Sachets of freshly packaged tomato paste roll off the conveyor belts at the Vital Products factory in Lagos 24 hours a day. But those belts will soon grind to a halt, according to factory owner Sanjeev Kapoor, who says a new policy effectively restricting the import of goods including tomato concentrate, means he will run out of raw materials in less than two months. “I will have to shut the factory when my concentrate runs out and put 440 people out of a job,” says Kapoor.
The local vendors who supply him with cartons, labels, salt and chemicals will also lose out.
As part of a plan to conserve dwindling foreign exchange reserves, Nigeria’s central bank in June began denying the use of foreign exchange from the domestic market for importers seeking to buy certain goods including “raw materials” such as tomato concentrate and glass.
As well as helping sustain foreign reserves that have dropped to $30.1bn, the central bank hoped the policy would force manufacturers to develop a domestic supply chain. But Kapoor says a move aimed at easing the effect of lower oil prices on Africa’s largest crude exporter has instead delivered a devastating blow to manufacturers.
At Reagan Cement, in the eastern city of Calabar, CE Reagan Ufomba is preparing to lay off his 140 factory workers because he too has no way to continue production. The company processes and bags cement imported primarily from Turkey. Cement is another of the raw materials on the list.
Frank Jacobs, president of the Manufacturers Association of Nigeria, which represents about 2,000 companies, says conditions in the country are tough for a sector that accounts for 10% of Nigeria’s gross domestic product.
The sector has been in recession for the past two quarters, and economists predict third-quarter figures will show further decline. “The central bank is really biting hard … with respect to restriction of access to foreign exchange for importing our raw materials,” Jacobs says.
The manufacturing sector has suffered from “poor infrastructure, multiple taxation and deposit banks that do not give out long-term loans and are not really manufacturer friendly”, Jacobs says.
Dapo Olagunju, treasurer at Access Bank, one of the largest lenders in Nigeria, says while there is “no money to support the current level of imports”, a lack of infrastructure makes it hard to rely on domestic raw materials.
Yemi Osinbajo, Nigeria’s vice-president, said last month President Muhammadu Buhari saw the need to improve infrastructure through “massive investment”. These efforts will be financed through a fund established using state and private money, but developing this infrastructure could take years.
For now, Kapoor says, the only winners from the central bank’s policy are smugglers who will offer the same products at higher costs to consumers.
“The tomato paste will come by dingy boat or truckload. One way or another, the market will be fed. But it won’t be fed by us, the legitimate producers,” he says.
Not all Nigerian manufacturers rely on imported raw materials, but most need to access foreign exchange. Equipment maintenance and spare parts are frequently paid for in foreign currency, not in naira.
To obtain permission to pay in foreign exchange, businessmen must submit a form to the central bank or to one of Nigeria’s commercial banks. In times of greater liquidity, this takes a few days, but businessmen are waiting months for the form to be processed — with no guarantee that they will be granted the requested funds. “There are many applications chasing few dollars,” says Frank Jacobs, president of the Manufacturers Association of Nigeria.
Nigeria has faced similar foreign currency problems before. Muda Yusuf, director-general of the Lagos Chamber of Commerce, recalls the early 1980s, when with revenues from oil exports falling, the central bank announced policies to reduce imports. Tight controls on forex allocation led to corruption, he says, adding that he fears it is happening again. “Influence will matter, how many connections you have. What happens to the small businessman who wants to access foreign exchange?”