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Local Is Sweeter

Local Is Sweeter

The Nigerian government’s ban on the importation of packaged sugar into the country, which took effect from 1st January 2013, is in line with its determination to protect local industries and to stimulate economic growth, writes Frederick Mordi.

One of the ways a country can legally protect its industries against unbridled imports is by imposing high tariffs on imported goods, and when that fails to work, an outright ban  can be considered as a last resort.
The government of Nigeria took the latter step when it announced a ban on importation of packaged sugar and raw or brown sugar into the country, effective 1st January.

Nigeria’s trade and investment minister, Olusegun Aganga, said the policy was in line with its new Industrial Revolution Plan, aimed, among other objectives, at fast tracking economic development of the country as it seeks to join the league of top 20 largest economies of the world by the year 2020.

This target appears to be on course as Nigeria is currently listed among the Next Eleven (N-11) countries and is gradually inching closer to joining BRICS (Brazil, Russia, India, China and South Africa) nations.
Aganga said objectives of the new sugar policy  include achieving self-sufficiency in local production, creating job opportunities, facilitating ethanol production and electricity generation.
 
The policy is expected to save the country an estimated $500m  foreign exchange yearly on sugar imports. In sub-Saharan Africa, Nigeria is the largest consumer of sugar, used in diverse industries, particularly confectionery, food and beverage and pharmaceuticals. The ban is intended to raise domestic output substantially over the next few years.  
The ban on cement importation into the country from last year, is regarded as successful as it has led to the full implementation of the backward integration policy in the cement industry. The government now hopes to replicate this in the sugar sector as well.

It has also given notice to importers of rice and wheat of its intention to ban the importation of two commodities from 2015 and 2016, respectively.
Aganga made the state’s intentions clear when he said: “Sugar is set to follow the cement example where Nigeria has achieved self-sufficiency and is set to start exporting soon.”

The Minister, a former Golman Sachs MD, explained that the policy now makes it compulsory for importers to either own their own sugar farms in the country or collaborate with local farmers under the out growers’ scheme, as a precondition for being granted licences to import brown sugar for refining. He also said the government would provide incentives to encourage investors.

Justifying the decision, he said the sugar industry enjoys protection in other countries, citing Kenya and Sudan. Aganga, who described a situation where 98% of brown sugar, which is refined into white sugar, is imported into Nigeria from Brazil, added: “All these are going to change, as only investors who are committed to backward integration in the sugar sector will be given a licence to import certain quotas into the country in order to augment local production.”

Most of the sugar imported into Nigeria comes from Brazil, reputed to be the world’s largest producer of the commodity. Brazilian sugar seems to be preferred by Nigerian importers because it is relatively cheap and has a perceived high quality.              
The minister, who added that the ban was a further expression of the government’s commitment to raising the contribution of the manufacturing sector to the economy, said the country is fast becoming an attractive investment destination to discerning investors. For instance, the US-Exim Bank had released a $1.5bn fund for Americans interested in investing in Nigeria’s power sector.

Aganga further said his ministry plans to launch an Investment Monitoring and Tracking Tool to track foreign direct investment inflows (FDI) into Nigeria. He expressed confidence that this tool will help the government in planning and policy implementation. He said: “In all, investments worth $8.9bn were attracted into Nigeria in 2011, showing that FDI inflow into Nigeria surpassed the global and regional average by, at least, 20% during the year.
“To attract investments into the country, you must have the right structure in place, and that is why we now have Trade and Investment desks in our embassies, and the Ministry of Foreign Affairs is fully involved.”  

Strategic road map
The Nigeria Sugar Master Plan (NSMP), the government’s strategic road map for the development of the sugar sector, contains fiscal and investment-specific incentives that are designed to attract new investors with a view to increasing output and reducing the nation’s over-dependence on imports.
As part of efforts to carry along all critical stakeholders in the sugar industry, the trade and investment ministry, in collaboration with the NSDC, organised a stakeholder’s forum to brief them on the implementation of the new policy.

The major sugar companies in Nigeria include Dangote Sugar Refinery Plc (DSR), reportedly the largest in sub-Saharan Africa and the second largest in the world; Savannah Sugar Company Limited (recently acquired by Dangote Industries Limited, DSR’s parent company); Josepdam Sugar Company and BUA Sugar Refinery. In addition, there are other small-scale sugar producers.
These companies will expect to reap the benefits of the new policy. Dangote Industries, for example, has already embarked on an expansion programme that also includes exporting sugar to Senegal, where it has a cement plant. Dangote Sugar Refinery and BUA Sugar Refinery, currently the two major investors in the sugar industry in Nigeria, import brown sugar for local refining into white sugar that is sold to both industrial and household customers. They have already committed a lot of resources in backward integration. Analysts have hailed the new sugar policy, describing it as a step in the right direction. They said a situation where Nigeria spends billions of dollars annually on the importation of rice, sugar, and wheat, is not healthy for the economy. They have therefore endorsed the government’s ongoing efforts to rejuvenate the agricultural sector.

Effects of previous bans
This is not the first time that the government has announced a ban on the importation of a commodity. In 2004, the Olusegun Obasanjo administration banned the importation of some 71 items including toothpicks, bottled water and fruit juice in a bid to stimulate growth of local industries rendered largely uncompetitive by dumping of often substandard and cheap goods.
   
One of the sectors that benefited greatly from the exercise is the food and beverage industry, which has witnessed a phenomenal growth in the number of local brands since then. One of the key beneficiaries, the Nigerian Bottling Company Plc (NBC) that used to import the Five Alive brand of fruit juice, began local production as a result of the ban. This has not only created jobs for many Nigerians but has also saved foreign exchange.
Dansa Foods Limited, manufacturers of the Dansa range of fruit juices, yoghurt and bottled water, is another example of a company that has not regretted its decision to venture into the business in 2006. Several others that have embarked on local manufacture of fruit juice and bottled water in particular, have also had cause  to be pleased as business has been good.
A local company that used to import biscuits from Malaysia, has also established a multi-billion-naira facility in Nigeria with a loan secured from a local bank.

According to current estimates, the food and beverage sector has the highest capacity utilisation of about 80%. This has demonstrated that given a level playing field, local entrepreneurs have the capacity to match their foreign counterparts. It appears the government intends to prove this with its new import prohibition policy on sugar.
However, some analysts are sceptical about the sustainability of the ban on sugar given the government’s penchant for reversing its policies in the middle of the game. For instance, they recall that Jonathan himself lifted the ban on some products in November 2011 when it became apparent that some items on the import prohibition list were being smuggled into the country across the porous borders.

In easing the ban, the President had said: “The result today is that our economy is worse for it, even as we are losing billions each month on duties that ought to have accrued to government. The objective of the ban (to stimulate local production) is not being met. We are thus losing vital income that could have been directed into critical sectors, such as education, health and critical infrastructure.”
Based on this, some observers fear the new sugar policy may well go the way of previous policies that have suffered a somersault. But going by the assurances of Aganga and the current revolution in the agricultural sector, it appears the government is determined to make the sugar ban policy work this time.

ICT to ‘revolutionise’ farming
As President Goodluck Jonathan reiterated in his New Year message, agriculture is one of the main areas to receive greater attention in 2013. The government plans to deploy advanced ICT towards this end.
The Minister of Agriculture and Rural Development, Adewunmi Adesina, said: “The government intends to distribute 10m phones, so we can reach millions of farmers with the Growth Enhancement Support (GES) scheme for subsidised inputs. We expect to reach at least 5m farmers in 2013 with GES for access to subsidised inputs. Farmers who get mobile phones will be registered and we will use their biometric information to reach them with electronic vouchers for seeds and fertilisers.”
Noting the power of a mobile phone, he said the proposed scheme would revolutionise farming in Nigeria, the first African country to develop such a system. “Our goal is to empower every farmer. We will reach them in their local languages and use mobile phones to trigger an information revolution which will drive an agricultural revolution.”

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Written by African Business Magazine

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