March 10, 2021

Backward integration in sugar industry at crossroads

Backward integration in sugar industry at crossroads

***Master Plan may miss 2022 target

By Emeka Anaeto

Nigeria’s major backward integration policy, the National Sugar Master Plan, NSMP, appears to have run into controversy over level of compliance by beneficiary companies.

This is coming as a change of guard occurs in the executive leadership of the Nigerian Sugar Development Council, NSDC, the NSMP custodian and regulator.

Industry analysts are expecting a major re-jig in the NSMP policy implementation framework to bring it up to date with the terms of reference.

Vanguard Business Magazine learnt that NSMP may have run into a major cross-roads recently following alleged breaking of ranks amongst frontline private sector operators. It is, however, seen in some quarters as part of the larger competition matrix in Nigeria’s commodity market.

Speaking to Vanguard Business Magazine on the challenges of the sub-sector, a former deputy director, economic research, at the Central Bank of Nigeria, CBN, Dr Emmanuel Ogoh, said that the policy has been struggling to stay on track almost throughout the eight years while chances of achieving the set targets within its 10-year life span is now unrealistic.

But the immediate past Executive Secretary/Chief Executive Officer of NSDC, Dr Latif Busari, has assured that the Federal Government’s strategy to achieving self-sufficiency in sugar production through the NSMP was still on track.

Busari, while providing updates on the NSMP, said though some of the sugar plants have had to be shut down as a result of the COVID-19 and other environmental and economic factors, the Council had been able to manage the situation to ensure the entire process was not stalled.

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He had stressed that the prospects for the effective implementation of the NSMP over the next five years was bright. “The combination of the new guidelines with the actions that government and relevant agencies will be taking will result in a greater commitment by operators and ultimately, more sugar projects and substantial increases in local sugar production levels.”

But Vanguard Business Magazine learnt that the latest addition to the headache of the sugar economy seems to be reversing the modest gains of the NSMP especially in the area of import substitution and job creation.

Cog in the wheel

Some policy analysts believe the modest achievements of the NSMP could be likened to the popular saying that Rome was not built in a day, a mantra in sustainable efforts at long-term projects, in particular Nigeria’s economic diversification efforts.

This, they argue in connection to the challenges of the NSMP, should inspire public policy executives, for posterity sake, to assiduously embark on and sustain the tempo of economic reforms in spite of adverse conditions.

The NSMP policy, geared towards curbing import dependency for commodities which the country can comfortably boast of comparative and competitive advantages, is one of such projects to which this holds true.

While many rate the country as a viable destination for high returns on investments, investors have been wary of throwing funds into an environment noted for policy flip-flops, this has resulted in a more determined attempt by government to stabilise policies and strengthen institutions, while providing protection for investors.

One of the main policies that has received sustainable support has been the backward integration policy of government which has been targeted at developing select commodities for development up to self-sufficiency and export levels.

However, commenting on the general philosophy of Nigeria’s backward integration policy, Mr Godwin Obere, a member of the Nigerian Economic Society, NES, said the NSMP policy now stands the risk of being jeopardised by the actions of some of the major beneficiaries capable of further elongating the attainment of sugar self-sufficiency if not altogether derailing it.

While some other beneficiaries have vastly cultivated sugar farms and sugar mills, as stipulated in the policy, a few have nothing remarkable to show or justify the N170 billion commitment of the Federal Government to the policy; the import quota and subsidised duties on sugar, while it is expected to develop sugar plantations, mills and refineries.

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Some operators in the sub-sector are also said to be setting up facilities that appear to be sustaining importation of bulk sugar, flour and semolina, negating the development of local agricultural activities in the sub-sector and further extending the already exceeded refining threshold for the country.

This obviously clashes with the spirit of innovative and proactive investments and expectations canvassed by the Minister of Industry, Trade and Investment, Otunba Niyi Adebayo, in a December 2019 parley with the leading operators in the subsector to review their joint efforts in delivering the objectives of the NSMP.

In the meeting, Adebayo had noted that the sugar sector “occupies a serious place in the programmes and activities of the current administration of President Muhammadu Buhari who is intent on vigorously pursuing Nigeria’s drive to achieving self-sufficiency in sugar production.”

He had charged the operators to see themselves as key players whose inputs are invaluable in the actualisation of the NSMP, and noted that government was open to innovative suggestions on ways to achieve quicker, faster and smarter results in the sector.

Industry stakeholders said they expect the beneficiary operators to stick with the objectives of the policy rather than spending aggressively on import-focused investments which implies a lack of conviction and an own-goal from a team member in a must-win game.

Industry analysts are of the view that this move has further doused the enthusiasm of other stakeholders rooting for the success of the NSMP and foisted a gloomy cloak of despondency and failure on the Nigerian project, while countries like South Africa are steadily making strides in developing their own sugar master plan.

Amongst the leading sugar production companies reviewed by the NSDC in its midterm review in 2017, Golden Sugar Company, owned by Flour Mills of Nigeria Plc and Dangote Sugar were recorded with significant achievement of the set targets under the NSMP policy implementation road map in the backward integration plan, including number of projects, new sugar factories, land developed, land under cane, out-grower farms, sugar produced and job creation.

The NSDC is said to have impressed it upon the other operators to put in motion appropriate investments to match the stride of other members of the team, rather than channelling resources into facilities that directly promote import-dependency.

Ultimately, it appears that the enthusiasm of the Federal Government’s vision of attaining self-sufficiency in local sugar production is not shared by some of the operators.

Industry analysts such as Obere, are of the opinion that a line must be drawn at this point by the new leadership at NSDC, the Nigerian Customs Service and the Central Bank of Nigeria, in order to deter the operators from toeing the anti-progressive path of promoting unending import dependency in commodities which Nigeria has a strong potential to produce and even export.

Meanwhile, structural investments in the likes of the Nigeria Sugar Institute, NSI, located in Ilorin, Kwara State, is there to encourage manpower development and address challenges of skills and expertise gaps in the sugar industry.

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This corrects the impression created by some of the operators that they still needed to hire expatriates to manage the refineries and other facilities in the sub-sector.

As noted by Adebayo at the commissioning of the NSI, the industry is capable of creating thousands of jobs in agriculture and value-addition.

Way forward

Industry analysts have strongly recommended that the government should adhere strictly to the implementation of the present policy on sugar production by all players.

Also, according to them, appropriate extension services machinery should be applied in sensitising the outgrowers and the public/investors on the improved methods of sugarcane production, and the benefits involved.

Nations the world over, have realised that developing the agricultural sector through the development of enterprises that capture value-chain expands the opportunities of employment among the citizenry. This is even more useful to developing countries at a very crucial stage during their transition to developments.

For those charged with the sector’s backward integration development, investing in small-holder sugar growers, through input provision should be the area of priority rather than building refineries for imported sugar from Brazil at this time.

Nigerians and the rest of the world are closely following not just the utterances of the government and major players, but also watching their every move to properly gauge the pulse and direction of this national economic goal.

President of Dangote Group, operator of the Dangote Sugar Refinery, DSR, Alhaji Aliko Dangote, during the minister’s meeting with stakeholders, had canvassed for the review of existing performance framework as captured in the NSMP, which according to him, would clearly spell out Key Performance Indicators, KPIs for operators.

The Nigerian sugar industry is by no means young, having been first established in the 1960s. It can, however, be regarded to still be in its infancy given the fact that today, it only supplies about 2% of the nation’s requirement.

Realising the huge potentials in the sugar industry has the capacity to turn around Nigeria’s economy; the backward integration policy must, therefore, be sustained by all means necessary, with emphasis on developing its agricultural potential and de-emphasizing import-focused investments especially by those charged with looking inwards.

If Nigeria is not careful, soon it will be importing sugar from fellow African country, South Africa, which late last year launched the first phase of its Sugar Master plan and has committed to reducing imports to its barest minimum.

Indeed, sugar is one of the commodities with the highest protectionist policies in the world, by countries with comparative and competitive production capacity.

As rightly noted by the Minister: “Government cannot achieve its goals in the sugar sub-sector without the inputs and participation of private sector players.”

Road to the update

Nigerian capacity for sugar production has failed to improve significantly despite efforts by the Federal Government to reduce importation of raw sugar and create self-sufficiency using Sugar Master Plan which has been in existence for the past eight years.

Though the NSMP will terminate in 2022, currently, the country’s production capacity is less than 300,000 tonnes instead of the 1.79 million tonnes as targeted for 2020.

Initiated in 2012 under the Goodluck Jonathan administration with an estimated target of 1.79 million tonnes of sugar produced locally by 2020, Nigerian Sugar Master Plan, NSMP programmes have not been able to close gaps in the sector which has made the country to still depend totally on the importation of raw sugar.

Characterized by poor implementation, programmes under the NSPM particularly the Backward Integration Programme, BIP which was initiated as a strategy to drive or boost local production of sugar in Nigeria, has performed below average over the many years.

Pioneer companies of the BIP programme, Dangote, BUA and Golden Sugar had over the years given reasons for their underperformance ranging from flooding, community hostility, land dispute with state governments and difficulties in accessing funds.

According to an NSDC document, “the NSMP provides a framework for setting goals, defining key actions, and generating and allocating resources to fund programmes in the industry.

“In order to both stimulate and protect the local investment in the sugar sub-sector, a regime of fiscal tariff has been approved to take effect from 1st January, 2013.

“The high tariff structure which is deliberately skewed against importation is also designed to reduce current over-reliance on imported raw sugar (accounting for 98% of total sugar imports) which made the country lose all the benefits of sugar production including employment creation, foreign exchange savings and renewable energy production,” the document stated.

The former Minister of Industry, Trade and Investment, Olusegun Aganga, said in 2012 that Nigeria spent over N101.9 billion on sugar importation in 2011.

Painfully, eight years after the NSMP came into effect, the story has not changed. The companies under BIP still depend on the importation of raw sugar for their production.

Dr Busari, while expressing confidence that the NSMP would survive the current challenges, however, lamented that instances of ports congestion and lack of funds may limit the overall progress towards achieving the target for sugar production in the country.

According to him: “The BUA project in Lafiaji, had their consignment imported and was hooked up – even the one for Savannah – was hooked up for almost eight months at the Apapa Port, no way out.

“It was only around February and March this year that they were able to bring in some consignment. So it is the ones they are able to bring to site that they started installation with.

“So if the port administration is not really effective in the management of the port to ensure the release of these consignments and movement to the site, this could also cause limitations and slow down progress.”

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The former NSDC boss also called for more private sector participation in the sugar project in order to not only feed the country but also export to other African countries.

According to him: “The opportunity is there for everyone to take advantage of the master plan. In fact, we want more people to come because it is not just that we are aiming at producing enough to satisfy Nigeria’s requirements but also to take advantage of the neighbouring African market.

“Why can’t Nigeria be supplying sugar to the whole of Africa? We can, the land, water resources are there and human resources is cheap. So why can’t we do it? We can do it.

“We only need to be focused and committed and the sugar council is trying in this regard and investors in the sector are making the most efforts and before long, we believe we will get to the promised land.”

Earlier in September 2020, the NSDC had raised the alarm that the N60 billion sugar investment project in Sunti Golden Sugar Estate, SGSE, owned by Flour Mills, was reportedly threatened by floods occasioned by the sudden release of water from the Kainji Hydro Power Dam in Niger State.

The floods which reportedly swept through the sugar estate, destroyed flood protection dykes, factory equipment and submerged cane fields, pulling down office and residential buildings and halted activities at the estate.

The NSMP is a road map designed to make the Nigerian sugar industry transform into a world class multi-product sugarcane industry.

In line with the Federal Government’s Transformation Agenda to make Nigeria one of the top 20 economies in the world by the year 2020, the NSMP aims at reinvigorating the sugar industry to contribute to the overall goal of the agenda.

The NSMP provides a framework for setting goals, defining key actions, and generating and allocating resources to fund programmes in the industry.

Given the inability of Nigeria to become self-sufficient in sugar production, sugar has remained an expensive commodity in the country.

The Acting Executive Secretary/CEO of the NSDC, Mr Hezekiah Kolawale, who was until recently, the Director of Price Service at the NSDC, blamed the rising price of sugar on the rise of foreign exchange.

He said sugar companies in Nigeria depend on imported raw sugar for production, “so if there is a rise in foreign exchange, it will affect the price of sugar in the country.”

The rise in the price of sugar has given birth to the rise of other products that depend on sugar for their production including bread, drinks among others.

With less than two years before the expiration of the Nigerian Sugar Master Plan, it is difficult to agree that the current programmes in the sugar sector will end importation and guarantee self-sufficiency in sugar production in Nigeria.

At the moment, the country also depends heavily on imported sugar brand to meet its sugar demands.

Vanguard News Nigeria