The chicken has come home to roost. The prevailing macro-economic indicators, particularly the plunge in oil prices, which ultimately put the value of the naira on a downward slide, have pushed up prices of basic raw materials for production. This has forced companies across the sectors to resort to laying off hundreds of workers to cut cost. Chikodi Okereocha, Okwy Iroegbu-Chikezie and Toba Agboola report that this has put the organised labour on the offensive, as various labour unions warm up for a showdown with government and private employees.
It is a crisis foretold. Since June last year when oil price started crashing, forcing sharp drops in accruals to foreign exchange reserves and, ultimately, devaluation of the naira, economic and finance experts had predicted the worse for the economy in 2015. What was probably not expected was that the crisis would hit the nation so early in the year and at the most vulnerable point: labour. Workers in the Food & Beverage sector are first hit by mass sack, as companies struggle to stay afloat in the face of skyrocketing cost of wheat, induced by the sliding value of the naira, which is inching to an all-time low of above N200 to the dollar.
For instance, over 100 Nigerians in the employ of Nigerian Bottling Company Plc (NBC), part of the Coca-Cola Hellenic Bottling company (CCHBC), have been slated for retrenchment by the beverage manufacturer. A highly placed source in NBC told The Nation that some staff members had already received their sack letters. The source, who did not want to be named, said the affected workers cut across all sections of the establishment. Other workers who constitute the company’s workforce of about 6, 000 are now losing sleep, as about 1, 800 workers of Coca-Cola worldwide have been lined up to join the labour market when the company finalises its restructuring.
The 1, 800 workers would be the largest to lose their jobs since 2000 when Coca-Cola laid off as many as 5, 200 workers. The company, which employs about 130,600 people around the world, including a group of about 13, 000 corporate employees who are primarily located in Atlanta, its headquarters, said employees had already been notified about the job cut, which as seen as a move to cut cost. The layoffs, it was learnt, have been on the drawing board, as the beverage manufacturer reported a 14 per cent fall in earnings for the July to September quarter last year and a dismal revenue growth.
Flour Mills Nigeria Plc workers are also jittery over possible loss of jobs, as no fewer than two million direct and indirect jobs in the sector are said to be on the line because of increase in the price of wheat and Value Added Tax (VAT).
Group Managing Director/ CEO Paul Gbededo raised the alarm that because of the current high price of wheat and the government’s plans to increase VAT from five per cent to 10 per cent, the jobs of over 125,000 direct employees and 1,800,000 indirect jobs in the sector were on the line.
Gbededo, who doubles as President, Association of Food, Beverage and Tobacco Employers (AFBTE), reckoned that the government does not wish to create jobs in the primary sector (agriculture) and lose the jobs that have been created in the secondary sector (manufacturing), adding that new investments in the food industry have boosted the economy.
He said the national food security and nutritional wellbeing of consumers could be negatively impacted if nothing is done to stem the tide. “The consequences of this are that prices of even basic processed food would likely go out of the reach of the common man and compromise his nutritional status,” he said.
He said food and beverage products, such as biscuits, confectioneries, water and carbonated drinks, which are basic food items, may not be within the reach of the masses. Food and beverages, according to him, are considered to be easy sources of immediate energy and are nutritiously enriched with quick source of vitamin for the teeming population and should be readily affordable.
He pointed out that the sector accounts for 40 per cent of the Nigeria’s manufacturing output of the estimated N3.5 trillion, contributing almost N40 billion in taxes and VAT annually.
Gbededo said though the manufacturing sector contributed a little less than five per cent to GDP, the food and beverage sub-sector accounts for about 40 per cent of that figure. He said market capitalisation of top 10 listed companies in the food industry comes to N2.8 trillion, while the major companies in the industry are the stabilising factors in the Nigerian Stock Exchange, even during the financial crisis.
However, things are not looking good for the sector. FMN’s performance has been less than sterling due to increases in the price of wheat at the international market. The food giant’s recent gross profit stood at N22.3 billion, representing 8.4 per cent down from the N24.4 billion.
This is a far cry from the N43.7 billion as at December 2013. According to the company’s reports, the significant contraction in gross margin was driven by the over 10 per cent rise in wheat prices through January, as well as the eight per cent devaluation of the naira.
Also, the company’s Profit Before Tax (PBT) decreased from N8.4 billion to N3.7 billion, representing a decrease of 55.7 per cent.
This is despite paying lower tax of N0.4billion compared to N2.4 billion paid in 2013. Its Profit After Tax (PAT) of N3.3 billion represented a 44.5 per cent decrease from N9 billion in 2013. All these, according to the report, is as a result of high cost of wheat.
The oil sector is no exception. The Nation learnt that since mid year 2014 when the crisis started, the blood pressure of workers in the Nigerian oil & gas industry has been on the rise for fear of possible retrenchment. Such fears are not without justification particularly in view of earlier warning by the Director, Advisory, Oil and Gas, PriceWater House Limited. Mr. Ritch Wingo that oil companies may lay off workers due to the drop in oil price in the global market.
Wingo, who spoke on the sidelines at the recent Offshore West Africa Conference in Lagos, said falling oil price has adversely affected the sector. “Right now, a lot of companies are trying to lay off workers due to falling oil price. It is going to be pretty rough in a couple of months to come. The best thing to do now is to go back to the banks to talk to them on how to restructure our finances so that people will not default. If oil price continues to fall, investors are not going to invest again,” he said.
Winco was right. The situation has already forced American multinational oil service firm Schlumberger Limited to line up approximately 9, 000 workers from its global operations for sack due to lower oil prices and the expected cutbacks in exploration and production spending this year.
The company expects to record a $296 million charge associated with the layoffs, according to the firm’s fourth quarter 2014 earnings report. “In this uncertain environment, we continue to focus on what we can control,” Schlumberger said.
While global oil demand continues to rise, available supply is significantly higher, depressing oil prices and prompting exploration and production companies to cut spending. The company has already taken a number of steps to restructure and resize the company, leading to a record number of charges in the fourth quarter. “We are convinced that performance must now be driven by an accelerated change in the way we work through our transformation program,” the company said.
This program includes the delivery of new technology that improves the performance of customers’ reservoirs; increases in efficiency and reliability that reduce overall finding, development and production costs; and opportunities to grow from more integration – all are significant drivers of our own and customers’ performance. A recent survey also found that oil and gas managers are planning to scale back their hiring plans this year due to declining oil prices and an uncertain economic environment.
Labour saw it coming and possible confrontation is imminent . The on-going sack did not come as a surprise to labour, operators and stakeholders across the sectors.
The Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), is among groups that first raised the alarm, warning however, that it would not tolerate indiscriminate sack of its members under the guise of falling oil prices in the international market. Its President, Comrade Olabode Johnson said the union would jealously guard the rights of workers in the sector in the face of the current realities.
The association earlier raised the alarm that companies, especially petroleum companies, plan to retrench staff. PENGASSAN through its Media Officer, Babatunde Oke, said that non-core employees of oil firms in the country may be asked to quit their jobs, if the fall in oil prices persists. “The effect might be severe if it continues because some employers are already complaining that they may need to shed weight, if the situation persists. Of course, it will affect contract staff, if the slump persists,” he said.
The National Union of Beverage and Tobacco Employee (NUFBTE) is also kicking. NUFBTE said plans by food and beverage manufacturing companies to reduce their workforce because of high of cost wheat, a major raw material, is in bad taste. The Union warned the companies to desist or face their wrought.
NUFBTE President Comrade Lateef Oyelekan said it is not fair for companies to lay off their workers because of high exchange rate. He argued that the situation is not peculiar to the food & beverage sector alone but affects all the sectors of the economy
“It’s true that price of wheat, which is the major raw material, has gone up, but it is very wrong for the manufacturing companies to use this as justification to lay off their workers. The issue of high interest rate affects the whole economy,” he said, urging the companies to be patient.
“Let them finish the national election first before taking such decision. We believe that everything will come back to normal. So, they should be patient.” Comrade Oyelekan also noted that unemployment is a scourge that must be tackled by all, adding that employers ought to be supporting government, as labour issue should be treated as a matter that affects all.
The Trade Union Congress (TUC) may have also been warming up for a showdown. It’s President-General, Bobboi Kaigama, said the TUC would resist any attempt to retrench workers. “TUC would resist any attempt to retrench workers; all the definitions of resistance put together would be done, including protests and strikes.
“Let’s fight corruption, let’s fight oil theft, let’s improve our Internally Generated Revenue, (IGR), let’s be prudent in our expenditure, develop our infrastructure and tourism potential; those are the things that would give us money, not sacking workers,” he said.
TUC is not alone in the threat of confrontation. While directing its threat to the government over any possible sack of workers in the public sector, the Association of Senior Civil Servants of Nigeria (ASCSN), warned of dire consequences if the Federal Government decides to retrench workers under the guise of austerity measures announced last year. ASCSN’s National President, Comrade Bobboi Bala Kaigama, made the declaration at a recent interactive session with newsmen in Lagos on the dangers of planned sack of workers as a result of austerity measures
“Any attempt by the Government to sack workers or reduce their salaries in the name of austerity measures will amount to a declaration of war on Nigerian workers and would be resisted by the Labour movement,” he stated. He added that the association’s warning is clear because when the economy boomed, the political office holders were freeloading as if there was no tomorrow while most Nigerian workers lived below $2 per day. “While workers called for better pay package in the past, they were rebuffed by the ruling elites, especially those in government, the helpless workers roasted as if they were not stakeholders in the system,” he lamented.
Noting that the meagre N18,000 monthly minimum wage approved in 2011 by the Federal Government has not been fully implemented by some state governments, he said it will be the height of insensitivity for any government to contemplate sacking civil servants or reducing their pay in the name of austerity measures.
“Our Union advised the Federal Government to reduce the whopping pay packets and mouth-watering allowances of political office holders and check other leakages that encourage corruption in the system, but the wise counsel fell on deaf ears,” he recalled.
The Nigeria Labour Congress (NLC) is also threatening fire and brimstone should workers be sacked. NLC out-going President, Comrade Abdulwaheed Omar, warned the Federal Government to take sustainable, viable and proactive steps to address the consequences of the falling crude oil prices instead of punitive measures against ordinary Nigerians especially workers. He advised against consideration for rationalisation of staff, adding that labour will support government initiatives to tax the rich through luxury taxes.
However, such warnings appear not to have hit the right chord.
Although the mass sack for now affects workers in the private sector, the fear is that it’s only a matter of time before it gets to the public sector. Already, some state governments hit by dwindling allocation from the federation account are said to be owing their workers several arrears of salaries and are therefore, contemplating reducing their workforce. Reliable sources informed that some of the affected state governments are only holding back because of the general elections. The state governments are said to be treading carefully to avoid a backlash, as any sack might make them incur election loses.
What this means is that the labour movement might be reviewing their strategies for a possible confrontation starting from the private sector.
Operators react
Managing Director, Spectra Foods Limited, Mr. Duro Kuteyi, makers of Suco brand of cocoa drinks and food products, confirmed that some companies are laying off their staff. As he explained, companies are set up to make profit and when the purpose is not realised, promoters of such businesses take decisions that will enable them continuously stay in business.
Mr. Kuteyi predicted that with the daily slide of the value of the naira more companies will shed weight especially those whose primary raw material is wheat and other related inputs. He said that although, his company has not yet sacked any worker, he assured that there is no immediate reason to do so as most of its raw materials are sourced locally. He said he uses maize in place of wheat and believes the will weather the storm until the economy stabilise.
Kuteyi however disclosed that high cost of wheat is not the only factor forcing companies in the sector to downsize. He said, for instance, that the stock market has become bearish as investors are taking their monies out of the country. Besides, election expenses by politicians have spiralled out of control with far-reaching implications on the economy, especially on inflation.
While noting that news of the mass sack of workers is still speculative, the Director-General, Nigeria Employers’ Consultative Association (NECA), Mr. Segun Oshinowo said it is not impossible. He explained that if high exchange rate leads to high cost of raw materials such that manufacturers can no longer meet up with their capacity utilization, then it will lead to layoff of workers. He said this is because it will reduce the companies’ cash inflows.
“If the cost of production of these companies increase, the companies will have no choice than to reduce their staff,” he said, pointing out however, that this will be too bad for the economy.
Indeed, because of the profound nature of the revenue shocks arising from the slump in oil price, many companies are taking measures to mitigate the effects on their businesses. They are therefore, reviewing and focussing on key areas such as spending priorities and deepening revenue profile. The situation is made worse by the sliding value of the naira against other major foreign currencies especially the dollar.
Unbridled raw materials import is the issue, the President, Lagos Chamber of Commerce and industry (LCCI), Alhaji Remi Bello, said, confirming that some companies are down-sizing their operations and laying off their staff to stay afloat. He was however, quick to observe that the crisis is more prevalent with companies that are mainly in the food and beverage sector because of the high level of wheat importation.
Going by his analysis, it means the failure to reverse the current trend where as much as 80 to 90 per cent of raw materials used by local industries are sourced abroad despite the abundance of raw materials locally, have started to manifest.
The situation, described as the ‘import syndrome’ where manufacturers rely heavily on imports rather than source their raw materials locally, is said to have created a hollow in the purse of the Federal Government to as much as N1 trillion annually. Renowned Economist and Finance Analyst, Dr. Alaba Olusemore, explained how the import syndrome has contributed in triggering the current sack gale across the sectors.
According to him, most manufacturers depend on foreign inputs, and with exchange rate now going up the roof, cost of inputs will go up.
Olusemore, who is also Managing Consultant, Nesbet Consulting, a Lagos-based firm of management and finance consultancy, said the challenge to manufacturers is two-fold: “First, when they borrow to import raw materials, it will be at higher interest rates. Secondly, with the naira devalued, they will have to pay more naira for each unit of goods they import,” he said. While emphasising that many manufacturers may not be able to finance their imports, he said those who will, are likely going to have shrinking margins of profit, and that Small and Medium Enterprises (SMEs) will suffer more.
Olusemore added that high cost will obviously lead to high prices of consumer goods, and depending on the price elasticity of demand for each manufacturer’s products, aggregate demand may shrink in the short run, as there could be consumer resistance. Those likely to be affected the most are consumers on fixed income, who will be left with lower disposable income thus, becoming poorer in relative terms. Companies that cannot stand the heat would be left with no option than to throw some of their workers into the labour market.
Indeed, not a few manufacturers have been agonising over the persistent high cost of production arising from the prevailing high cost of imported raw materials due to the high exchange rate. The skyrocketing cost of production 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 at the detriment of locally produced goods.
This is why many local industries that could not cope with the competition in the same market with imported goods are either fast disappearing from the industrial landscape or adopting cost-cutting measures including sacking their workers.
The belief is that all the basic raw materials to feed the industries are available locally, but are not available in sufficient quantities and quality. According to manufacturers, most of the available local raw materials are in unusable form, requiring value addition before they can be used by industries. The value addition is done mostly by small and medium scale enterprises (SMEs) because they take the materials from the unusable form to the next intermediate stage. It is the intermediate raw material that industries require.
However, because of the low capacity of the SMEs to add value to available local raw materials, coupled with lack of access to capital to set up processing facilities, process technology and techniques, and spare parts, among others, they have not been able to fill the gap. Other challenges impeding the effective utilisation of local raw materials, include multiple taxation by various levels of government, poor infrastructure, unbridled importation, labour cost, fiscal policies, non-sustainability of policies, high cost of funds, technical infrastructure, and gaps in diffusion of technology.
Unemployment may worsen Despite being Africa’s largest economy, Nigeria, Africa’s most populous country, has 24 per cent unemployment rate, with youth unemployment estimated at over 54 per cent. The figure could be higher considering the pausity of reliable data in the country. Some experts argue that given Nigeria’s penchant for poor record keeping, the figure could be as high as 37.7 per cent.
For instance, an estimated one million graduates are churned out annually by no fewer than 300 universities, polytechnics and colleges of education in Nigeria. Although, some people have expressed fears that the country’s economy is not robust enough to absorb even 20 per cent of the products of the institutions, the current economic crisis added a scary dimension to the problem.
With companies, in a bid to cut cost, now downsizing their workforce thus sending thousands of their employees back to the labour market, the consequences is unimaginable. Rising unemployment is largely responsible for the spate of kidnapping, advance fee fraud, otherwise called 419, armed robbery, prostitution, cultism, drug and child trafficking, among other social vices, which have become daily occurrences.
Today, many Nigerians particularly those in the North East region hardly sleep with two eyes closed since the upsurge in violent campaigns by terrorist groups Boko Haram added a new and scary dimension to these social ills. Many Nigerian youths, for lack of paid employments, have become ready recruits into terrorist organisations, a development that confirms fears that the country is indeed, seating on a keg of gunpowder.
The increasing rate of unemployment in the country is seen by experts as confirmation that Nigeria’s widely reported rapid economic growth has evidently failed to translate into job creation.
LCCI recently raised the alarm that worsening unemployment in the country, especially among youths, put at 54 per cent, poses great dangers to the economic, social and political stability of the country. According to Bello, there is a correlation among unemployment, poverty and insecurity. The Chamber, therefore, called for the adoption of appropriate policies to fix the unemployment problem, especially through the creation of an enabling environment for the private sector, especially the small and scale medium enterprises (SMEs) to retain jobs and create new ones.
The Council expressed concern that the productivity and competitiveness of enterprises in the economy have been trending downwards, thus affecting the capacity to create jobs.
Failed assurances No one envy Minister of Finance/Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala. Since June last year when the crisis started, she has been in the eye of the storm. It couldn’t have been otherwise.
The Minister, despite overwhelming negative macro-economic indicators that the economy was in for unprecedented turbulence, assured Nigerians that there was no cause for alarm.
The Minister said, for instance, that government had put in place strategies to deal with the situation, part of which was the development of scenario-based approaches to cushion the unfavourable effects of falling oil prices. Such approaches, the Minister added, was comprehensive and supported by extensive consultations with global analysts such as the International Monetary Fund. Besides, she said short to medium term strategies mainly targeted at the poor and vulnerable had been developed.
But it is doubtful if any Nigerian was swayed by Okonjo-Iweala’s assurances.
Backward integration might do the magic The consensus of experts is that if the National Industrial Revolution Plan (NIPR) is to make the anticipated impact on manufacturing, deepening the utilisation of local raw materials must be accorded high priority.
“For us at Raw Material Research and Development Council (RMRDC), we are committed to addressing the lingering issue of capital flight experienced in the country through import of raw materials by Nigerian manufacturers as against the patronage of local materials,” says RMRDC Director-General, Mr. Ibrahim Hussain Doko.
Doko, who spoke on the sideline of a stakeholders meeting to announce the 2nd edition of the Nigerian Raw Materials Exposition (NIRAM Expo), which held in October last year, stressed the need to promote efficient synergy among stakeholders for the purpose of ensuring sustainable sourcing of raw material value chain. He frowned at the exportation of raw materials, which is imported back as finished products with the addition of certain additives at great cost. Doko identified the need for stakeholders to encourage the local supply of raw materials to halt the billions of naira spent on raw material importation when it can be sourced locally.
For Director General, Nigeria Association of Chamber of Commerce, Industry, Mines & Agriculture (NACCIMA), Mr. John Esemede, there is no reason why the current import dependent raw materials economy should persist when Nigeria parades over 100 universities and 80 departments of agriculture, as well as 20 research institutes.
His counterpart at Manufacturers Association of Nigeria (MAN), Mr. Remi Ogunmefun, agrees with him. He called on the agency to work hard to encourage local substitutes for the manufacturing sector to conserve the nation’s foreign exchange reserves.
To mitigate the crisis The LCCI while acknowledging the various initiatives of the government, such as the Youth Enterprise for Innovation (YouWin) programme to create jobs, said it believes that given the magnitude of the problem, a more fundamental and sustainable strategy is necessary.
It proposed, among other policy options, support for SMEs to retain existing jobs and create new ones.
Critical areas of support include funding and capacity building; the government should accord higher priority to investments in infrastructure to reduce the high infrastructure deficit and moderate the cost of doing business in the economy. The Council noted that quality infrastructure would improve private sector productivity and competiveness, which in turn, will boost the capacity to create new jobs. “Council also called for a concentrated and sustained effort to increase the foreign reserves to enable a downward review of the tight monetary policy to boost credit availability and reduce interest rates, Bello said.
While affirming that the stimulation of economic growth is more paramount now to create jobs, LCCI proposed that the educational curriculum in the nation’s tertiary institutions should align with contemporary demands of enterprises in the economy. “There should be a good fit between the curriculum and industry requirements. Council stressed the need to promote sectoral linkages to create the desired multiplier that would translate to the creation of more jobs. There should be stronger linkages between the agricultural sector and the industrial sector. Policies of backward integration in all sectors should be accelerated,” Bello said.
Can the present administration fashion out urgent, more pro-active, comprehensive and honest approach to halt the on-going mass sack of workers? That is the big question, What is clear however, is that failure to do so would not only worsen the rising unemployment scourge, but also confirm fears that it is only a matter of time before Nigeria erupts into a serious crisis.
