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‘Nigerian industries will witness a turnaround when public power is not seen as back-up’

By Femi Adekoya
04 November 2021   |   2:53 am
>Mr. Ete Pinnick is Mondelēz Supply Chain Director (MSC), Sub-Saharan Africa Business Unit, Mondelēz International.

Mr. Ete Pinnick

Mr. Ete Pinnick is Mondelēz Supply Chain Director (MSC), Sub-Saharan Africa Business Unit, Mondelēz International.

In this interview with FEMI ADEKOYA, he talks about systemic challenges operators face in local production, export and managing supply chain disruptions due to the pandemic and FX scarcity. He explained that basic infrastructure, especially power should never be seen as an alternative or back up if industrial and economic growth will be achieved. 

We witnessed a disruption in the global supply chain that affected Nigeria just like every other value chain, as a result of the COVID-19 pandemic. To what extent did it affect your business operations in Nigeria?
The global supply chain, as we all know, was disrupted due to the COVID-19 pandemic and it came with many challenges. For example, let’s take logistics efficiency, globally. It used to be in the range of 70 per cent. If I take the first quarter of 2020, and the second quarter of 2021, it’s about 30 per cent and that is one of the challenges that the supply chain faces today. What does that really mean in layman’s terms? You have increasing container charges; shortage in containers; and longer vessel lead-times, which stretch the supply chain beyond what we have ever seen, and put pressure on the global supply chain. 
If I narrow it down to Nigeria, we had some fundamental issues in Nigeria prior to COVID-19, such as lack of adequate infrastructure, port congestion etc. If you look at these inefficiencies, coupled with other entrenched recurrent challenges, they provide significant issues for the supply chain in Nigeria. I can give you an instance. In Africa, in the past, if there was a delay of one or two days, vessels would wait. What we have seen in the last few months, is that if there is a delay for two days or more, vessels bypass the ports. In Nigeria for example, we have had situations where vessels that are not planned for transhipment are now transshipping; a vessel that is supposed to be coming directly to Nigeria, because of the congestion at our ports, drops off our containers in Lome, then we will have to wait for another vessel to come to pick it up and bring it to Nigeria. So that puts a lot of additional pressure on the supply chain. 

I also think that the circumstances making Nigeria and other African lines tougher are that shipping lines are now deprioritizing African routes, given the high demand facing the shipping lines for the same services in other regions. Nigeria’s systemic infrastructural issues are not really helping, as port congestion is more of a norm than an exception. The agencies at the ports are making efforts, but without the tools, there is little value or improvement they can really offer. When it comes to fast-moving consumer goods (FMCG), the challenges go beyond just COVID-19 and the systemic issues. There is also devaluation, commodity FX, and one of the biggest in recent times, foreign exchange scarcity. If you look in real terms, almost all material and equipment suppliers now want confirmed LCs from Nigeria before they transact with us. If I look at these elements, they add more challenges to the already challenging global supply chain. So, it has become unbearable for us and our teams. In addition, we are also working with our teams to improve on their mental well-being because of the pandemic.

Would you say that there has been some form of recovery considering that global energy issues are also affecting delivery time for the global supply chain?
I think it is going to take time. I think there is some recovery and I think most of the recovery we see today is because people are adapting, innovating, and embracing what I call the ‘new normal. What do I mean by that? If I take our supply chain, for example, we are not only building contingency on top of contingencies, but also looking at efficiencies, productivity, and driving an agile mindset. Unfortunately, I think, COVID-19 will be with us for a very long time. In some parts of the African continent, for example, in South Africa, we are talking about the fourth wave in November, and once it starts, it begins to trickle down. People are going to go through the fourth wave and possibly the fifth wave. So, we all must adapt to the ‘new’ normal and the more we adapt, the more recovery we can all achieve collectively. The recovery will come at a cost. It will be more expensive in Nigeria. As a supply chain, we now must adjust. This means there is a lot of pressure on the supply chain to look for productivity to prevent businesses from passing the cost to the consumer in a very price-sensitive market.

How do manufacturers manage to survive? How do you manage to maintain your inventory, cash flow and production because these are serious issues going by the FX challenges in the country? How do you manage to maintain a balance between supply and demand amid these challenges?
The good thing is we all have the same challenges, so this is not specific to one person. Everybody globally is going through challenges. My advice is that we all must look more at our supply chain from the lens of the consumers and the customer. The truth today is, if a consumer goes to the shelf and your product is not on-shelf, they are going to pick something else. And if you are not always there, you become irrelevant.  So, to maintain your relevance in the market, you have to work back from the consumer; we have to apply rigour to analyzing market data and rely more on trends we see in consumption and in-market sales. With the data as a mirror, you adjust and build boundaries of course, within your cash elasticity, without breaking the bank, and design to give your consumers the value that they want. At the end of the day, make sure that you build into the supply chain, the current realities.
If the lead time for material from Europe, for example, used to be 30 days, I have talked about a transhipment that was stuck in Lome for about a month. If this happens a second time, we cannot assume it is an exception. But the reality is that we need to adjust the lead time to the current reality to an extent that our cash can accommodate. This we need to keep doing and adjusting to ensure that we keep our supply chain operations and maintain shelf relevance.

How do you address the issues of rising unsold inventory and foreign exchange access? Did you at some point in time, have cause to go to your parent company to hedge some of the challenges, especially when it has to do with foreign exchange? 
Like I said earlier, this is one time were from a supply chain point of view, you need to understand your consumers. Again, you need to understand your customers then you adjust right. Typically, in Africa, forecasts are very fluid and as such, you need to now look at what the consumer purchasing power is in our current reality. What are they buying? What are the data saying to you? What do you know? What do you expect the next trend to be? Then you adjust backwards within your supply chain to make sure that you can manage the level of inventory to a point where you have fewer unsold goods. I would speak specifically for us; we have been able to do well to manage that. So far, the issue we are having is to meet the demand in the market. So maybe we are one of the lucky ones. 
Now when you talk about going to the parent company, this is not the approach we have taken, as it is not sustainable. The reality today is that manufacturers in Nigeria will have both direct and indirect FX exposure. While going to the parent company seems a logical way to go and probably a quick fix, this will not fix the issue. Yes, we have considered and reviewed the need to look at getting support from the parent company. However, we recognize that the risk of devaluation is high and that would be exposing the company to significant FX losses and interest charges. We have continued to partner with our banks to source FX from the official channels to meet our import needs and in some cases, to reduce the FX burden, we have patronized local vendors to supply these materials for our use although this has been more expensive in the short term as you also have indirect FX exposure.

What was the exchange rate five years ago, what is it today? At the start of the year, what was the exchange rate, what is it now? We are talking about just within 10 months and you can see the movement. So, I think that many people need to be able to know that the reality today is that you are not going to have FX exposure. So, you will have to strike a balance on what is the best operating model and go with it. That will be my advice. 

Would you say you have been able to look inwards in terms of local sourcing for your raw materials because that appears to be one of the major challenges for many manufacturers? To what extent have you been able to source your raw materials locally? 
Where this is available and makes business sense, we do. We have gone as far as backward integration as well. We have a cocoa processing plant, for example, to produce raw material for our mainstream business and we do some export to generate some FX. Typically, raw material imports to the local are 70:30 by volume and 42:58 by spend. Packaging material is 95% local by spend, with indirect FX exposure, as almost all base materials are imported. FX, as is evident, plays a big role in the equation.  When we talk about local, we explore local to the full extent that is possible. One key point to note, local is great, but local doesn’t mean it is cheap.
It just means it is available. 

How do you manage the competition? How do you deal with competition both from the industry and competition for consumers’ wallets?
We manage our supply chain from the lens of our consumers and customers. We invest where we get the best value for our consumers and we will continue to do this.

Let’s go to export. How has it been in the last few years, especially the last two years since the border closure, the border reopening, and now recently with challenges within the Lome corridor?
It is challenging for everybody. I think this is one of the things we must watch out for, where a government does not evaluate end-to-end potential impact before making a decision. We belong to ECOWAS and we should respect ECOWAS trade protocols. For instance, the Government of Nigeria took a unilateral decision to close the border for 18 months, for many good reasons, but of course, other member states will follow suit, as Nigeria set the precedent. Now the Benin government wants to charge duties on transit goods which is not done anywhere and there has so far been no solution. 

What does that mean for ECOWAS free trade? Whose member state will go next? It becomes an uncontrollable chain reaction. Road transportation, for example, is cheaper and more reliable. But everybody has gone back to sea. As difficult as it is, I wouldn’t spend a lot of time focusing on something I don’t have an influence over. We will continue to talk to the government through the Manufacturers Association of Nigeria (MAN) which means we have a voice, and we will continue to use that, as best as we can. But the reality today is we must look at other means within what is doable. 

If you look at the operating expenses by switching from road transport along the ECOWAS corridor to sea, how has it impacted your costs?
In terms of Capex, I don’t think there’s any impact. There is an incremental cost on freight and lead time, but at the end of the day, what is most important is to remain relevant in the market. We must look at options to create value for our customers and consumers. Our hope is that through MAN, we will continue to have a dialogue with the Government and hope that ECOWAS will do the right thing and make sure that the trading bloc works for its members. It means in the future; we don’t have member states make unilateral decisions. We must look at the end-to-end impact.

But looking at the port challenges, how will you describe the experience? Is it easier to access the ports now despite some of the government’s reforms or would you say it is still the same?
I think we are used to it. Is there an improvement? Yes. There are still significant challenges to fix, but I think now we understand them better.

What is your transit time getting to the port?
It is not easy to give a number.  It’s not just the ports. It also has to do with vessels and the availability of containers coupled with poor infrastructure. All I will say is that it is better some days than others. 

How long does it take to move the products out of Nigeria? What is the average number of days it takes for it to move?
I don’t want to put time into that because you can get containers into the ports within 24 hours. The containers come from the ports, you load and return them back within 24 hours. It also depends on the shipping schedule. The most important thing is to plan to get your containers into the port five days before the planned ETD.

The African Development Bank (AfDB) President recently talked about Nigeria’s export value per capita, describing it as very low at $160 compared to its neighbours, who are doing much more that size. So how do you think we can address this?
First, I always use an example and you can quote me on this. In most countries, something as simple as public power is a given.  In Nigeria, public power is back up for most of the manufacturing industry today and true for everybody. I just want to use that simple example. We generate our own power 365 days a year. In Ghana today, they have gone many years with uninterrupted power. So, if you look at public power in Ghana, they just pay a bill. In Nigeria, we pay, spend on infrastructure, buy generators, spend on maintenance, which increases the utility cost and invariably the cost of manufacturing becomes expensive. I think if you ask me if we must be competitive if we must export, we need to get the basic infrastructure right. Government should ensure that they support local businesses, sort out the systemic infrastructural issue and make FX available as well because I think you can’t do it any other way. 
The Africa free trade zone is supposed to be great for everybody. But are we ready for it as Nigeria? If you want to give businesses in Nigeria a competitive advantage, the government needs to be serious about basic infrastructure, get things done. The day we will sit down, and you and I have a conversation again and we can say public power is no longer a backup, that is the day I will know that we are headed in the right direction. We have been talking about infrastructure forever and we are still talking about it today, so the government needs to do more on infrastructure, and they need to spend more money on capital projects to make sure basic infrastructure is in place. If we don’t get that right, we are not going to make any headway in terms of being competitive within ECOWAS and the Africa free trade zone. 

The AfCFTA implementation is almost a year now. We have seen other countries try to have some semblance of sanity and direction in terms of AfCFTA. But in Nigeria, the private sector is even at a loss to policy, plans and even processes. It has been a year and no one is talking. Do you see AfCFTA working or it’s just another policy on paper?
I think it is the right direction to go for Africa as many regions have already moved. If it starts today, I think Nigeria will be at the receiving end. The government now needs to sit down and get serious if they want us to be competitive. Most of the things I talked about the need to be addressed – basic infrastructure, policies, regulatory environment etc. For example, if I am exporting something from Nigeria into South Africa, the consumers in South Africa will only buy if the value is better than what is already produced in their market. I think we need to get serious about it. However, the reality is that implementing legislation as far-reaching as AfCFTA and facilitating this level of trade on a continent of Africa’s size, will present challenges logistically.

In my words “Infrastructural challenges across Africa, including road networks and seaports, will result in increased lead times and transportation costs which could potentially affect the effectiveness of the implementation of the free trade agreement”. If I look at Nigeria, we need to start putting the basics in place, clearly define the roadmap to better prepare so that businesses in Nigeria can take advantage of the Africa free trade zone when it is fully operational.

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