Thursday, Nov 23, 2017

A Well Packaged 2017 Budget, Road to Recovery

MAN, IOPN, and NEPC tasks FMITI, FG on the Need for a National Policy on Packaging.:

  • MAN, IOPN, and NEPC tasks FMITI, FG on the Need for a National Policy on Packaging.
  • Government Policies Inimical to the Growth of the Packaging Industry.

By Ahmed Omah & Babatola Adeyemi

It is no longer news that the prevailing economic recession in Nigeria has led to an unprecedented high inflationary trend, with the prices of goods and services rising geometrically. The high exchange rate of the Naira, approximately N450 to a Dollar, remains a major economic challenge resisting ‘arrest’. Hence, manufacturers and importers are barely surviving, even as many business have expired. Indeed, the rich have joined the list of those crying, just as it is obvious that the poor are getting poorer, more stressed, more disgruntled and more hopeless.

Despite these realities however, many are still very hopeful that the 2017 Budget-tagged the “Budget of Recovery and Growth” would “alleviate the suffering of Nigerians”.  Interestingly, this optimism agrees with the assurance of Mrs. Kemi Adeosun, Nigeria’s Minister of Finance, that the budget would take the country out of economic recession this year.

 

Budget highlights and overview  

Figure: N7.298 Trillion

Title: Budget of Recovery and Growth

Main goal: To bring Nigeria out of recession

Assumptions

Oil price at $42.5 (Senate has increased it to $44.5) per barrel

Exchange rate at N305 to a Dollar

Daily Oil production – 2.2 million barrels.

Indeed, the budget proposed several initiatives targeted at the much-desired inclusive growth. Some of these would impact directly on the citizens, and some indirectly through allocations to the various sectors of the economy. Some of these include the following:

Establishment of Presidential Enabling Business Council chaired by the Vice President- with a mandate to make doing business in Nigeria easier and more attractive.

  • N50 Billion to expand Export Processing Zones, create new ones and a special economic zone
  • N15 Billion to recapitalize Bank of Industry (BOI) and Bank of Agriculture (BOA)
  • $1.3 Billion to start Development Bank of Nigeria

In his assessment of the budget, Mr. Frank Jacobs, President, Manufacturers Association of Nigeria (MAN), said: “Going by the 2017 Budget presentation by the President, MAN would want to believe that 2017 would be a better year for the industrial sector in Nigeria, all things being equal. The Budget addresses major issues that would help to improve the industrial sector, but perhaps, not enough to address all the challenges. Specifically, Jacobs lauded the budget for further encouraging the growth of non-oil export, its commitment to ensuring the ease of doing business in Nigeria and the President’s pledge to personally issue executive order to ensure speedy facilitation of Government procurement and approval, as well as compliance with the Fiscal Responsibility Act to support local content by government’s Ministries, Departments and Agencies (MDAs)

Also analyzing the budget, Mr. Muda Yusuf, Director General, Lagos Chamber of Commerce and Industry (LCCI), described it as a very good document on paper “as usual”, stressing that the challenge remains implementation.  According to him: “A Budget has two components: Appropriation, which we already have, and the policies that come from Budget pronouncement, which would determine the operating environment and the fate of operators, especially the Organized Private Sector. So, let’s see what the government will unfold in the weeks and months ahead and how the budget assumptions will be”.

To Mr. Jimi Ogbobine, Senior Analyst Research at Augusto &Co: “I am quite skeptical on the budget as a whole. The all-important foreign exchange issue was not addressed in this Budget.  How the manufacturing industry vis-a-vis the Packaging industry will fund its input of machinery and raw materials when we still have the foreign exchange issue…How many genuine manufacturers can bid at the interbank market for ₦315/US$? The parallel market sells at ₦490 naira to a dollar, with significant liquidity constraints. If you apply for a million dollar of which you only get about $100,000 in the official market, you must resort to the parallel market. This scenario is affecting investors’ confidence.”

The Budget and the Industrial Sector

The MAN President affirmed that the 2017 Budget was a boost to the industrial sector, though some challenges were yet to be addressed. Among other initiatives, Jacobs commended government’s focus on rapid development of infrastructure, especially Rail, Road and Power (N213.14 Billion). He also lauded the renewed commitment to patronage of made-in-Nigeria goods and promotion of manufacturing power houses in Aba, etc., towards making Nigeria a new manufacturing hub.

Corroborating Jacobs, Ogbobine stated: “I think it’s going to boost manufacturing capacity and production, especially domestic manufacturing capacity. Hence, it will impact positively on the Packaging industry because Packaging industry is part of the manufacturing industry”.

Assessment by Packaging Industry Operators

In his assessment of the Budget, Mr. Chidi Okoro, Managing Director, UAC Foods, stressed that the challenges of the Packaging industry, which is said to have a growth rate of 12 per cent per annum, are much more than a budget can address. He stated: “The truth of the matter is that, at the moment, the packaging industry is import dependent, and we lack the required technological advancement and capacity. We must invest in innovation to generate locally sourced Packaging materials. And, believe me, we should set a 10-year target to be where we ought to be. It is not rocket science!  We have the raw material largely from our petrochemical industry, but converting the raw material is an issue. The journey between processing of the raw material to getting the final Packaging materials is a long one. So, the question is: can the government engineer the private sector to achieve this goal? Is the government ready to do the needful?  But, we cannot heap the blame solely on the government, because the government has lots of responsibilities, and funding is not easy. Government does not own nor control the Dollar, nor do the operators. So, we must collectively address the challenges”.

Speaking on a similar note, Mr. Philippe Leporcher, Managing Director, Prime Africa Packaging Solutions Limited, lamented the import dependent nature of the country’s Packaging industry. According to him, there is no fulfillment in the business at all. He stressed: “We seemed not to be enjoying deserved attention. Every operator is on his own struggling to survive. Despite being import dependent, foreign exchange is a big problem. The Dollar is simply not available and even when you can get some Dollars to import, it sometimes takes six to eight weeks to open a letter of credit, which some foreign suppliers also query because of alleged difficulties in confirmation. There are so many issues, but let me just stop here”.

An anonymous industry operator said: “Please, go through the whole Budget and show me any portion of it that shows that this government understands the Packaging industry. Even our foreign exchange challenge was not addressed as you cannot get the Dollar at the official rate stipulated in the budget”.

Conclusion

All hands must be on the deck at ensuring that, beyond the facts and figures of the budget, the needful must be done at public and private sector levels for its successful implementation. Specifically, for instance, the Federal Ministry of Industry, Trade and Investment (FMITI) must demonstrate increased interest in the Packaging industry, and propose a bill to the National Assembly demanding a national policy on Packaging. The responsibility for appropriately positioning this subsector does not lie on FMITI alone. Sector operators, including Manufacturers Association of Nigeria, Institute of Packaging Nigeria and Nigeria Export Promotion Council must partner to have a carefully articulated agenda to drive the required growth of the Packaging subsector, with timelines, effective monitoring and feedbacks. This must necessitate a carefully selected committee to achieve this noble objective.

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