Some months ago, the Central Bank of Nigeria banned 41 items from accessing foreign exchange from the official window of the market. In this interview with Eromosele Abiodun, the Managing Director/CEO of Sonia Foods Industries Limited, Nnamdi Nnodebe explained how the policy is stifling local manufacturing. Excerpts:
Eromosele Abiodun (Reporter): May we meet you, sir?
Nnamdi Nnodebe (MD/CEO Sonia Foods): My name is Nnamdi Nnodebe, I am the Managing Director and Chief Executive Officer of Sonia Foods Industries Limited, located at Asese, Ogun State.
Eromosele Abiodun (Reporter): Can we know what inspired you venturing into manufacturing?
Nnamdi Nnodebe (MD/CEO Sonia Foods): Before we started Sonia Foods I was in Ghana doing business. I came back to Nigeria about 15 years ago, started electronics business before I ventured into manufacturing. Our head office was actually in Ghana first, but we were doing importation at that time.
I came back to Nigeria because I believe in Nigeria. My desire to go into manufacturing was fuelled when I went to China and other countries and discovered that it was not a big deal to manufacture locally. However, since we started it has been challenging, but God has been faithful. This is a country where, as manufacturer, you provide everything for yourself. You have to provide electricity, water, road and security.
Even accessing loan from the Bank of Industry (BoI) to finance machinery and running cost is difficult. Apart from the Central Bank of Nigeria (CBN) that supported us with a soft loan when we just started, there has been nothing from the BoI. The CBN loan that we have since paid off was used to finance our take-off. But when we wanted to expand we wrote to the BoI. It has been several years now since we first approached the BoI, we have not heard from them. They kept dribbling us and we decided to approach commercial banks since we did not want to close shop. Today, we are doing well but the 20 per cent interest rate is a huge burden.
Eromosele Abiodun (Reporter): How will you describe the manufacturing sector in Nigerian today and what are the major challenges in your segment of the industry?
Nnamdi Nnodebe (MD/CEO Sonia Foods): The major challenge outside what I have highlighted is the retail tomato pack imported into this country from China. They don't allow us to sell. These people buy one carton for $10 in their country and claim to pay 30 per cent as customs fees plus levies. Do the maths, how do you make any gain from that? It shows our regulators are not doing their job. My guess is that they are using raw material duty to clear their finished products which is against the law. Outside that, nobody can bring goods here and pay 35 per cent plus levies and sell at the ridiculous price they are selling. No way! Something is fishing somewhere. However, we are going to continue.
Eromosele Abiodun (Reporter): The federal government recently banned 41 imported items from accessing forex directly from the CBN, how has this enhanced the manufacturing sector in the country?
Nnamdi Nnodebe (MD/CEO Sonia Foods): It has not been easy. Manufacturers are finding it difficult to get raw materials. Go out and investigate yourself. How long will we continue to look for people who want to send money home to pay our suppliers and come home to be paid here? I can tell you that the days of most local manufacturers are numbered. That policy really affected us so much. In my factory we were working 24 hours before the enforcement of that policy.
But now we do one week on one week off because if we are to continue the way it was, within two weeks we will close down. The policy has frustrated local manufacturers and helping people importing retail packed products. At the end, our country is losing while the Asians are smiling to the bank. Government can change this. I will tell you how.
Take the tomato paste manufacturers as example, we are just seven. If they want to support us they can give us licence, we are members of the Manufacturers Association of Nigeria (MAN). They can use that platform to support us and give us access to forex. That aside, there should be outright ban on the importation of retail tomato pack into the country. My company alone can produce seven containers a day, now if you add what we are doing to what the six others are producing; it is far above the consumption rate in the country. But there is a problem, I cannot get raw materials locally, we import triple concentrate from abroad. To do it locally you need a lot of money and Nigerian banks do not finance local manufacturers.
They want importers who will sell and give them money quickly. Most Nigerian banks don't believe in long term financing, to them it is a gamble. If you are into electronics where you sell today and give them money tomorrow they will not support you. It is a huge challenge. If government wants to help the industry it is very simple. Give us licence that will allow us access to forex from the CBN and ban importation of retail packed tomato. I can tell you that in a few months more factories will be set up, people will be employed and Nigeria will be better for it. It is very simple, if the importers can no longer bring it here they will come and buy from local manufacturers to sell.
Eromosele Abiodun (Reporter): If the government decides to take the steps you have highlighted how can you guarantee that you have the capacity to produce what is required locally? Secondly, how lucrative is the tomato paste industry?
Nnamdi Nnodebe (MD/CEO Sonia Foods): I am not doing this for just talking sake. Before the government announced that policy, we sell an average of six containers a day. That is how lucrative and big the market is. This industry is lucrative and holds a lot of promise for the country. It creates a lot of jobs for Nigerians and has the capacity to create several thousands of more jobs. However, the government has not done what it should do to support local manufacturers of tomato. For example, apart from unbridled importation of tomato products, especially those in retail packs, I provide virtually everything in my factory.
I provide my own energy, water and security. Roads are not yet the way they ought to be. In other countries, there are incentives given to local manufacturers who are really creating jobs. But this is not done here in Nigeria. If you go to the market today, you will find that the majority of tomato pastes in retail packs are imported. With the influx of these products, we cannot compete in the market, because there is no level-playing ground. These imports are far cheaper than what we have here.
The industry is key to Nigerian economy, but many things are not what they ought to be. Nigeria as a country needs to make hard choices to get us out of this quagmire especially at a time where the economy is slowing with strong consequences' on the naira which naturally means that the road to recovery will be a rough one. I think the government realises this that's why the budget for 2016 is hinged on non-oil revenue, with a view to deviating from historical trends. This however means that the manufacturing sector, agricultural and mining sectors are areas we really should focus more attention on. That is why we are appealing that an enabling environment be put in place by government to support us in catalysing a more rapid growth for the manufacturing sector.
Eromosele Abiodun (Reporter): Have you tried to reach government through the Manufacturers Association of Nigeria on the foreign exchange matter?
Nnamdi Nnodebe (MD/CEO Sonia Foods): Yes. But what the government is saying is that they do not have the foreign exchange to give out. We have told them we do not need much.
You are doing a noble project but some have argued that backward integration is the future of your industry. That I am told was why the immediate past government initiated it in your industry. How have you keyed into this area as a local manufacturer?
Backward integration is good but also challenging, it require a lot of money. For a start you need a minimum of $7 million. For high capacity machinery you need a minimum of $20 million. However, we are working at it. With the devaluation of the naira these things are much more difficult. For someone who wants to but from here it is very cheap because of the foreign currency that are bringing is. But to get investors to come here is tough because of policy summersaults. I have partners who would love to invest in Nigeria, but they are afraid. Government will announce today that they are banning retail packed product into the country, next month that policy will change, they will lift the ban. Confidence in an economy is key to attracting investors.
Today, there is lack of investors' confidence in the Nigerian economy. Even locally, go to any village and ask an old woman how much she sells her mango, she will tell you that the dollar has gone up. They don't even have a passport, what do they have to do with dollars? There is no confidence on the naira. No matter how much the government pumps into the economy it will not work because there is lack of confidence. I give you another example. I signed a contract with the Nigerian Gas Company (NGC) two years ago to supply gas to our factory, till this moment, I have not seen them. We are on diesel 24 hours a day. If they had connected gas to our factory, our cost would have reduced by as much as 10 per cent. But we are not going to give up. Nigeria is our country and we must all work together to salvage it. Currently, we are working so hard in some states to make sure that within few months, we start backward integration fully. We have already engaged specialists in agriculture that is now in the country.
There are also local people that are involved. We are in advanced negotiations with many states in the northern part of the country to make sure we are there. My plan is to have farms and make sure that our local people are busy and employed with significant multiplier effects on the economy. You can see what is going on in the oil sector. It is clear that agro-processing and manufacturing are the way to go. We are here to support the government in reducing the impact of oil market crash in terms of creating good jobs to ensure that young Nigerians are busy. We also believe that at some point, we will start exporting tomato to other countries so that we can repatriate foreign exchange. All things being equal, with the right enablement, I think real gross domestic products (GDP) growth will take a boost thereby bringing about a certain level of recovery. Doing backward integration and having triple concentrate plants here are quite expensive.
To do backward integration locally, you need $7 million at the minimum. Now, we have got farms and we are working seriously to get larger expanse of land. By the grace of God, we will seal the deal with states within one month. To bring down these machines here is also not easy. I have already met some of my foreign partners out there concerning my new move. They are willing to partner with us, but they are afraid of only one thing which is policy somersault. Today they ban, tomorrow they lift the ban. Presently with the machines we have in Nigeria, I do not think we need tomato in retail packs from other countries. If the government is serious with supporting local manufacturers, then they have to ban these items. I am confident with President Muhammadu Buhari and I believe he will help save this industry from saboteurs.
Eromosele Abiodun (Reporter): How can the federal government help local manufacturers?
Nnamdi Nnodebe (MD/CEO Sonia Foods): In my sector, we held a meeting with government officials on how they can assist us. But government issues are not what you do in a day. Officials will always bring arguments that will elongate issues. They want you to define who a manufacturer is, who is a packer and what not. Let's assume their arguments are tenable, why can't they come to our factory and see for themselves. In my factory alone we over 224 direct staff.
The importers of these products do not have to employ people or invest in machinery. They support their local economy and put people in job there. I am not telling you this for people to know about Sonia Foods. The truth is government like listening to politicians, which is not good enough for our country. On the other hand what I am telling you is what will help this country.
Everything requires planning, you don't just bring tomato from Jigawa and put it into machine and make them into triple concentrate. Today we have only two indigenous tomato manufacturers, others have closed shop and jobs have been lost. It they succeed in closing us down, foreigners will be the ones left in the industry. That has been the story of Nigeria over the years. We help foreigners and strangulate local investors. Even if you make effort to borrow money from the banks to bring machines to produce locally, policy flip flop will kill your investment. Go to our boarders and see how porous they are. Over 60 per cent of the tomato paste consume in this country is from China.
Eromosele Abiodun (Reporter): How much have you so far invested in this economy via this sector?
Nnamdi Nnodebe (MD/CEO Sonia Foods): In terms of investments, we have put about N5 billion into this economy. Our investments are in land, machinery and buildings. Currently, we are importing some machines that will help the industry a lot. These machines alone cost between $6 million to $7 million.
Eromosele Abiodun (Reporter): So you have a problem with importation of all manner of tomato products into the country?
Nnamdi Nnodebe (MD/CEO Sonia Foods): Yes, they are not allowing us to sell at all. Worse still, some of them are sub-standard. Another issue we have today is how much they sell these tomato pastes in retail packs in the Nigerian market. Now, I know how much they sell these products in China. When you calculate the levy, the duty, the Value Added Tax (VAT) and other fees, you will find out that these importers are supposed and expected to pay around 50 per cent. But my calculation is that there is no way they can sell the products at the prices you see all over the Nigerian market if they are paying the right duty.
Yes, I know how much the items are sold in China, so, selling these products at the prices we get in the market means they are not paying the right tariff. This means that something is wrong somewhere. Something is not just good enough with our regulatory bodies. For years, we have been asking the government to ban tomato paste in retail packs, but nothing has happened. We have been begging them to ban then because doing so will help the economy. Many companies have no other choice than close down if they cannot compete with importers. So those of us that have facilities here are asking the government to assist us in the form of incentives.
We need to grow; we need to have concentrate plants in the country. For now, all of us that are processing tomato here all bring in concentrates from outside the country, because no company currently produces triple concentrates in Nigeria. Building concentrate plants will be good for the economy and I am willing to go into it, if the government is serious with helping this industry. I took a bold step to establish here. I could have been importing if I had wanted, but I chose to help the economy. I have over 224 direct workers and several indirect ones.
Eromosele Abiodun (Reporter): How did you source some of the funds you have invested in this industry?
Nnamdi Nnodebe (MD/CEO Sonia Foods): My bank, which is a commercial bank, is the one financing my project. You can imagine the double-digit interest rate I will pay back. I have written to the BoI several times in the past three years. I hope something will come out of this soon.
Eromosele Abiodun (Reporter): I will take you back to the CBN's foreign exchange policy. Are you saying there is no advantage in it?
Nnamdi Nnodebe (MD/CEO Sonia Foods): I will not say I am totally happy with it. Our raw materials are still imported. All the local tomato players here are still importing concentrates. So if you do not have access to foreign exchange, how can you bring in your raw materials? How can you bring in your spare parts? This is the problem we are having. Yes, the CBN policy could be good in one hand, but we are majorly importing concentrates. Those that have the structure on ground are begging the government to give us the license to access the foreign exchange at the official rate. We want to be able to open our LCs at the official rate.
I think we all should be given equal opportunity to access this like a few others are doing, because we are all Nigerians, and are equally passionate about growing the economy. Due to this policy, we work for one week and shut down the following week, simply because we do not have enough raw materials. I think they should look into this with all the seriousness it needs so that the needed confidence investors crave can return so that the economy can get the needed impetus it desires to grow.
Eromosele Abiodun (Reporter): So what is the future of the tomato paste industry in Nigeria?
Nnamdi Nnodebe (MD/CEO Sonia Foods): It has a very bright future because it is a food item. If the government is willing to support us, things will go on well. The market is there, and this is an industry that can develop the Nigerian economy. Other countries of the world protect local manufacturers, especially those in a critical sector like foods. We have the right population and the right market, but some importers are taking advantage of it to kill those of us doing local manufacturing in the country. This should not be so.