Govt must have database of industries’ energy needs —Adegbenro

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Senior Vice President, Centre for Values in Leadership, and former acting Director-General of the Manufacturers Association of Nigeria, Rasheed Adegbenro, examines the challenges facing the real sector in this interview with ANNA OKON

Despite government’s funds dedicated to the refinancing of the real sector, operators still talk of financial challenges, why is that?

The thrust of refinancing is to relieve manufacturing companies which had exposure to the banks and could not meet their loan obligations. The way that money is structured is that, one, they will restructure the tenure of the outstanding loans and once the manufacturing companies are straightened up, the financing bank is supposed to grant them working capital. So when the funds came, what it did was to help the banks clean up their books and many of the banks did not come back with working capital for the manufacturers. Working capital was what was lacking in many of the manufacturing companies through devaluation which had wiped out the working capital of many companies. You buy one dollar at N99, you wake up one morning and it has gone up to N140, and the working capital went down by that margin. So there was need for fresh funds to boost production. With added capital, that means companies can now import raw materials. They cleaned the books despite all the debts, but no fresh funds came. The issue of devaluation is a major issue that has attacked the working capital of many companies. Many of these companies are small and medium enterprises; they don’t really need large injection of capital to keep their businesses going. The multinationals could always access money.

Even, minor injection of a few dollars from overseas, then converted into naira is a major boost for many of the companies, or a marginal change in equity structure can attract additional capital in dollars and that provides better working capital for the multinational firms, but the small enterprises are not in this privileged position.

What do you have to say about the Central Bank of Nigeria’s criteria preventing manufacturers from accessing government funds?

The criteria should not be a challenge if the banks know their customers. They should know who the directors of the companies are and if the companies are functioning. If the CBN should raise query, the banks should be able to answer for their customers. The reason is because some people register businesses to take advantage of a new policy and once the new policy is gone, they abandon the business. It is the same with imports; many times you find containers abandoned at the ports. They belong to new businesses registered just for that transaction. Once they get away with that transaction, they are not coming back for a repeat, but if the Nigeria Customs suddenly decides to conduct a check and the importers know that what they brought in is not what they applied for, they will abandon the containers. They will then wait for the containers to be auctioned so that they can come back and buy their containers.

The legislators once proposed that the government should borrow about N50tn and use it to revive the industrial sector, will that achieve anything seeing that in spite of the money put in, the sector has remained the way it is?

The industrial sector is the way it is because they have been treating the symptoms and not the actual ailment. If you give money to manufacturers today and there is no power, there will be no revival. Most often, we rush at the symptoms and neglect the real disease. What should happen is that they should do a thorough diagnosis and determine what and what challenges the sector faces. Take textile, for instance, the technology in the textile industry is almost obsolete. These are machines bought 50 years ago. Definitely, the technology in textile has moved beyond that. Any amount of money that is given to the operators will be used for retooling instead of them to scrap old equipment and buy new ones. If you are able to do 100 litres per day and the new technology in China or India is doing five million a day, you cannot compete. So, no matter the amount of money that is pumped into the textile industry, if the issue of technology is not addressed, it is money poured down the drain.

How effective is the ban on importation of textiles?

If you ban imported textiles, it will create temporary market for the local producers, but that ban will also create a problem of smuggling and because these things will be more scarce in the market, there will be more pressure to bribe the customs at the border and the government will lose money in duties.

Another challenge is used clothes coming into the country. Textile mills produce high quality Ankara, imported used shirts coming into the country sell for N100. But, if somebody buys Ankara for N2,500, he or she will still pay a tailor to sew it. Most Nigerians would settle for the N100 used shirts instead because of the low purchasing power.

So, you are saying that the problem of the real sector is not cash…

No I don’t think so. Money is not the major challenge of the real sector; there are so many associated issues that need to be addressed. Skills in a particular line of business at times could be the overriding challenge. The company that has the best process in place will be the market leader because that process must have addressed the issue of quality and once the issue of quality is addressed, wastages are reduced and cost will be saved which will impact on the bottom line.

How does a company handle the issue of low productivity?

The key thing is to check the processes and how those companies adhere to their processes. There are some processes that waste money and raw materials. If your process ends up throwing up a high volume of old inventory, that is capital tied down and you pay interest on capital tied down. But most people look at the money as the major challenges. But if the processes are not good and the logistics are not dealt with, it leads to waste and loss of money. Once the product is not sold, there will be no money and working capital will dry up. You need to consult experts to know what the issue is which could be with the marketing, quality assurance and logistics challenges. It could be Human Resources, meaning that if you bring in the wrong set of workers who lack the skills to deliver on what you employed them for, it is a big problem because you will keep repeating jobs. What you are supposed to do in 30 days you will do in 45 days and it will lead to cost that will make your prices high. Once the prices are high, people will not patronise you.

What more can the government do to revive the industrial sector?

One thing that is clear is that there should be a mapping out of the sector. When that is done, we will be able to determine what and what we really produce in Nigeria. Then, policy has to decide which ones to support in the immediate, the medium term and the long term based on clear realities and earning power. With that, the sector will readjust. Like somebody rightly said, producers are the problem of government in the area of power. When you set up your factory, you don’t take into consideration your power requirements. Everybody builds factories that require energy and government does not have a data base of energy requirement of industries. Everybody woke up one day and there was no light. Researchers have said if we have 69,000 megawatts of power in 2029, we will be 15 years behind the world average.

Just like blood is to life so is power to manufacturing. Until the energy issue is resolved, there is no future for manufacturing. We cannot compete internally, that means you cannot earn forex and you cannot keep away cheaper products from entering your market. Other companies will see that you have a challenge here, your products are more expensive and it will attract their own; if you ban it, smuggling will start. So, as the smuggled goods come in, what they do is to depress your market. As a company, when smuggling starts, you will lose 20 per cent.

What other factors should be addressed apart from energy and technology?

There is a need to do a holistic survey of the manufacturing industry and the basic elements have to be addressed without which manufacturing cannot survive. Until the underlying elements are addressed, there will be no remedy. The major thing is the social infrastructure that is missing. It fuels corruption and makes people want to steal. The money they are stealing they want to use it and buy those things that they should have got through genuine income without stress. It is only in Nigeria that the government will build a N36m house and say people should pay 50 per cent and complete the remaining in six months.

source: http://www.punchng.com/govt-must-have-database-of-industries-energy-needs-adegbenro/

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