. But to generalize it to all manufacturers is not really proper. Operating environment in nigeria is really difficult. The huge market due to population is the only reason many are still doing business here. But they cant do so at a loss. I hope i have painted a better picture of the situation in nigeria

With all respect, you did not get my point or you do not want to. The old reasons some manufacturers give for doing business in Nigeria out of pity, because they want to create jobs or they will close their plant unless they get forex are no longer as valid as they used to. I agree with you, again, that manufacturers face obstacles. But there are far worse obstacles in the jungle they invested in all over Africa.

No country provide electricity and roads that lead to nowhere in these jungles. Dangote had to go into joint venture with the Chinese in East Africa, even after claiming he was afraid of snakes. They have to provide their own plant for electricity, roads in and out and more important little or no forex. Let us be clear, forex is a Nigerian phenomenon demanded to blackmail the Government. Dangote and Otedola are richer than some of these countries and they take their own cash (made from Nigeria) there to invest. No forex facilities. These are long term investments which they may get back by buying their arable land and use of cheap workers. They may even export some to Nigeria to get higher prices.

Again, no forex facilities in their jungles. When they asked the Chinese how they were going to get their investments and loans back, they were after arable lands and resorts for travelers to feed Chinese population in future and attract tourist.

Please stop giving old excuses that are no longer valid. If Innoson wants to increase their market share, they must sell cheaper. In the days we used to drive volks as our first car, many people bought and Volkswagen made profit.

It is true that Nigerians prefer foreign made for taste as the writer indicated but these are the few millions that can afford it. They go to supermarket to buy tomato for ten times the price they can buy tomato in local market. But they will never be caught alive in Oyingbo market. The poor people still go to Oyinbo market anyway.

Nigerians have their faults but do not blame a poor man that cannot afford uncle Ben's rice for paying the same price for ofada rice.Poor people have died lining up for free rice during election (stomach infrastructure) and some spent the whole day waiting for government rice. Not because they love to but because they have limited cash.

The cash is in the hands of a limited millions and they flood the market with it raising prices for the common man. Unless that money circulates or it is mopped up, prices will continue to rise and many of the manufacturers will continue to target the highest price.