Tag: paints

About 70 per cent of raw materials used in the paint industry are imported. With the slide in exchange rate of the naira , coupled with lack of infrastructure and rising insurgency, local paints manufacturers are in a quandary, fearing that many firms in the sector may be forced to fold up, reports Assistant Editor CHIKODI OKEREOCHA.

After two decades of uninterrupted operations, achieving 20 per cent market share, Chemstar Industry Nigeria Limited, manufacturer of Finecoat and Shield Paints, should be celebrating its success.

The company, which began operation in a room in 1996 with three workers and two distributors,  boasts of over 1,000 workers and  2, 000 distributors spread across the country.

It has also established factories in Johannesburg, South Africa; Accra in Ghana and Turkey. However, despite achieving between 60 and 65 per cent capacity utilisation, the company marked its 20th anniversary with measured excitement. Its turnover in the previous year, The Nation learnt, was low and, perhaps, did not warrant a loud anniversary.

“Because of rising insurgence in the North, our turnover has plummeted, especially in the previous year from what it used to be,” Group Managing Director, Aderemi Emmanuel Awode, declared at the company’s 2014 Customers Forum in Lagos, as part of activities marking its anniversary.

He said the company’s turnover plummeted as a result of rising cases of insurgence in the Northern part of the country, including Abuja, where about 65 per cent of the company’s turnover was realised. He also said high duties and tariff on imported raw materials were not healthy for business growth.

Awode echoed the frustrations of other paint manufacturers, as well as other operators in the manufacturing sector whose businesses have been badly hit by ceaseless bombings by the dreaded Boko Haram insurgents in the north.

Since 2009, when the crisis started, manufacturers whose businesses are located in the Northeast and Northcentral – the epicenter of the sect’s activities – have been recording unprecedented low turnover. Because of the bombings and kidnappings, manufacturers, including paints manufacturers, are unable to distribute their goods to the affected states in the North, a situation that eats into their profit margins.

The Nation learnt that many people no longer want to go to the North for any reason, and this is affecting the distributive trade sector of the economy. Operators in the Small and Medium Enterprises (SMEs) sector, are worse hit by this restriction in movement due to their limited space, branch network and available funds. “The tempo of economic activities in the North has declined, access to markets by companies in the South has reduced, resulting in loss of sales; while many enterprises have relocated,” says Lagos Chamber of Commerce and Industry (LCCI) President Alhaji Remi Bello. He lamented that it had become difficult to attract investors because the risk of long-term investments had become enormous.

The Chamber’s Director-General (DG), Muda Yusuf, also noted that the insecurity  had become a major challenge for investors, stressing that the economy of many of the affected states is on the verge of collapse with implication for investments and job losses.

Yusuf, while explaining the outcome of an evidence-based account of experiences of members of the Chamber and the larger business community on investment climate in the second quarter of last year, said the challenges of the operating environment for business intensified in the second quarter across all sectors, and there were concerns over weak consumer demand reflecting the downturn in the economy.

He said while the hospitality industry in the volatile states has been paralysed, many operators, especially SMEs, were relocating to other states with the attendant challenges.

The DG also said many firms have lost about 30 per cent of their sales, as they could no longer access most part of the northern market. “Our report shows that manufacturing firms sourcing raw materials from the North are facing serious challenges, while projects funded by banks in the affected states are now at risk,” Yusuf said, adding that serious perception problem has been created for the country, as many bank branches have been closed, while sales representatives of many companies have fled the affected states, and many projects under construction in the North abandoned.

Although Awode expressed optimism for a quick end to the Boko Haram insurgence for business to thrive, his optimism may have been short-lived following the threat of the slide in the naira exchange caused by sharp drop in the price of crude oil. He said that most of the raw materials used in the paint industry are imported.

“About 70 per cent of our raw materials are imported, while payment for the raw materials is done in dollars. Import duties or tariff are on the high side. These and other challenges are confronting the growth of paints industry,” he lamented.

The Chemstar GMD is not alone in his lamentation. Chairman of DN Meyer Plc, another major paints manufacturer, Sir Remi Omotosho, decried the trend where over 70 per cent of raw materials for paints and other products’ manufacturing is sourced from abroad despite that some of the raw materials for paints are available locally. He regretted that the drive for local substitution embarked upon in the country in the 1980s was abandoned and replaced in the 1990s by the import syndrome, with people relying heavily on imports.

Sir Omotosho recalled that the Raw Materials Research and Development Council (RMRDC) was set up to explore alternative sources of raw materials for the local industries, regretting that all of a sudden, RMRDC disappeared from the radar. “That agency ought to be revived,” he told The Nation, in an earlier interview.

While emphasising that a lot of materials used in the production of goods are available locally, the industrialist regretted that those who should be developing local raw materials would rather go and import them for sell.

“There is need for the government to get RMRDC back in place in a purposeful, focused manner, visionary in its approach by collaborating with manufacturers to get a lot of the input produced locally,” he insisted, adding that there is need to employ a carrot-and-stick approach in the drive for local substitution. “If you rely on local raw materials, manufacturers will be compelled to contribute to a research fund for that body because we are going to benefit at the end of the day. If, however, you want to rely upon imported raw materials, tariff should be able to take care of that,” he said.

Indeed, the paints industry is heavily raw materials import-dependent. And for paints manufacturers, already weighed down by skyrocketing cost of production due to dearth of infrastructure, the prevailing high exchange rate is overkill. First, it means that paint makers who borrow to import raw materials will do so at higher interest rates. Secondly, with the naira devalued, paints manufacturers now pay more naira for each unit of goods they import.

While some of them now find it extremely difficult to finance their import bills, those who manage to do so contend with shrinking margins of profit. The toll is heavier on small scale paint manufacturers.

According to experts, paint is composed of the following raw materials: pigments, solvents, resins, and various additives. While pigments give the paint its characteristic colour, solvents make it easier to apply. Resins aids dispersion; and additives serve as everything from fillers to anti fungicidal agents. Hundreds of different pigments, both natural and synthetic, exist. The basic white pigment is titanium dioxide (TiO2), selected for its excellent concealing properties while black pigment is commonly made from carbon black.

Other pigments used to make paint include iron oxide and cadmium sulphide for reds, metallic salts for yellows and oranges, and iron – blue and chrome – yellows for blues and greens and even calcined kaolin, which the Chinese produce and export for the paint industry.

Most, if not all these raw materials, are imported with huge foreign exchange despite that some of the agents can be produced locally. This was why Omotosho insisted that developing local substitute for imports by reviving RMRDC in line with the local content initiative is necessary if Nigeria must realise her dream of becoming an industrialised nation. “After satisfying her local needs, Nigeria may even export to other countries,” he said, noting: “If we are compelled to rely on our own internal resources I can assure you that those who are importing will begin to see the need to develop local substitute for the imports.”

He said the government could encourage the drive for local substitution for raw materials through some sort of incentives since the government is mostly affected by the problem of import syndrome. “If we are producing the raw materials here, you know that people will be employed in those outfits manufacturing those raw materials. They will also be paying income tax and a lot of benefits will accrue to government,” he pointed out, adding that by doing so, Nigeria will stop creating employment for others, particularly in a country where the rate of graduate unemployment is very high.

Besides, the Chairman of DN Meyer said those who are selling to local manufacturers are not producing them here; they import and sell to us.

“Even when some of them say they have their own factory, they bring the raw materials and add some additives and sell to you. You can still do better than that because some of those basic things they are using to which they add some other agents can be produced here if we are dedicated and organised,” he stated.

However, raw materials import with its attendant foreign exchange burden is not the only factor responsible for the less than sterling performance of paints manufacturers. Other challenges facing the industry include dearth of infrastructure, especially stable electricity supply, poor road network, multiple taxation, and high import duties and tariff, among others. For instance, almost two years after the privatisation of the power sector, manufacturers are yet to see any appreciable improvement in electricity supply, forcing them to rely heavily on in-house power supply at huge cost. Yet, power constitutes the single critical infrastructure to rev the manufacturing sector and create jobs

These factors contribute to the high cost of production, which is said to be responsible for the high cost of goods produced locally compared to imported ones. The cheaper price of imported goods is blamed for the penchant of Nigerians to patronise imported goods to the detriment of locally produced goods. This is why many local industries, including paints manufacturers that could not stand the heat of the competition in the same market with imported goods are fast disappearing from the industrial landscape.