Fiscal policy regime and supply chain challenges in tomato paste sector
Since the Central Bank of Nigeria (CBN) unveiled its foreign exchange restriction policy on some imported items, there have been concerns bordering on the definition of some items as finished goods and intermediate items that serve as raw materials. While the Federal Government supports the action of the apex bank describing it as a temporary fiscal control measure, value-chain drivers in the real sector, especially those in the tomato paste sector believe there is more to be done to keep investors in the sector in business, considering the non-availability of restricted raw material for tomato paste production. FEMI ADEKOYA writes.
In a bid to defend the naira and salvage dwindling foreign exchange earnings, the CBN had earlier in the year, restricted 41 items including triple concentrate tomato paste. According to the apex bank, the move became necessary to “encourage local production of these items”, adding that “implementation of the policy will help conserve foreign reserves as well as facilitate the resuscitation of domestic industries and improve employment generation.”
While the federal government may have considered the option of conserving dwindling foreign exchange reserves as a viable option, some stakeholders believe a balance of policy action needs to be conceived to ensure that the tensed business environment does not affect investor confidence in the economy.
Indeed, in using import prohibition as a major trade policy instrument, Nigeria has hoped that its balance-of-payments problems would be alleviated, and that the protection offered would induce increased output and employment of the domestic industry.
However, against these postulated positive outcomes are several possible negative consequences of import prohibition, including raising the domestic prices of CBN restricted products, disrupting other sectors which use the CBN restricted products as raw materials, depriving government of tariff revenue and creating vested interests among domestic producers of prohibited products and among smugglers.
Nigeria’s balance-of-payments situation is determined primarily by developments in the world oil market; hence it has not been amenable to changes induced by import restrictions.
According to the CBN, the protection of domestic producers remains the real force behind the use of this policy instrument, even though there is little evidence that it has produced the desired result.
For instance, a survey of manufacturing-sector performance conducted by the Manufacturers’ Association of Nigeria does not support the view that the level of capacity utilization was positively related to the degree of local sourcing of raw materials — one of the major channels through which import prohibition was expected to promote increased output and employment.
Specifically, while the wires and cables sector continues to lament its predicament on implementation of forex restriction policy, the tomato paste Industry which has a total market of 150,000 MT of tomato paste every year (GTIS 2014) depends on the importation of triple concentrate as raw materials to meet the market demand, as the concentrate is not available locally.
Presently, the total value of this imported tomato paste stands at $170 million, out of which, the imported triple concentrate of Tomato paste which is used as raw material by the packers is around $50 million according to industry players.
With this raw material presently unavailable in the country, Nigerian producers have to contend with addressing a supply chain gap of 150, 000 metric tonnes.
While some firms are already embarking on a backward integration agenda, there still lies a huge gap in the area of processing the fresh produce into a finished product to meet the culinary needs of the end consumers.
Immediate Past President of the LCCI, Remi Bello, had noted that the real sector has been battling some challenges since the implementation of the forex policy as several investments are at risk, with possible job loss.
According to him, the policy has negatively affected the financial services sector, manufacturing sector, tyre and rubber industry, pharmaceutical sector, the free trade zones, and furniture and foam manufacturers, among others.
“The Lagos Chamber of Commerce and Industry (LCCI) and the business community are concerned about the consequences of the CBN approach to the management of foreign exchange market over the last few months. We appreciate the challenge of scarcity of foreign exchange. Tough choices have to be made. But we have serious reservations over the policy choices of the CBN in managing the current crises. Significant disruptions, distortions and dislocations have been created in the business environment by the CBN. Nigeria is under pressure, but you cannot shut all the doors and windows”.
The total investment in tomato paste sector is about N25 billion in tomato paste packing manufacturing companies, and also more than N10 Billion is under further stages of investment with direct and indirect (in allied industries) impact on more than 80000 livelihoods, including those directly employed in the industry and indirect stakeholders such as suppliers, logistics, sales and distribution value chain players.
Similarly, the economy may have begun to feel the impact as there is inadequate supply of tomato, while desperate food producers are deploying non-qualified tomato concentrate for production thereby jeopardizing public health and safety.
Former chairman of the Manufacturers Association of Nigeria (MAN) in Enugu, Ebonyi and Anambra states, Dr. Chike Obidigbo, noted that the CBN’s measure was a mere scratch of the problems besetting the real sector of the economy.
Bello on his part observed that the development will put several investments at risk with implications of job losses, quality of loan access in the banking system and the welfare of citizens, adding that the alternative foreign exchange markets are not deep enough to meet the demand of the essential intermediate products on the exclusion list, saying the exclusion of the items from the forex market is as good as import prohibition.
To the players in the industry, importation of the triple concentrate tomato paste concentrate serves, as the viable alternative to the non-availability of the raw material produced in the country, even as they continue to explore the backward integration alternative.
Indeed, they noted that there should be a progressive building of local capacities to ensure a steady and robust transition to substitute importation in long term to motivate serious and organized manufacturers.