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Government Should Introduce Policy That Protects Local Production

Author: john on 3-02-2014, 08:22, views: 3 375

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Lagos — Tower Aluminium will soon be celebrating 60 years of serving Nigerian population with pots and pans, long-span roofing and aluminium extruded profiles used for doors and windows frames.

 

In the last few years, Tower has found it difficult to compete with imported Chinese aluminium coils, which are used for production of long-span roofing and aluminium profiles or extrusions normally used for production of doors and windows frames.

 

In this interview, the Group Managing Director of Tower Aluminum, Chief (Dr.) Jinesh Chandra Dugad, who had in February 2013 cried out to the federal government over the challenges threatening continued production at the nation's aluminum giant, iterates that the local aluminium production sector might just go the sorry way of the local textiles and tyre manufacturing production sectors if the federal government doesn't quickly formulate and sincerely implement the vital policies to save it.

 

Last year, you addressed a press conference lamenting the challenges facing the aluminum sector, especially the Tower Aluminum Company that is the only surviving aluminum coils manufacturing company in the country. One year after, has there been any policy change to ameliorate the problem?

 

While some serious work has been put in place by the Manufacturers Association of Nigeria (MAN) and the Minister of Industry, Trade & Investment, work which has recognised the need to protect the aluminium sector, there has been no firm action so far to protect the producers of aluminium coils and aluminium profiles against unfair competition mainly from China. Since last February when we met, there has not been any policy change. As we understood, the Common Economic Tariff (CET) of the Economic Community of West Africa States (ECOWAS) which was to expire in December 2013 was being reviewed and there could be revision of duty. It is already 2014 and the ECOWAS-CET duty structure has now been extended and will be revised in January 2015. 

 

MAN has taken up the matter with the government that we will continue to suffer if the tariff is deferred for another one year, that is till 2015, unless the government does something fast. MAN has given recommendations to the government on various sectors, including aluminum. I understand that government has looked into those recommendations and we are expecting something to happen concerning the tariff, which may come anytime.

 

Meantime, there is a lot more serious activity within the government in Abuja to accelerate agriculture and industrial activities to absorb thousands of Nigerians who need gainful and productive employment and are considering implementing tariff on certain core sectors.

 

As there has been no action so far, there has been the closure of the rolling mill at First Aluminium. I quote from the annual report of First Aluminium Ltd which was also established over 60 years ago at Port Harcourt:

 

"Notwithstanding the progress that had been made at improving asset utilisation and quality of own manufactured aluminium coils in the last two years, it became clear that the Mill could not compete with imported products and the decision was made to stop manufacturing, which led to the direct loss of 215 skilled jobs. For our supply chain, the position is worse as each manufacturing job is generally considered to support three others because we are major consumers of materials, spares, consumables and service. Wherever possible, we have endeavoured to source locally.

 

We have not given up hope that manufacturing is completely finished in Port Harcourt. The Mill has effectively been mothballed, meaning that if in the future the government creates an environment where local manufacturing is no longer disadvantaged, we can restart operations. We cannot foresee that happening in the near future which is why we have impaired the fixed assets, and written down inventory to estimated realisable value."

 

Similarly, another rolling mill owned by Qualitec, which was established to produce aluminium coils, has ceased production some time ago. Currently, a new rolling mill with substantial investment is under construction by Alo Aluminium Ltd., in Enugu. They have, however, we believe, slowed down the project implementation, awaiting action by the government to protect the aluminium sector against unfair competition from China.

 

The story is somewhat similar in the case of the aluminium extrusions or profile sector. There are five or six producers in the whole of West Africa and they are based in different parts of Nigeria like Dopemu, Otta, Abeokuta, Owerri, Abuja and Kaduna. Each of them could operate at higher outputs and even expand their production to serve the whole of West Africa if they are given adequate support in form of import duty on their products and zero per cent on the raw material used by them, namely, aluminium billets and ingots.

 

Nigeria has already witnessed impact of good protection, in case of cement, where the country is now not only self-sufficient, but the country is emerging as an important exporter of cement arising from the incentive offered by the government.

 

At Tower, we have continued to operate our rolling mill and aluminum extrusion or profile manufacturing, hoping that government's policy will protect the aluminium sector, as it has done in case of cement, steel rods and recently for automotive sector. We hope the government will not let us down and will act soon, or else as it happened in the cases of the textile sector and the rubber tyres (Dunlop & Michelin), the aluminium sector will not progress and, in fact, will continue to regress.

Today, the situation is still the same. As Nigeria imports the materials from China, it is exporting to China the jobs that should keep Nigerians in gainful employment. By importing those aluminium extrusions, colours and the rest, we are exporting jobs.

 

What should the government to do to ameliorate the problems in the sector?

 

Many things are expected of the government to help the industry to grow. Policy that is protective of local production, power and then infrastructure because, there is no level playing-ground between Nigeria and China on infrastructure and banking interests. There is need to effect a zero per cent import duty on unwrought aluminium and aluminium scrap; increase import duty on flat aluminium coil, strips, plates and sheets; increase import duty on aluminium circles and other shapes of sheets; and increase import duty on coated and pre-painted aluminium coils.

 

There should also be an increased import duty on aluminium bars, rods, profiles, extrusions, tubes and pipes and profiles; increased import duty on household articles of aluminium; single digit interest for industries; incentive on export of aluminium scrap, ingots, billets should be removed; export incentive system for aluminium coil, sheets, extrusion, profiles, household articles should be streamlined and paid within three months of receipt of the proceeds; road communication within ECOWAS should be improved, and there should be ease of Custom formalities in order to grow the exports within ECOWAS.

 

I believe the government has to review each production sector and challenge the manufacturers, as they did in the cement sector and as they want to do in the sugar sector, by allowing the serious producers to have special concession on blending their current production with imports for a specified period to achieve self-sufficiency. They should work more on bringing the production cost per unit down to be able to stand up to competition from imports in future.

The most important need of the day in Nigeria is to rapidly create more employment opportunities for thousands of people who are living in hope. This can be achieved by a systematic industrial and agricultural revolution within Nigeria.

 

In asking for different interest rate regimes for different sectors of the economy, what rate would you advocate for the manufacturing sector where you belong?

If Nigeria has to progress and use its human and untapped natural resource gainfully, the trading mentality whereby the country imports all finished goods and add little value at home and create only limited employment should be stopped. For this, the tariff regime and the fiscal policy must be used to ensure that the interest rate of current 20 per cent is brought down to a single digit. The current BoI's incentive has been a good step towards achieving this, but the total resource is not adequate. Better monitoring and ensuring that the commercial banks allocate larger resources to industrial and agricultural sector may be a way forward.

 

Where do we go from here?

 

At Tower, we believe that Nigeria has to protect not only the aluminum production sub-sector, but other sectors such as agriculture and industries, which can deploy the abundant manpower that are without work. Again, in protecting the aluminium industry in Nigeria, the government should ban exportation of scraps so that we will not be short of raw materials used in our local production. Exporters of those scraps do nothing significant. All they do is put the scraps on export, yet they get incentives. The government will be doing local manufacturers of aluminium a great favour if they can place an unconditional ban on the export of scraps since we don't make the products from iron ore presently.

 

If you are exporting a finished product, which has value added, then it has a meaning if such an export has incentives. But to export scraps which have no value added and then they get 20, 40 per cent incentives, it makes no meaning.

 

So, the aluminium sector in Nigeria needs to be given urgent attention by the government in the area of incentives and policy change because aluminium is vital in building. The more you encourage its manufacturing in a way that it is locally produced, the more the products will be able to compete perfectly with imported ones and housing will be cheap. Housing should be made cheap and affordable because of its necessity in human lives.

 

Also, there ought to be considerable rates for agriculture and industries, different from others. And funds should be made available. In the past, there was the allocation of the budget to banks with instruction to lend so much to the agricultural sector and so much to the industry. But now, so much is lent to the trade while they forget about the industry. That is what they do. So, industries must be given funds not only for short term; funds should be provided also for long-term.

 

Like China, one day, if the industrial revolution catches up with Nigeria, it would be an engine supplying its industrial products to not only the West African market but to all over the world. Nigeria has the necessary mineral and human resource and all it needs is to encourage the private sector by providing a better environment and support. Remember, China grew by protecting and encouraging its industrial entrepreneurs.

 

Part of the complaints in the manufacturing sector is that a huge portion of production cost goes into power generation. Now that the power sector has been privatised, what is the impact on your cost?

 

It is too early to see the impact of the recent privatisation as new owners have a lot of work to revitalise the distribution lines and also to start new power generation plants. These will take time to implement.

 

We believe it would take some years for industries to rely on power from the grid and wherever possible, they would continue to use natural gas and generate own power. Alternatively, there could be mini-power generation facilities like the ones established by our group in the Ota Industrial Estate and now in Abeokuta to supply our own group needs and reliable power supply to other industrial and larger consumers in the vicinity.

 

Could you estimate the percentage of your cost that goes into power generation?

 

Percentage of cost on power varies from one industry to another. But, like in our case, after raw material, power and gas is an important cost of conversion and is as high as 10 per cent to 15 per cent of the raw material input, to produce the aluminium coils and the profiles.

 

At Ota, you said that despite the challenges, you were neither willing to relocate to Ghana nor retrench your workforce. Do you maintain your position?

 

Despite everything, our group is a firm believer in the potential of the Nigerian economy with its 165 million strong, young and enterprising population and the natural resources. We believe that sooner rather than later, the government will introduce reasonable import duty on coils and extrusions.

 

We have tried our best to keep the skills wherever possible. While we are seeking better protection against unfair competition, we have to continue our programme of reduce production cost by recycling aluminium scarp available locally along with virgin metal purchased earlier on from Alscon.

 

We are now working to sort out logistics to bring unwrought aluminium or ingots produced in Cameroon. This way, the supply chain is shortened and with it, the cost of finance reduced. We are fortunate to have had the Bank of Industry's support at reasonable finance cost and some capital infusion from our shareholders to keep us going. This has helped us upgrade our production methods and expand capacity so that the cost is spread over a larger volume to become more competitive.

 

What level of employment have you been able to generate in the last one year?

 

We have concentrated on avoiding retrenchment on one side, and on the other hand, to increase efficiency. So we have created just under 100 new jobs at Tower. If, however, the necessary protection on imports of products manufactured by us is implemented, we believe we will have possibilities of creating at least another 1000 jobs within a spell of 18 months from the day protection is implemented. Like us, the other companies in the aluminium sector will also create another 3000 to 4000 jobs, which otherwise today are held in China or India.


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