Fixing the missing link in Nigeria’s steel industry
In many economies, the level of unemployment is most times used as a gauge for measuring the growth of key industries as well as their contributions to the economy. This is because, the real sector serves as mirror of the vibrancy of economy as policy makers make their assessments of the sector based on the shifts in unemployment figures.
For Nigeria, the monolithic structure of the economy and strong appetite for imported products continue to affect key innovations in the real sector as well as the ability of the sector to significantly reduce the number of unemployed youths through job creation.
To this end, stakeholders within the steel sector believe that except Nigeria tackles chronic over-capacity problems in the sector by reducing the influx of imported steel and galvanized pipes and making better use of local contents, the ongoing capacity glut that has left many firms suffering heavy losses and reliant on small businesses may result in local players being expunged from the market.
This is because on the one hand, the steel sector has influence on up-stream industries, such as mining industry, energy industry, among others, while on the other hand; steel products are the raw and processed materials for many down-stream industries.
As the glut in global steel production heightened, with many steel industrial firms shutting down, local steel manufacturers may have begun to feel the pangs of the glut as capacity utilisation drops below 50 per cent sequel to low demand.
Specifically, the Steel Manufacturers Association of Nigeria noted that the nation’s steel industry is in comatose; pointing out that the industry is faced with a very bad market with declining demand for locally-made steel products.
In its latest Manufacturing Purchasing Managers’ Index (PMI ) Report, the Central Bank of Nigeria reported that activities declined to 42.1 index points in August 2016, compared to 44.1 in July, thus confirming an Arlie’s survey conducted by NOI Polls in May which indicated that activities in the sector were on the downward trend.
According to the report, the manufacturing sector declined at a faster rate during the review period.Of the sixteen manufacturing sub-sectors, fifteen recorded decline in the review month in the following order: non-metallic mineral products; transportation equipment; petroleum and coal products; fabricated metal products; furniture and related products; cement; appliances and components; printing and related support activities; paper products; computer and electronic products; food, beverage and tobacco products; primary metal; textile, apparel, leather and footwear; plastics and rubber products; and chemical and pharmaceutical products.
Indeed, stakeholders in the steel industry noted that if immediate attention does not come from the government to salvage the situation, the remaining local steel companies in the country, may soon be out of business.
To address concerns bordering on the inability of the steel industry to support other sectors, vice president, Yemi Osinbajo expressed optimism that the present administration would work closely with operators to ensure that both the iron ore mining company and Ajaokuta Steel operated efficiently considering their antecedents.
Already, local steel companies are singing from the same hymn book – competition from imported inferior mild steel coils, galvanized pipes, and electrical transmission towers, which have flooded the local market and non-patronage from government.
Earlier, Coordinator, Steel Manufacturers Association of Nigeria, Prince Felix Oba Okogie said: “We are producing but not selling. Even during production, we do not have enough power and the cost of things are getting higher particularly gas and electricity. We are producing but we are not selling because there is no demand”.
Worried that manufacturers may be cutting corners in their production in order to reduce their liabilities and improve sales in a saturated market, the Standards Organisation of Nigeria (SON) stated that it has not relented in its plans to impose stricter sanctions on erring steel and iron producers that fail to meet the minimum requirement of the Nigerian Industrial Standards (NIS), even as it has continued to mop up sub-standard steel rods from the markets.
Head, Inspectorate and Compliance Directorate of SON, Bede Obayi told The Guardian that the current glut being experienced by steel manufacturers is not unexpected considering economic recession and drop in disposable income of many Nigerians.
To address overcapacity problem in its aluminium, chemical, cement, and steel industries, China has resolved to flood the global market with cheaper exports even as struggling competitors protest.
Indeed, steel mills in the Chinese industrial hub of Hebei have been trimming prices of rebar mesh-wires used for building by between $5 and $10 to $295, citing the devaluation as a fresh chance to offload excess stocks of steel.
While Nigerian steel manufacturers increased their production capacity following government’s policy increasing tariff on imported steel products, many of the unneeded mills, smelters, and plants in China were built or expanded after the country’s policy makers unleashed cheap credit during the global financial crisis in 2009.
Okogie added: “If we are producing at full capacity, the steel industry will employ over 300,000 people, but we currently employ about 10 per cent of that number which is a far cry compared to what the industry can employ. If the industry does not improve I am afraid to say it would lead to an enormous job loss in the steel sector,” he said.
In 2011, the steel group was formed to address the challenges faced by steel manufacturers in the country and this move aided some level of improvement in the level of quality of steel bars.
Okogie said SON has played a major role to try to reduce the challenges faced by the industry by enjoining steel manufacturers to work with the standards, calling on the government to patronise locally made goods to increase productivity and boost employment opportunities in the country.
An operator in the steel industry who preferred not to be named said boosting the steel sector is the right step in the right direction, which will also create a lot of employment opportunities, adding that government must protect local producers.
“Currently, we are manufacturing more than the demand because the local content is not protecting us. The industry has been going through a tough time due to lack of demand. This is affecting the real sector of the economy and this is why the growth is moving slowly. We want government patronage and we also want some local content law to be passed,” he said.
To address challenges of sub-standard steel products, Obayi said: “SON is doing its best by checking the importation of steel bars at the points of entry into this country. Production of bars and other components is basically sourced from scraps. The recession may have affected sales of steel bars but we are not relenting on our efforts to ensure that only bars that meet the quality parameters are sold in the country”.
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