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Problems crippling manufacturing in Nigeria, by Ibikunle, IPWA Plc MD

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*‘Our stand on anti-bank loans defaulters court’

By Udeme Clement

Power infrastructure has been a major challenge facing Nigeria’s economy, even as privatisation of the power sector is yet to yield the desired result to resolve perennial electricity shortage in the country. Currently, the power generation capacity stands at between 4,000 and 5,000mega watts, which is quite insufficient for a population of over 160million. To further improve power supply and sustainability, the Federal Government has approved N3.9billion for power transmission infrastructure.

This came few weeks after the National Economic Council (NEC) approved N1.3billion for manpower development and training of 3,700 people under the National Power Sector Apprenticeship Scheme (NAPSAS). The managing director, IPWA Plc, manufacturers of industrial coatings, marine and building paints, also the Chairman, Paints Manufacturers Association of Nigeria, Mr. Tella Sulaimon Ibikunle, in this interview, spoke on the measures government must put in place to revamp the sector, the need for government to grant manufacturers licenses for independent power generation and the demand for a commercial court by Bank of Industry (BoI) to tackle non-settlement of bank loans.

Government approved N3.9billion for power transmission infrastructure weeks after the approval of N1.3billion for manpower development and training of 3,700 people under National Power Sector Apprenticeship Scheme (NAPSAS). Why is government still spending so much money on power projects after privatising the Power Holding Company of Nigeria (PHCN)?

Tella Sulaimon Ibikunle
Tella Sulaimon Ibikunle

What is happening to the economy and the power sector inclusive is lack of political stability in our system. For our economy to achieve optimum growth, there must be stability to enhance sustainability both in the medium term and long-run expectation. The greatest challenge, especially for the industrial sector, is power crisis, which is why local manufacturers cannot compete with their foreign counterparts. For instance, a company can run its plant 16 hours a day on generator. In fact, Nigerians should be able to challenge the electricity distribution companies for poor services. They give us estimated bills instead of pre-paid meters that we ought to use. For instance, last month they gave us at IPWA an estimated bill of over N600,000 for the month. You can imagine that huge amount for a manufacturing firm for one month, even when electricity supply is not stable. Other manufacturers are paying similar electricity bills, yet they spend so much buying diesel on daily basis to power their generators.

Looking at the way things are going, it appears as if government’s effort to resuscitate the sector is not making positive impact. What is your take on this?

I believe government does not have information about the true picture of the industry. Government is trying but the barriers are with those handling government projects. Some of them are conscientious while others are not. Look at the Local Content Act for example, government came up with the policy for local industries to thrive, but implementation is the issue now.

As a manufacturer and major player in the industrial sector, what exactly do you think government should do to turn around the sector?

It is very simple. Government should grant manufacturers licenses to generate their own power, because refusal to give us approval to generate electricity for our own use is affecting our operations. Aside from that, each state should generate its own power, rather than depending on the Federal Government. The 36 states must be involved in electricity generation and distribution for us to have constant power supply. Generally, the power sector should be flexible like telecommunications. When GSM started in Nigeria over 10 years ago, I bought a SIM card for about N45,000 but today, it is free because different companies were given the opportunity to come into the sector to invest. The question is, why is government still spending so much money after privatisation of PHCN?

Apart from power crisis, insecurity in the country is affecting many manufacturers. For example, Vita-Foam has a manufacturing plant in Jos, which has been closed due to insecurity in the northern region. In fact, the last bomb blast in Kaduna was very close to our depot. In Niger-rite, the managing director was kidnapped along with his wife. Yet, the people perpetuating this evil live within the same economic environment we operate. The Bank of Industry (BoI) is demanding the establishment of a commercial court to tackle the issue of non-settlement of bank loans. Why do some entrepreneurs take credit facility from BoI and are not willing to pay back?

The issue is that any entrepreneur taking loan from a financial institution has a proposed business plan in place and works towards achieving such objective within a specific period. But the problem now is, what if the entrepreneur is unable to achieve that plan? So, the reality is that a manufacturer may have a good business plan but, at the end, he is not able to improve his margin due to some constraints arising from dearth of infrastructure to harsh operating environment. So, we need a condusive operating environment and adequate infrastructure for industries to grow. I believe   government will have a way of addressing the issue brought up by BoI.

Currently, the manufacturing sector contributes less than 10 per cent to the Gross Domestic Product (GDP). What do you think is fundamentally wrong with this sector?

The problems facing the sector are numerous as I explained earlier. Government should look inward to ascertain the real picture of the industry in order to fine lasting solution to the problems. Also, the Standards Organisation of Nigeria (SON), should be adequately funded and equipped with standard laboratories for products testing and subsequent certification. For instance, for a locally made product to be accepted in the international market like Europe, the product must meet specific quality certification in European standard. For the paint industry, it requires a lot of money for our products to get European certification.

Can you give us statistics in Naira and Kobo on how much a locally made paint product needs to get European quality certification?

This means the company making the product must spend as much as $50.000. This translates to about N8.5million for certification of just one product to meet acceptable European quality standard. Only few local companies can afford this huge amount. That is why SON needs to be provided with central laboratories for testing of local products to meet international standard. Another thing we must realise is that some locally made products are far better than foreign or imported goods. So, the consumers need to look inward and patronise Nigerian products for our industries to thrive.

With enormous challenges facing the sector at present, how do you raise fund to stay afloat in business?

Well, at the moment, the company has a workforce of over 152,000 staff and women constitute 30 percent of our staff strength. We have good machines and technical-know-how. What is lacking is sufficient working capital. Due to the economic climate, we have not been able to raise money from the Stock Exchange but we hired a consultant to see how we can raise funds through private placement either local or foreign.

What is the difference between getting loan from a commercial bank and a private placement?

Getting money from a private placement either local or foreign is good for a manufacturing firm because it is a long term money with a payment period of between 7 to 10 years. Also, the interest rate is single digit, which is less than 5 percent. This kind of facility allows a company to get into full production circle and continues in business for many years before paying back the loan. In order words, it allows for long term production and stability before the company begins to pay back the money, while the interest rate from a commercial bank is as high as 25 percent and the pay back period is very short.

 

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