Killing Industry Softly, Steadily

Simon Kolawole Live!: Email: simon.kolawole@thisdaylive.com

A friend visited me during the week. He is a young Nigerian full of hopes and dreams. His parents had wanted him to study Medicine or Pharmacy, but he had always been fascinated with Agriculture, so he put in for Agric Economics without their knowledge. They were angry when they discovered but it was too late. He travelled out of the country for his post-graduate studies. He did so well that the school wanted to employ him. He opted to return to Nigeria to pursue his first love. As a stop-gap, he worked in a bank and earned some good money. But he wanted to set up a poultry processing plant. That was what could make him feel fulfilled. He resigned his appointment and began the journey into… Well, let us hope the story will still end well.

He bought six plots of land somewhere in Mowe, Ogun State. After settling the “omo onile” (this social menace of land speculators has now been accepted as part of our culture – a clear sign of a failed system), he started building the factory. For electricity, he bought a transformer for N1.2 million. The “omo onile” demanded N250, 000 before they would allow the transformer to be offloaded from the truck! The PHCN staff are also asking him to pay N600, 000 as “approval fee” for the installation of the transformer – a service government is supposed to provide in the first place. As soon as he completed the building, council officers came with a bill of N4 million, saying the land was under acquisition by the state government. Where were these wicked guys all along?

My friend has refused to be frustrated. He has overshot his budget. There is no capital to kick start business. This is a firm that will not only generate employment but also create considerable economic activities, given the value chain that will ring it round. He has approached a few banks for funds, but this is no fuel import business, so they are not eager to touch him! One bank said the Ogun State governor is not signing C of O and governor’s consent, and it would therefore not be lending money to anyone doing business in the state. I listened to his story with so much sadness. I retorted: “You are not asking for contracts. You are not begging for political appointment. All you want is a space. You will generate contracts and employment by yourself! Why is Nigeria like this?”

While we were still at it, I heard that the Benue Cement Company (BCC) had been shut “temporarily” by its owner, the Dangote Cement Plc, because of the influx of subsidised cement into the country. Here we go again. After coming up with the “backward integration policy” – which is designed to encourage local production of cement – we made significant progress. Investors were allowed to import bulk (unbranded) cement and re-bag locally to meet the shortfall in supply while the expansion went on. Despite various summersaults along the line, the policy seemed to have worked so well as investments running into over $10 billion poured into the industry. Today, we have achieved local sufficiency and we don’t need to import again. For once, a government policy is working.

But this is Nigeria and you always suspected there must be a downside. What has happened now is that we have opened our borders to massively subsidised cement and clinker from China, Taiwan and Spain. Nigerian companies cannot compete with manufacturers in China who access funds at virtually zero interest and where low pour fuel oil (LPFO) costs next to nothing. There is no way Nigerian manufacturers can compete! China will overrun them any day! What Nigerian companies spend on powering their plants alone is killing, minus the other challenges of transportation and security. We are therefore dealing with enemies from within and without. By opening our doors to imported, subsidised cement, we keep Chinese, Taiwanese and Spanish factories running and tens of thousands employed over there, while we kill our local factories and hurt our economy. If BCC is finally closed down, sending 2,500 workers home, who loses? Who gains? What is the likely impact on other local cement companies as the tempo of importation increases? Is that how we are going to be world beaters?

Let me be honest about this: as an end user of cement, I want it cheap. I would love to buy a bag at N500. It will bring down my cost. But in an attempt to make cement cheaper, is there only one route – that of unbridled importation? We often celebrate South-east Asian countries for their development. These countries adopted policies that were not popular in economics. They actively designed policies to encourage local production and discourage importation. They deployed intervention funds and import-substitution policies that effectively turned them into economic powers and “Grade A” exporters. There were initial pains, but the end results stunned the outside world.

Our experience in telecoms has shown that if we get things right, Nigeria can make it. Acquiring a SIM card in 2002 cost about N15, 000. Today, you not only get SIM card for free, you even get free airtime as bonus. That is what fair competition eventually does to pricing. We were told per-second billing was impossible until Glo came and changed the game forever. That is the point. We hurt ourselves when we come up with policies that may be rewarding politically but damaging economically. In the long run, we suffer the consequences. We remain stuck in underdevelopment.

I am not asking for an outright ban on imported cement. That would offend the terms of the World Trade Organisation (WTO) which are designed to promote trade, largely to the detriment of underdeveloped countries which cannot really compete with the advanced countries. But since we are part of the WTO arrangement, there is no need to ban cement import. It, however, makes sense to checkmate dumping on Nigeria. With the instruments of duties and levies, we can bring about a fair sense of competition in the industry. We must avoid killing the cement industry the same way we have killed the textile industry with ill-conceived policies.

Really, whether we are talking about my friend’s start-up medium-size factory or the giant-size BCC, the underlining fact is the same: the country is very hostile to entrepreneurs who are genuinely interested in industry. We are so focused on sharing petrodollars every month that we cannot see beyond our nose. Those who want to provide jobs and generate economic activities for the good of all are basically discouraged and frustrated. God save Nigeria.