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Tag: diversification

  • Economic diversification and non-oil export growth

    Economic diversification and non-oil export growth

    A peaceful outcome of this year’s presidential election was the desire of  Nigerians and the international community.Thankfully, we got it; and more. President Goodluck Jonathan converted his loss of the election to something remarkably positive for the country and for his legacy. His concession of defeat and early call to congratulate Gen Muhammadu Buhari (rtd), who emerged as President-elect, is surely an indelible mark in our strides to entrenching a democratic culture in Nigeria. It also serves as a needed point of reference for Africa, where a number of elections are lined up for this year.

     

    Structural Transformation

     

    The latest general election cycle coincided with a period of serious slump in the price of crude oil at the international market. From trading at well over $100 per barrel a year ago, the Nigerian grade Brent Crude now trades below $60 a barrel. This has translated to revenue shock for the government. The slump in the price of oil has also repressed foreign reserves. In line with its responsibility for financial stability, the Central Bank of Nigeria (CBN) has had to regularly draw down on the reserves to defend the local currency. It is, therefore, evident that, while we deservedly celebrate the peaceful outcome of the election, we are confronted with the harsh economic realities imposed by lower oil prices. However, this immediate challengeadvises on the path for long-term economic management.

    One area of policy consensus in the management of the economy is the need to deepeneconomic diversification and accelerate on non-oil export growth. While we can no longer correctly describe the economy as “monolithic” because the data from the rebased Gross Domestic Product (GDP) last year shows it is not, further gains in diversifying the economy is required; and widening the Nigerian export market beyond oil is crucial. Since Nigeria returned to civil rule in 1999, this prognosis has informed the thrust of economic policy. Areas where the government had previously invested exclusively, like telecommunication, was opened up for private investment in 2001. President Jonathan has now removed the policy bottlenecks to private investment in the power and agriculture sectors.

    With the policy path already charted, what is now needed is more depth and width in sectoral impacts. The Nigerian Export-Import Bank (NEXIM Bank), in playing its role as the official Trade Policy Bank of the Federal Government, holds out the Manufacturing, Agro-processing, Solid Minerals and Services (which we encapsulate by our MASS Agenda) as the sectors that will help the country make a lot of progress on the twin-objectives of economic diversification and non-oil export growth. With the imminent government transition, it is fitting to discuss how these sectors can help the agendafor structural transformation of the economy and widening the base of external trade. This I start in earnest with the manufacturing sector.

     

    Africa Exemplification

     

    According to United Nations Conference on Trade and Development (UNCTAD), the contribution of Africa’s manufacturing to GDP grew from 6.3 percent in 1970 to peak at 15.3 percent in 1990. Since then Africa’s manufacturing-to-GDP ratio has been on a decline; it fell to 10.5 percent in 2008. Africa’s premier manufacturing economy, South Africa, saw its industrial sector decline from 20.9 percent of GDP in 1994 to 12 percent in 2013. Even with recent advances in manufacturing in a few African countries including Nigeria, the contribution of manufacturing to total domestic production on the average has yet to match the pre-1990 peak.Nigeria’s manufacturing sector expanded to 6.8 percent of GDP in 2013, according to the revised data which Nigerian Bureau of Statistics (NBS) released following the latest rebasing of the GDP.

    As Africa’s manufacturing sector was declining, industrial production in China and other emerging Asian economies was accelerating. Asia’s export-led industrialisation model basically stifled Africa’s domestic manufacturing ascheaper imports from China flooded the local markets and replaced locally manufactured products in Africa. The Nigerian textile industry virtually disappeared for this reason. As the substitution and replacement of Africa’s manufactured products with Chinese imports was intensifying, Africa’s commodity trade was expanding. This combination foisted the structural rigidity that has become the key feature of African economies.

    In effect, a pattern of trade emerged in which Africa began to trade its primary goods mainly outside the continent while also sourcing its consumer goods from outside. This is in contradistinction to the scenario in the 1970s when Nigeriaproduced a number of items including pharmaceutical drugs, cosmetic products, building materials, textiles, home tools and plastics for domestic consumption. A lot of the products were also exported to other West African countries. The anticipation of progression into processing ofseveral agricultural produce including groundnut, cocoa and cotton became the basis for brighter prospects of the Nigerian manufacturing sector. Unfortunately, this was not realised.

     

    Domestic Policy Support

     

    As inward trade affected the performance of Africa’s manufacturing sector after 1990, so will the return of manufacturing reshape how Africancountries will trade, going forward. The essential feature of that change would be increased intra-Africa trade. But the outset of this would be domestic import substitution. In Nigeria, manufacturers would have to be supported by the government more deliberately to serve the domestic market and also export. According to UNCTAD, the Import Substitution Industrialisation (ISI) model that grew the share of manufacturing to African GDP in the 1970s could not be sustained because most of the domestic firms failed to be globally competitive even as they also required high foreign exchange to import intermediate inputs and capital goods. These pitfalls can be avoided by increasing productivity of domestic firms and opening up of trade channels among African countries. But it is my view that government cannot provide too much of the support for increasing the productivity and hence competitiveness of the Nigerian manufacturing sector.

    In the period of our manufacturing hiatus, a lot of advancement has occurred in industrial production in the international environment. This poses uphill tasks for a beginner in the local environment today. Few of these challenges, among others are one, low-quality manufactures are giving way to high quality products in line with unification of consumer tastes. Two, global manufacturers have amassed a lot of capital which continues to provide them the advantages of scale and price. And, three, capital and innovation have become sesame twins; the combination is a challenge to nascent manufacturers.

    One can exemplify the likelihood of convergence of these risks in a single manufacturing operation. A few years ago, we celebrated the birth of a locally manufactured computer brand by one of Nigeria’s most dynamic entrepreneurs. But today, rapid changes in the global ICT industry and a fast rate of adoption of new innovative variants of computer devices, may have seen to the quick decline of the Nigerian brand.In this scenario, the option we have is for government to invest more in science and technologyeducation and also provide support for the private sector in investing in R&D.Going by the market experience of the little-elaborated case study,it becomes quite clear that government patronage of indigenous manufactured brands, important as it is, is not going to be enough to support locally manufactured products. Except the process of innovation is supported, all the other measures will prove inadequate.

    In terms of financing commercial operations, Nigerian manufacturers have often complained about their inability to access funding for their businesses. Very often, this is expressed with regard to financing restriction posed by high costs of credit offered by commercial banks. Implicit in this, however, is the absence of some varieties in available funding sources, and the lack of scale in theexisting ones. While a number of the options like private equity, venture capital and equity and debt capital are in the sphere of the private sector (local or international), the government can provide additional options through state-promoted development finance institutions. With specific regard to manufacturingfor export, NEXIM Bank functions by statute as one of the globally recognised Export Credit Agencies (ECAs) like US Exim. The difference would be scale of interventions. It is in this regard that current efforts to supply scale to the local development finance space is in the right direction and should be sustained.

    ECAs are important because, when they help local manufacturers to identify and/or access markets abroad, they strengthen domestic production;thereby preserving and growing local jobs. Export market exposure to local manufacturers can accelerate adoption of quality improvement and best practices that are critical to business success and continuity.

    It is facing reality to assert that government cannot single-handedly plug the financing gap and provide all the other forms of assistance that are needed to expand the manufacturing base. However, to attract commercial and development assistance from other quarters, government has an important role in providing a stable macroeconomic environment. The good news is that, again, this has been one other important target of government economic policies in Nigeria well over the last decade. In the most, Nigeria has provided the needed macroeconomic stability; and inflation has been in single digit. Except on two major occasions that external volatility in the price of oil had inducedthreats of financial instability(during the 2008 – 2009 global financial crisis and the current episode in which oversupply and slow demand growth has crashed the price of oil), the country has been a stable financial market.The basis of future macroeconomic stability of Nigeria is well-founded in the progress we have made overtime and the positive market performances it has engendered.

     

    NEXIM Bank and Trade

    Infrastructure

     

    Since NEXIM Bank holds out the manufacturing sector as the key lever of improved Nigerian trade in non-oil merchandise, we have looked at how to help address non-tariff bottlenecks in West and Central African sub-regions. NEXIM Bank is facilitating the setting-up of a shipping line that will provide direct maritime links with countries of the two sub-regions that have been Nigeria’s traditional trading partners. Our innovative intervention in this area entails helping to organise private sector investors and operators in West and Central Africa, in collaboration with Federation of West African Chambers of Commerce and Industry (FEWACCI), Transimex S. A. of Cameroun and other institutional stakeholdersto pool resources to solve a common challenge in expanding intra/inter-regional trade. The soon-to-be-launched shipping company will provide direct maritime links to countries in the sub-regions which will drastically reduce freight and other logistical costs to shipping within the sub regions.

    Aside from this, there is a wider need for infrastructural development to support production and market access across NEXIM’s identified “MASS” sectors. From physical infrastructure and energy to soft infrastructure including R&D and policy innovations, there is a wide scope for support of government efforts by entities in the private and social spaces, and those outside of government’s core bureaucracy.

     

    Conclusion

     

    The benefit of sustainable job creation through investment in and support of the manufacturing sector is immense. What might pose the biggest challenge is market access. But Nigeria has the numbers. With an estimated population of more than 170 million largely youthful population, there is a good basis for investment in manufacturing in Nigeria. It is not coincidental that Africa’s richest man, Nigeria’s Aliko Dangote, operates a manufacturing group. His phenomenal success serves as a validation of how the domestic consumer market can serve as the springboard for access to the wider African and global markets.

     

    •Orya is Managing Director /Chief Executive Officer, Nigerian Export-Import Bank (NEXIM)

     

  • Forum seeks diversification of economy

    Forum seeks diversification of economy

    WORRIED over the parlous state of the nation’s economy as a result of the plummeting oil prices at the global market, the Forum for Inclusive Nigerian Development (FIND) has stressed the need for a paradigm shift aimed at developing other streams of national income.

    The Forum made this resolution at the end of an interface and discussion session under the collaboration of Consensus Building Institute and New Nigeria Foundation.

    The Forum which had in attendance a diverse, influential set of Nigerian leaders with backgrounds in government and politics, business and economic development, community empowerment, academia, religion, culture, and media, suggested what it described as strategic action plans aimed at boosting the nation’s economic fortunes.

    The overall goal of the Forum project is to promote effective and efficient use of Nigerian government oil and gas revenue for human development that benefits all of Nigeria’s citizens.

    The Forum has had two meetings; in May and September, 2014.

    It would be recalled that Ford Foundation in 2013 awarded a grant to Consensus Building Institute and New Nigeria Foundation to assess the feasibility of establishing a multi-stakeholder Forum on Oil and Gas Revenue for Development in Nigeria (FOGARD).

    Prior to convening this first meeting of the Forum, NNF and CBI conducted a stakeholder assessment by interviewing over 120 influential Nigerian leaders in different sectors. The interview process contributed substantially to the definition of the Forum’s goals and strategy.

    At the end of its first meeting Forum members agreed that their goal should be to help the country’s leaders and the broad public to break out of the current, unproductive debate on corruption in the oil sector.

    The Forum confirmed its call to action to build more inclusive prosperity for all Nigerians, by harnessing the country’s abundant natural and human resources, design strategy for influencing the national discussion and debate in the upcoming elections by leveraging on its members who have connections to groups that can promote discussion of the issues of economic and revenue diversification.

    The Forum equally called on the government to create smart, evidence-based plans to support economic diversification, just as it urged government at all levels to identify actions they can take to support sectors with high potential for growth, job creation and poverty reduction, among others.

    The group argued that government at all levels needs to attract private investment and apply management expertise to the provision of infrastructure, energy, and other public benefits.

    The Forum also tasked Nigerians to demand from all persons seeking elective office to marshal out plans to diversify Nigeria’s economy, propose as sources of government revenue beyond oil and clearly define the roles of citizens in monitoring the implementation of such plans.

    FIND aims at developing a shared vision and strategy on ways to allocate oil and gas revenue more transparently, effectively and accountably to achieve development goals.

    Besides, it seeks to translate that vision and strategy into joint action to demonstrate better ways to allocate and invest revenue, at local, state and federal levels, using a variety of public-private partnerships and initiatives as well as engage a broad cross-section of Nigerians beyond those directly participating in the Forum in conversations about the Forum’s vision, strategy and actions, so that public opinion and the climate for political leadership focuses increasingly on achieving development results with oil and gas revenue.

  • Dying QSR: franchising, diversification to the rescue

    Dying QSR: franchising, diversification to the rescue

    They once bestrode the country’s landscape with candour, becoming the benchmark for measuring taste and class. But these are changing times for Quick Service Restaurants (QSRs), who are hit by hard times. TONIA ’DIYAN reports that QSRs have now fashioned a way to restructure the business. But how far will this go?

    Sunday Oguntade, a regular visitor to a popular eatery, was addicted to visiting various eateries. He  has very fond memories of such places. Not only was he attracted to them because of the quality of food provided, the ambience they provided was refreshing. But this has since stopped. “The scenery, quality of food and service rendered then were second to none and that kept me going back,” he explained.

    Oguntade, like a growing number of Nigerians, no longer patronise eateries. This is because of an alleged falling standard in the quality of service being rendered by quick service restaurant (QSR). For instance, Oguntade said on a particular visit to a leading QSR in Lagos, the stench that emanated from its rest room was discomforting. This is apart from the poor quality of meal sold in the restaurant.

    “The fried rice I bought there was extremely tasteless. It was just as if only curry powder was mixed with the rice. Even the pastry (meatpie) was of poor quality compared to what it used to be a few years back,” Oguntade said, wondering what could have gone wrong with the leading eatery.

    Severally, Nigerians have had cause to complain about the quality of service and meals produced by QSRs. This, among other reasons, is believed to have led to the declining fortunes of operators in this sector. Besides, the renewed health awareness in the country, especially healthy eating, is said to be taking a toll on the demand for QSR meals. In the circumstance, some eateries have shut down.

    But determined to remain in business, operators in this line of business are now restrategising to reposition their business. One of these strategies is the issuance of licences to potential investors seeking their brand’s franchise. This is done with the belief that it will help the brand to grow and expand, thereby improving the bottomline revenue.

    Still on giving out franchise, concerns are high over the quality of service that will be rendered. Also of concern is the issue of effective monitoring of such outlets of franchises so given. Experts in QSR business contend that for a brand to make a lasting impact, in all its outlets either run by the parent company or by franchise, the quality of the meal and ambience must be same. For instance, a meat pie bought in a restaurant in Surulere must be the same as the one bought in Ikorodu, as long as it is from the same restaurant, regardless of branch and location. This remains a challenge.

    The Managing Director of UAC restaurant, Derrick Houten, agreed with such worries. He warned that it is not just about granting franchise, but ensuring that the franchisee is capable of maintaining the standard expected, in order not to destroy the brand. “Competent franchisee should be looked out for and not just giving eateries to any franchisee to run,” Houten advised,  emphasising that a franchisee can only manage the business after training and hand holding have been done.

    His words: “In the past, if a person had money and can afford to own a fast food outlet, he/she could simply pay and get a franchise, it didn’t matter who he/she is. Today, eateries are better managed with good competent franchisees, who are involved in the business and have passed through the selection processes.”

    He warned against franchisee, who just want the image of an eatery but are not professionals.

    The Nation Shopping gathered that  franchising, for Mr Biggs’ involves a tough selective process because it requires that certain set of credentials are presented. Franchisees are expected to have time on their hands to personally run the business. They must have access to operating funds and must be very passionate about being in the business.

    Apllication forms are picked from the business for a fee and submitted with required documents.

    Upon review by a panel, the propective franchisee is called for a qualifying interview,  if he/she makes it, location is discussed and its taken up from there.

    This effort also include ensuring consistency in taste because it is strategic to the brand. And as part of its support to the franchise operations, UAC Restaurants provides the franchisees with an approved standard of operations, which includes standardised recipes production process manuals guiding the preparation of its various products and meals.

    Sources said there are still some normal franchising rules and innovation in the fast food business that will not work in this country. Reason is because some regions cannot be penetrated or innovations would not work in some regions.

    For instance, local food is heavily competed with many brands offering local meals, but operators say they  will constantly measure their effectiveness with their customers that is why some of them that have village kitchens have a separate section for that purpose, but it doesn’t work well in all areas. They have, therefore, incorporated local food on their menu and this seemed to work well.

    “The practicalities of some innovations only become evident after they have been launched,” said Tantalizer’s boss, Bose Ayeni.

    Assuring Nigerians of the good state of eateries in the country, Ayeni said, the new face of the Nigerian restaurant business has been rebranded and restructured in terms of management and processes, which will assist in producing quality food at affordable prices always. “We have built on the foundation that we have and we will continue to improve in all areas of our businesses,” she said.

    Repositioning Mr Biggs’ brand(the fast food giant), it was gathered, was not only in terms of brand outlook. The brand has had a complete overhaul in terms of processes, systems, look and feel. On the exterior, the brand took on a new logo and presentation. There was the subtle injection of a new colour.  Operationally, the business became wholly franchised such that not one restaurant is owned by the mother brand, UAC restaurants, which now provides backend operations support to franchisees

    Findings showed that when sales start dropping in an eatery, remodelling will take place, such outlet would be made smaller and become more effective with improved modern equipment and power efficient items.

    The last three years have seen  restaurants  undergoing complete restructuring. Some have franchise their businesses, including staffing, management,  property and rebranding. Some have built their processes in areas like compliance, training and franchisee selection.

    They have decided to restructure and give a face lift to their businesses, which they say is bringing  positive changes in the sector.  According to them, the business is transforming tremendously, new ideas are welcomed and competitors are closely monitored as they come into the market.

    Having realised that consumers are moving from average priced meals to cheaper ones on the menu, eateries began to define their variety with their menu items, which allows the customer to have different meals to assist with menu boredom and after consulting with some of them through tiny slips placed on the table, operators now know that there is a need to re-price their most popular menu item which is chicken and rice.

    Economic advantages

    The last six years have seen the industry contribute positively to the Nigerian economy. In the area of employment, the sector employs more people and spend vast sums of money in their supply chain.

    The QSR and FMCG(Fast Moving Consumer Goods) sectors employ a large number of permanent people thereby, helping to solve the unemployment problem.

    Likely restrictions

    Mentioning that Mr Biggs’ has the largest number of franchisee in West Africa, Houten said, franchising will continue to grow as the eatery business matures.  This aspiration he said, is hindered in higher institutions. “Universities haven’t become popular sight as management of higher institutions  have suddenly realised that they can charge high rentals for the space they are giving us and this has made the student model less profitable.”

    He added that his outfit has decided to make its presence felt in schools where its items can be allowed into the school’s local shops. Operators say negative forces such as poor power supply, high government levies and expensive real estate, if removed, will make the sector grow even better.

  • FAAC funds crises: Reps seek diversification of economy

    Due to the persistent crises in the allocation of funds between the three tiers of government by the Federation Accounts Allocation Committee (FAAC), the House of Representatives has urged the Federal Government to diversify the economy.

    The House has mandated its committee on Finance to interface with the Ministry of Finance and the representatives of the states in the Federation Accounts Allocation Committee ( FAAC) within two weeks, with a view to ascertaining the critical issues bedeviling revenue allocation.

    The committee is to make necessary recommendations to the House on alternative ways of revenue distribution in the country.

    Besides, the House also mandated its ad hoc committee on Legislative Agenda to work in conjunction with committees such as Industry, Agriculture, Commerce, Solid Minerals etc. and formulate a blueprint for the diversification of the economy “for the purpose of same to the Executive and the public.”

    This was sequel to the adoption of the resolutions of a motion sponsored by Samson Osagie, Minority Whip , in conjunction with 12 other lawmakers, under the title: Administration of Federation Accounts by the Federal Ministry of Finance and the need to diversify Nigerian economy.”