Nigeria’s economic downturn this year has elicited some, some would say, haphazard policies from the Central Bank of Nigeria. The CBN’s decision to ban several import items from accessing the official forex, and then the devaluation of the naira were seen by many as misinformed and wrong. However, there seem to be at least two local manufacturing companies in Nigeria benefiting from the policies.
Presco Plc Nigeria, manufacturers of palm oil/palm kernel, have posted 60% increase in sales in financial reports published at the end of July, from the beginning of the year. The oil company, located in Benin city says it earned 7.5 billion naira, from January to June as local demand for palm kernel increased. Palm products are one of the 41 items listed by the CBN to be exempted from imported goods with access to the official market Forex.
Managing Director of the company, Felix Nwabuko, while speaking to Bloomberg, said CBN’s policy has been of massive help to his company. People who used to import palm kernel seeds have started to source for the seeds locally. “The policy is bringing a boost to us in the sense that people who would ordinarily have imported, using government foreign exchange, are not doing that anymore,’’ he told the press.
Likewise, Flour Mills of Nigeria, one of Nigeria’s biggest millers located in the Southwestern town of Ibadan had their own story to tell. Earlier this week, John Coumantaros, a representative of the company spoke to Reuters about how the company has benefited from the weak Naira. Flour Mills of Nigeria exported, for the first time, 10% of its locally processed Soya bean products to feed mills in Europe and North Africa. The company exported 15,000 tonnes of Soya bean products after the CBN floated the Naira in June, making the products competitive abroad. The company posted a profit of 5.87 billion Naira in the first quarter of the year in August, a 393% increase from its profits at this same time last year. They however didn’t reveal how much of that was from the exports.
What is most peculiar about the two companies is the optimism, and the eagerness to invest more in the Nigerian raw materials. Flour Mills of Nigeria says it hopes to grow its use of local raw materials by 10% each year for the next five years, making that 50%. Presco’s M.D said Presco plans to expand its oil palm plantation to 31,400 hectares, from 16,900 hectares, by 2021. Coumantaros told Reuters that “palm kernel oil, Soya bean meal and other processed exports from locally grown raw materials will achieve between $50m to $100m in potential exports within the next one to two years”. This forward thinking has the potential to generate jobs for many Nigerians. And the fact that both companies released their financial reports to international media houses in Bloomberg and Reuters could perhaps be a silent plea for more foreign investment, and partners.
With these positive stories, CBN will perhaps feel justified to have enacted those policies regarding the banning of items and devaluation of the Naira, especially when President Buhari and some other Nigerians didn’t fancy the latter. Companies have been forced to find alternatives to their Forex problems, by looking inward for solutions to their raw materials. Though the manufacturing sector contracted, according to the quarterly reports released in August, the agricultural sector had the highest expansion, indicating that perhaps CBN’s policies are not anti-economy after all.
So what next for Nigeria? Speaking in New York earlier this week, former Nigerian Agriculture minister and current African Development Bank president, Akinwunmi Adesina said “Nigeria probably doesn’t need to spend its way out of the crisis. It needs to incentivize critical sectors to have a more balanced revenue base. That’s where the focus has to be.”
That statement was at odd with those of the presidency and the finance minister who have both insisted that Nigeria needs to spend its way out of the recession crises. The Finance Minister, Kemi Adeosun earlier this week said the CBN needs to reduce interest rates to enable the Federal Government borrow to spend its way out of the recession. She even suggested if given the choice between reducing interest rates while increasing inflation and putting a cap on the interest rates, she would choose the latter. Well, CBN didn’t give her that choice, saying no, and eliciting similar backlash to the devaluation issue.
However, just like the banning of imported raw materials and devaluation of the naira, CBN might actually be onto something, something the presidency and the ministry of finance didn’t see. To know what they are onto, however, other Nigerian companies should look for alternatives, and not wait till the economic ecosystem is very conducive. Presco, Flour Mills of Nigeria and perhaps other companies not yet published their financial reports have shown why the harsh Nigerian economic situation is, perhaps, not really an excuse.
