‘We are contributing to Nigeria’s economic development’
In this interview, Director of Operations, British American Tobacco (BAT) West Africa Area, Charles Kyalo, stated that the ease of doing business in Nigeria only needs to be improved, as the resources needed are already available.
How would you assess the manufacturing sector in the first three quarters of 2017, bearing in mind some of the forecasts and analyses made at the beginning of the year?
Manufacturing in Nigeria has been generally very challenging, particularly in the last four quarters since 2016 and 2017. This has been mainly due to factors which are external to the business; key among them is access to Forex to procure inputs. However, the situation is getting better and we have seen some improvement in Forex stability in the last couple of months. As a key FMCG manufacturer, we have witnessed big challenges at the ports. Apapa and Tincan are the main port terminals in Lagos. We’ve had port congestion since May 2017. The situation has affected both imports and exports, which take considerable time to exit the ports. In the past, we could conduct our business in four days but now it takes 20 to 30 days. This is coupled with the increase in the cost of truck rentals and diesel. Of course, the cost of generating electricity is still extremely high by global standards. Therefore, I will say that the manufacturing environment is very tough. It’s a very challenging environment.
Considering the huge infrastructure gap in the country, how challenging has it been sourcing power, and providing security, among many others that are taken for granted by businesses in other countries? How have you bridged this gap?
If you choose to operate in Nigeria, like we did, there are certain challenges you should prepare for. One of them, and of course the biggest, is power supply, particularly electricity supply to power your plant. In comparison to BAT companies in other countries, the power cost in Nigeria is massive. We spend five times more to power the plants in Nigeria than in other countries in which we operate, so it is very expensive. It is one of our biggest cost elements in manufacturing and makes it difficult to compete with other factories because we are already starting at a very high cost base. The cost of providing security especially escorts for export products going to the various boarders or to the port is also high. It’s made worse by the poor roads leading to numerous truck breakdowns that make the journeys longer than necessary.
What hope does the present initiative by the Federal Government on ‘ease of doing business’ offer for the local industries in view of the highlighted challenges?
I applaud the government’s endeavours to make it easier for investors to operate in this country. The next step would be to fast-track the execution of the initiatives. For example, it is commendable that government wants to fix the Apapa road, but if it takes a significant amount of time to implement many businesses will have challenges keeping their businesses running by the time it is completed. Government can provide alternative means, while the roads to the ports are being fixed. It is very tough but I am optimistic that things will change.
How has BATN been able to tap into the immense investment opportunities Nigeria offers, considering the size of its economy and GDP in West Africa?
You cannot talk about Africa without mentioning Nigeria. Nigeria is impossible to ignore. The projections, based on current trends, are that by 2050 Nigeria will be bigger than the United States, in terms of population size. So, the potential of doing business in Nigeria only needs to be improved as the resources needed for trade are available. The key challenge is to fix the issues around infrastructure, and significantly improve the ease of doing business. Of course, BATN has chosen, despite all the challenges, to remain in Nigeria and use it as our base for West Africa. We supply all the countries in West Africa from our plant in Ibadan. We are going to continue with that and reposition ourselves while the economy is picking up as we want to be part of the solution.
It is widely believed that the manufacturing capability of Nigeria is under exploited. Do you think that the nation has adequately taken advantage of its manufacturing sector in view of its massive population?
There are always opportunities for Nigeria to do much more in terms of manufacturing because of the abundance of skilled labour, raw material availability and access to a large market in West Africa. The big challenge that needs to be addressed is power supply because you will never be able to compete with anyone globally if you do not have power and consumers out there have an option to buy a made-in-Nigeria product or foreign products. So, if the other manufacturers already have the head-start on lower cost base, you will not be able to compete because your product will always be more expensive than those of the other suppliers. Investors need to be supported to set-up plants and train the people, so that they can acquire the skills and improve their efficiencies. Incentives need to be availed for manufacturers to export out of Nigeria profitably. Once this is achieved, you can then talk about competing with the rest of the continent or the world.
Many companies in the country today are adopting the vertical integration model as a way of cutting down the huge cost of raw materials. How important has the vertical integration of your operations been to the success of your company in Nigeria?
Indeed, we are vertically integrated. BATN is involved across the entire value-chain from tobacco leaf growing, cigarette manufacture, sales and distribution. We have many stakeholders within the tobacco value-chain. In Nigeria, we have contracted tobacco leaf farmers who partner with us in leaf growing. We have our factory in Zaria where we process the tobacco leaves before manufacturing it into the final product in our Ibadan factory. The farmers are our key partners. Additionally, we partner with logistics providers, warehousing, distributors, wholesalers and many other companies, among others. No doubt, BATN’s impact is felt on very many facets of the economy.
Have the BATN tobacco farmers been able to meet the raw material quota required to fulfill your needs? What has the experience been like in dealing with the supply chain?
The farmers have been supporting our business for many years. They are one of the key partners whom we really value. I will say whenever we agree on targets, they’ve always met it and kept their side of the bargain. The key thing for us is now to find ways to improve the quality and volume of the crop in terms of improving agronomy practices. However, climate change remains a constant threat. Recently, we’ve experienced drought spells and hailstorms. These can result in damaged crops and reduced yields. We initiated crop insurance to ensure that even when the inevitable happens, the farmers can recoup their investments.
The nation just got out of recession recently, which lasted for more than a year and constricted many businesses. How did the company weather the storm?
The recession affected everybody in Nigeria. There is no company that did not feel the effect. It was one of the most painful experiences for Nigerians; we all went through that. For business, we had to tighten our belts. Input costs went up by over 60% driven by Forex, and we needed to find ways to keep the business afloat. Thankfully, government reacted and took the right measures to get the country out of the recession. The economy is back on the growth trajectory. We just hope that those plans will continue to work seamlessly to engineer growth.
From surveys conducted on products, you are the leaders in the various categories across the West African sub region. What are some of the critical lessons that you have learnt in your work across the region and how can regional integration among ECOWAS member countries help boost trade?
West Africa has a lot of potential, compared to other parts of Africa. There are still big opportunities for the countries to trade with each other. There is little volume of trade between the West African countries, which can be expanded. But most importantly, non-tariff barriers between the countries can be addressed to enable seamless movement of goods and people. Governments have done a lot but there are still areas where protectionism still exists. Any existing fears for competition within the trade blocs need to be addressed, to facilitate business.
In terms of logistics and transportation, there is a big scope for growth, especially among the shipping lines, because you do not get a lot of vessels sailing from one West African country to another, especially the ones moving big cargo. This needs to be addressed, because we can’t grow the economy if we can’t move people and goods from one country to another efficiently. Currently, to move a container from one West African country to another you may need to do trans-shipment in Spain. This is mainly due to the low volume of trade between the countries hence major shipping lines don’t find it profitable to do the short routes. This makes it very difficult doing business in West Africa due to unreliable logistics network and long lead-times.
Do you see the proposed common currency among ECOWAS countries helping to foster trade and commerce and remove barriers to it in the sub-region?
Currency is just one of the measures that can remove such barriers. Interestingly, within the West African bloc there are some countries that already have a common currency. It is not a complete solution because it comes with other expectations of how to manage devaluation or inflation in those countries. There are many other structures which need to be in place to make it easier to move goods and services across the region.
How will you describe your experience working in Nigeria?
I have been in Nigeria now for almost three years. It is a very exciting country with very warm people. It is a place where you find interesting challenges. If you are the type that likes challenges and desires to provide innovative solutions, this is a fertile ground for you to live it out. What works everywhere else might not work in Nigeria. So, you may have to think out of the box to find solutions. If you can manage West Africa, there are very few places where you cannot succeed.
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