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Food industry in a troubled economy

By Luke Onyekakeyah
30 October 2018   |   3:50 am
The economic climate in Nigeria has remained bleak and unimpressive for quite some time and has adversely affected economic activities. All the indices are pointing downwards.

The economic climate in Nigeria has remained bleak and unimpressive for quite some time and has adversely affected economic activities. All the indices are pointing downwards. No sector of the economy is clearly buoyant for the simple fact that they face the same circumstances and harsh conditions.

Poor electricity supply, for instance, has diminished most economic activities because there can be no industrial production without power. This has forced companies to generate their own electricity, which adds to the overhead cost.

Because of the very low productivity in the country, growth is hampered. It is not surprising that a Gross Domestic Product (GDP) growth of 1.50 was recorded in Q2 of 2018, which is below the expectations of analysts. The low growth and contraction across many sectors of the Nigerian economy underscores the need for an urgent set of policies and engagements to rescue the economy.

The fear that Nigeria may plunge back into recession is real. This and the fact that the fragile growth was reportedly driven by non-oil sector calls for urgent policy initiatives to reposition the economy for steady growth.

For instance, agriculture, which has been lauded under the Buhari administration as having made progress, recorded a marginal growth of only 1.19 per cent. Indications that the dominant sectors of the economy either recorded low growth or contracted in Q2 2018 indicate that urgent actions are required.

Under normal circumstances, the food industry sub-sector is one of the most vibrant that leverages the economy, particularly, in employment. A large segment of the workforce is employed in this sector across the chain of production, beginning from agriculture that produces the raw materials. That is why agriculture is an integral part of the food industry chain. There is need for government to give necessary incentives to the food industry sector as a way of boosting food security.

The fact that this sector deals with food, which is one of the basic necessities of life makes it an essential partner in development. There is not a single living soul, who on daily basis does not have need for one type of food or the other, even if it is bottled water. That is why no nation could do without the food production component in all its ramifications if it must develop.

To build a vibrant nation, the population must feed well and be healthy. Anything that hampers or disrupts the food production chain affects the entire population, which in turn affects the economy.

For instance, poverty manifests more in a situation where there is low food availability. Hunger, starvation and malnutrition are basic ingredients of poverty. A hungry nation can’t make progress. This is part of the reason why Nigeria is backward because at any point in time, majority of the people focus on food for survival.

Recently, the Brookings Institute in a report said Nigeria has overtaken India as the country with the largest number of people living in extreme poverty and is now the poverty capital of the world. This damning report, partly, is on account of the fact that most Nigerians don’t have enough food to eat. Majority of the people go hungry and hardly eat one good meal a day. No amount of denial by government officials would erase this disgusting stark reality, not until something is done, deliberately, to change the situation.

The situation is a combination of scarcity and affordability of food products. It is not only that there isn’t enough food, what is available is not affordable to majority of the populace. With high inflation rate at 11.28 per cent and unemployment at 18.8 per cent, the purchasing power of the people is low. This is unlike in the developed world where food is abundantly available and the people have the capacity to purchase what they need with high per capita income.

The problem is like that because over the years, agriculture was abandoned while most of the food processing industries were emasculated by unfavourable policies of government that they had to depend on importation for raw materials amid the foreign exchange crisis.

The policies hampered food production rather than promoting it. The result is that the food industry operators are pushed to a tight corner from where they struggle to remain in business. The challenges are many.

Available information shows that the number of food industries have grown over the years with the 1980s witnessing the largest growth. Most of the industries (over 50%) are located in the South-West, with Lagos hosting the largest number.

About 91 per cent are privately owned, which shows the unwavering effort of local entrepreneurs even in the face of mounting challenges.

Some of the major food industries include Dangote Foods, UAC Foods, Unilever, Honeywell Flour Mills, Cadbury, Nestle, Friesland and many others. The Nigeria Breweries stands out as leader among the beverage industries. These companies are engaged in food production, processing, manufacturing and marketing, all in an attempt to make Nigeria self sufficient in food production. Their products are many and varied and include the popular noodles and spaghetti, to mention a few.

But how are the companies coping in an economy that is constrained by several challenges? Certainly, these companies are constrained by unfavourable factors that have forced many others to close shop.

First there is the intractable problem of epileptic electricity supply. Poor electricity is the single most daunting challenge facing the companies. Because the problem has been thorny and intractable for decades, the few industries that chose to remain in Nigeria are compelled to generate their own power for daily operation.

It is estimated that manufacturers spend over N378 billion on power generation alone annually. This huge amount would have been plowed into other productive ventures to further boost the economy but alas, this is expended on power that is provided by the system in other climes. The competitiveness of Nigerian manufacturers with their counterparts elsewhere is reduced because of the challenges.

This disadvantaged position of the industries encourages smuggling. Because imported products are cheaper, smugglers go all out for them as more patronage is given to such products by the public.

There is also the challenge of poor transport system. The dilapidated road network coupled with the absence of railway for bulk cargo movement adds to the overhead cost.

Amid the insecurity situation in the country, moving goods from one part of the country to another poses a great risk. Companies spend more to transport finished goods to consumers.

Faced with all these challenges, many of the industries are forced to scale down their operation. New entrants into the business may be constrained. Workers are retrenched to minimize cost. That way, the capacity utilisation of the industries is reduced.

Consequently, rather than plan for expansion, most of the industries are constrained as the profit margin is reduced. The food industry, like other sectors, faces dim prospects as the future remains uncertain and unpredictable. This is why government should intervene to give support to the remaining manufacturers that are bracing the challenged.