SPECIAL REPORT: How Nigerian companies raked billions after CBN switched off dollar tap on 41 items:

When the Central Bank Nigeria, CBN, blocked official dollar access to importers of 41 low-skilled items, Baton Nigeria, an Ogun state-based company, was preparing to start a factory producing tooth picks – one of the items on CBN’s list.

By August 2016 when the company’s production lines had kicked off, the policy had been in place for a year.
Now, with 43 staff per shift, Baton produces about 60 million sticks of tooth pick per month. It aims at producing 4 billion per each year by end of 2018.
“Our product is about 25 per cent cheaper than that of the Chinese, our main competition, although we consider our quality top of the range,” said Rotimi Sokeni, chairman of Baton.

The company’s smallest dispensers costs less than N100, while a pack of 250 sticks go for less than N200. With about N300, one can take the mega size of 700 sticks.
“We set out with the idea to ultimately get to a point where Nigeria could stop importation of wood, paper and pulp products by employing locally available ‘wood’ as raw materials to produce a basket of high quality, cost effective products for import substitution and export,” Mr. Sekoni said.

Baton’s staff exclude other seasonal employees of at least 400 people involved in its operations and process value chain. The company hopes to keep a pay roll of about 450-500 full time staff soon.
The company owes its thanks to the CBN policy. The plan to limit dollar use for importation of items such as toothpicks, besides conserving foreign exchange for other more pressing needs, also served to help local manufacturers.

The affected 41 items included rice, cement, margarine, palm kernel/palm oil products/vegetable oils, meat and processed meat products, vegetables and processed vegetable products as well as poultry (chicken, eggs, turkey), private airplanes/jets, Indian incense, tinned fish in sauce (Geisha)/sardines), cold rolled steel sheets, galvanized steel sheets, roofing sheets, wheelbarrows, head pans, metal boxes and containers enamelware, steel drums, steel pipes and wire rods (deformed and not deformed).

Others are iron rods and reinforcing bars, wire mesh, steel nails, security and razor wire, wood particle boards and panels, wood fiber boards and panels, plywood boards and panels, wooden doors, furniture, toothpicks, glass and glassware, kitchen utensils, tableware, tiles (vitrified and ceramic), textiles, woven fabrics, clothes, plastic and rubber products, cellophane wrappers, soap and cosmetics, tomatoes/tomato pastes and Euro bond/foreign currency bond/share purchases were also affected.

Instant Impact:
While CBN did not ban the importation of the affected items, it allowed interested importers to source forex outside the official window at a higher cost. As the policy came into force, many local manufacturers of affected items said they felt instant impact.
Psaltry International Limited, PIL, an agro allied manufacturing company based in Ado Awaye, a rural community in Oyo State, said the policy brought the most dramatic turnaround in its profit.

The firm began production from its 20-tons per day starch factory in 2012, but for years, returns were poor due to low patronage. Majority of Nigerian companies, particularly multi-national conglomerates like Unilever, Nestle, and Nigerian Breweries, that used starch in their operations, preferred to import to meet their needs.
The company struggled to cover costs, as the meagre income realised from poor sales were barely sufficient to take care of overheads and repayment of interest on the N264 million loan from First Bank in 2012 to construct the first production line, Yemisi Iranloye, its chief executive, said.

Ms. Iranloye said shortly the policy came into force, demand for product from customers rose.
“With our clientele spanning over 50 multi-national conglomerates in Nigeria, including Unilever, Nestle, and Nigerian Breweries, the company could barely meet about 10 per cent of their demand,” she said.
Few months later, the company’s turnover jumped from less than N400 million the previous year to over $3.5million (about N1.2 billion) by December 2015.
The company’s asset base, comprising factory, farm land and equipment, for the corresponding period stood at about $5million (about N1.6 billion), a review of the company’s financial records showed.

Since 2015, Ms. Iranloye said PIL’s operatons saved more than $7 million (about N2.1 billion) in forex for the country, an amount used by its new clients a year earlier on importation of their starch when the CBN policy was not in place.

She said since the policy, PIL had grown in geometric progression, almost tripling its production figures in almost three years of the CBN policy.
From 300 workers, including 200 permanent and 100 temporary staff before 2015, she said PIL now has 650 farmers, cultivating over 2,500 hectares of cassava as at 2015.
Besides, she said since then, the figure has increased to over 5,000 farmers, harvesting 18-20 tons per hectare of cassava every year, with plans to increase to an average of 25-30 tons by end of 2017, to meet growing demand.
The multiplier effect of the expanding demand for the company’s starch, as a result of the restriction on FOREX to companies that were importing the substitute, could also be seen on the Ado Awaye community and environs.

Apart from buying cassava from out-growers in the immediate community, no fewer than 2,000 registered and unregistered farm families, marketers, labourers, traders, transporters, and retail input suppliers are involved in the company’s cassava supply value chain.
To boost its capacity to meet the demand from its growing clientele, Ms. Iranloye said PIL in 2016 took another N500 million loan from First City Monument Bank, FCMB, to build the second production line.

Impact spreads
The impact of the policy has not been limited to PIL alone. Other businesses that were struggling to keep their heads above the waters also have positive stories to tell.

Roy Deepanjan, managing director, CHI Limited, a Lagos-based foods, beverages and dairy products manufacturers, said those who had been patronising the imported variety of CHI’s chain of products reverted to their local blends.
CHI Limited is an affiliate of Tropical General Investment, TGI, conglomerate, with business interests spanning food, healthcare, agriculture, engineering and other industries.

With increased demand for CHI’s products, the managing director said the company is now investing in local raw materials, like palm oil plantations and margarine, meat and beef. Fruits used for food drinks production are from CHI farms across the country.
He said the high price of the imported brand of the company’s line of products is a blessing in disguise. With the CBN policy, most Nigerians prefer its products with local blends, like Chivita, Lucozade Boost and the like, which is comparatively cheaper, though of equal quality.

With the CBN policy, Mr. Deepanjan said CHI found it was more cost effective to source for raw materials locally and produce its products.
“The CBN policy has helped limit competition from imported variety of our products,” Mr. Deepanjan told PREMIUM TIMES.
“Before now, stocks of our products used to take a long time before they were exhausted, because consumers preferred the imported alternatives. The competition was stiff and harsh. Today, it’s hard to see our products left for days after production.
“We are constantly under pressure to expand production to cope with growing demand. This means we must employ more hands in our effort to produce to meet our ever-growing demand.

“Between June 2015 and now, we have created over 2,500 direct employments across Nigeria, more than the total figure in almost 10 years before the policy was introduced. The indirect employees in the company’s business value chain, including transporters, distributors and marketers are over 70,000.

“What I can say is that the CBN policy has done the Nigerian economy one of the greatest good. Without it, every dollar spent to import products that rivaled CHI’s were indirectly financing the survival of rival company’s abroad and creating employment for those economies, while killing our local industries and fueling unemployment back home,” Mr. Deepanjan said.

Numbers Adding Up:

The Nigerian economy thrives on imports, often to the detriment of the local economy. Reputed to be one of the world’s largest producers of hydrocarbon, but the NNPC’s monthly financial and operations reports for June 2017 showed Nigeria imports more than 70 per cent of refined petroleum products it consumes daily.
The government spent over N7 trillion on importation of consumable and household items in 2015 alone, the Minister of State for Industry, Trade and Investment, Aisha Abubakar, said recently.

Details of the import bills included N6.7 trillion on goods and services for which the country has capacity to produce locally; N1.09 trillion on foods and drinks; N1.5 trillion on spare parts; N123.01 billion on leather shoes and clothes and N399 billion on household items.
Further breakdown of the figures showed Nigeria’s import bill during the year, for food items, like wheat, sugar, rice, milk and fish, stood at about N901 billion per month.

The CBN Annual Report 2015 showed the demand for FOREX for fuel imports and other purposes by individuals and corporate entities rose astronomically during the period, from $3.2 billion monthly to $5billion.
The high import bills, particularly for food and other items that could be produced locally, accounted for the sharp decline in the country’s external reserves, from $34.2 billion to $28.28 billion during the period.
The restriction of access to FOREX by importers of 41 items was one of CBN’s alternative strategies to:
conserve FOREX hitherto used to fund such imports, to reactivate local industries, create jobs and save the Nigerian economy from sinking, amid falling oil money.
The policy appears to be achieving its goals.

Vice President Yemi Osinbajo said at the 16th Conference of Speakers and Presiding Officers of the Commonwealth, Africa Region in Abuja recently that Nigeria’s rice importation dropped by over 80 per cent in the last two years.
Also, the NBS Foreign Trade in goods statistics for the first quarter of 2017 speak of the huge impact of the CBN intervention on the economy. The report said Nigeria’s total trade volume for the period stood at about N5.3 trillion, a 12.3 per cent growth from about N4.72 trillion in the third quarter of 2016.

Meeting Customers ’ Demand:

For Tempo Foods and Packaging Limited and Tempo Paper Pulp & Packaging Limited, the 41 items policy by the CBN saved it from continuing to be victim of dumping of foreign products in Nigerian market.
The deputy managing director of Tempo Group of the Otta, Ogun state-based manufacturers of packaging and foods products, Nassos Sidirofagis, said since the introduction of the policy more than two years ago, Tempo Group has witnessed significant changes in the demand for its products.

“Although we are in the middle of a serious economic crisis, which makes it difficult to see the full impact of the policy yet, the country is moving in the right direction.

“The introduction of the policy by CBN made Tempo Group to declare profit for the first time last year in many years,” the deputy managing director said.
With the profit, he said the company was able to acquire another automated machine to expand its operations and production to meet growing demand.
“This could not have happened three to four years ago. We are a good example of Nigerian companies that were losing money due to importation and dumping of competing products. Today, we have been exporting our products since the second half of 2016,” Mr. Sidirofagis said.

The vice president, OLAM Nigeria Limited, Regie George, said the impact of the CBN policy could be seen in the company’s numbers, and the number of new projects in the last two years to cope with expanding market.

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I think this is a good news for those who have means to go into production/manufacturing as it appears that FG is not ready to reverse the policy any time soon. Though I'm aware of the recent adjustments on how the banks should sell forex to importers of these items quarterly. But the amount they can access quarterly is too small to have meaningful negative impacts on local production.
Thanks.