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Of local raw materials in dollars

By Editorial Board
03 January 2017   |   3:57 am
The report, the other day, that available local raw materials are now either being exported or sold to domestic manufacturers in foreign currencies should be of interest to all stakeholders.


The report, the other day, that available local raw materials are now either being exported or sold to domestic manufacturers in foreign currencies should be of interest to all stakeholders. The reported alternative, whereby international market prices of the materials are being converted to Naira for payment by the manufacturers is also intriguing. That the practice has negatively affected local production deserves scrutiny, even as this form of transaction, is aimed at earning foreign exchange which the raw material producers believe is more stable in value than the local legal tender.

There is absolutely nothing wrong with farmers exporting local raw materials to earn foreign exchange, especially as the government is driving the diversification of the economy and the sources of revenue beyond crude oil sales. Indeed, the government has championed and promoted increased non-oil exports and the associated enhancement in foreign exchange revenue earnings. Thus, every legitimate effort to export and earn foreign exchange by economic agents in this country must be encouraged.

What is happening with the farmers and other providers of local materials can be interpreted to mean that they have embraced the call by the government for improvement in the level of non-oil exports of goods and services and the imperative of foreign exchange revenue earnings. If the transactions of the farmers are processed within the laws and regulations guiding such transactions, they cannot be faulted.

But before getting to that level, it is important to establish what must have necessitated the raw material producers getting into the new practice of selling even locally, in dollars. The “hot chase for forex”; “scarcity and demand from neighbouring countries” were reported to be the motivating factors. The absence of any government mechanism or scheme that ensures that local producers of raw materials get fair and sustainable prices for their products should be a major reason. The producers are left to the vagaries of the market and mercy of manufacturers who now complain that the raw “commodities are being offered to local manufacturers at prevailing international market prices.” Why not at international market prices? If they are offered at below comparable international market prices, the loser and winner will be farmers and manufacturers, respectively.

The obvious revelation from what is happening now is that the farmers and other producers of local raw materials for industries have hitherto been subsidising manufacturers. As long as that subsisted, there was no outcry by the manufacturers. Now that the country is not earning enough foreign exchange to satisfy everybody’s needs, economic agents are being compelled to re-evaluate themselves and chart new sustainable paths. The farmers have discovered they can access markets outside the country and sell their goods at prices higher than what they would have got from their local buyers. For as long as their products are acceptable in the international markets, they will strive to sustain patronage of that market. Rather than point fingers at farmers as their problems, manufacturers should do exactly what the farmers have done. They should re-examine themselves in terms of their various capacities to discover how best they can sustain and improve their production, whether their raw materials are foreign or domestically produced. Indeed, as the farmers have discovered the international market through which they can earn handsome foreign exchange, so it should be for the manufacturers. For many years, calls had been made on manufacturers in Nigeria to produce not only for domestic consumption but also for export. That would help them in importation of necessary machinery, and equipment as well as foreign-produced raw materials. The call had made no impact on them and they took no serious action simply because foreign exchange was available and local raw material producers had not tasted the international market. Now that the games are changing, perhaps, this is the time for them to swim or sink.

It is instructive that the report under reference rightly noted that “with the exception of organisations that deployed out-grower schemes to develop their value-chain capacity, other operators have had to depend on imports subject to availability of foreign exchange or depend on open market where prices are arbitrarily determined by farmers and value-chain operators.” It is, indeed, encouraging that some manufacturers have deployed out-growers in the interest of sustaining their businesses; but what is preventing the others from embarking on such essential backward integration projects? Backward integration had long been recommended to manufacturers in the country as an assured way of developing their own raw materials to shield them from the so-called ‘arbitrary prices’. It will also assure raw material quality and stability. To achieve dependable backward integration requires foresight which underscores, once again, the need for continuous research and innovation.

In order to arrest or moderate the new challenge of denominating local raw materials in dollars, the government should institute a mechanism to ensure local providers of raw materials obtain fair, sustainable and comparable prices for their goods. A return to the Commodity Marketing Board’s arrangements should, therefore, be considered, even if some fine-tuning may be necessary.

The Manufacturers Association of Nigeria (MAN) and the Raw Materials Research Council of Nigeria (RMRCN) should work in collaboration with other relevant stakeholders to find solutions to the challenge of raw materials for industries. Nigeria has abundant raw materials and there is the need to harness and exploit them in the interest of the nation and the global economy. This time of economic adversity provides veritable opportunities for economic agents, not least the manufacturers, to sincerely look inwards, innovate and produce for domestic consumption and export to boost the country’s foreign exchange earnings and reserves.

The vote is for locally produced and also exportable goods and services. Evidence of proper diversification of the economy must manifest in significant proportions in the improvement of non-oil exports and the associated foreign exchange earnings. Manufacturing for export is a sine-qua-non, if the objective must be achieved. Therefore, both producers of local raw materials and the users should collaborate towards the realisation of the goals. But the government has to find ingenious ways to address the issues that are of concern to the manufacturers and local raw material producers.