The government is emphasising diversification of the economy from oil; how is Flour Mills contributing to that vision?
We have always played in the non-oil sector. In addition to that, Flour Mill has grown to become not just a quick milling company; we have also diversified into supporting the food business by leaving the upstream of wheat milling and going into downstream of wheat milling, producing pasta noodles and snacks. We have also diversified into agro -allied business by developing the crop value chain. We have a farm that produces corn that we can convert into animal feed. We have followed this strategy on Nigerian crops where we have comparative advantage such as sugarcane, rice, soybeans, oil palm and cassava in about six states of the federation.
How have you repositioned Flour Mills in the modern market?
We have been employing a lot of marketing strategies to get people to know what we are doing. We have also injected fresh blood into the organisation and they are coming in with fresh ideas and helping to recreate the brand and give it a fresh flavour.
How did the oil slump and naira devaluation affect your operations last year?
All companies in the country will give the same answer. It came with a bang. And the foreign exchange losses were very high for many companies. We run our business with a cocktail of funding: local and foreign currency funding. Once there was devaluation, we discovered we needed more naira to back up the loan we secured in dollars. That scenario hit us very negatively. When the devaluation happened, companies were not able to price their products appropriately so as to allow the consumers to pay back the devaluation. This means that the prices were not moving up in the markets despite the devaluation of the naira. People could not pay higher price because of their low purchasing power. The company’s margin was wiped off as a result. With 100 per cent devaluation, instead of increasing prices, the opposite was happening with companies decreasing prices of products. The situation put most companies in jeopardy.
How did the insecurity in the North affect your sales and distribution?
The insecurity impacted us negatively especially in the states of Yobe, Borno and Adamawa. We lost market share in those states because movement has been very difficult. People have been displaced. And once you have displaced people in a war-like situation, they don’t move with anything. Again, it reinforces the point that I made earlier about weak purchasing power and loss of market share. That is why you find that the top-line of most companies is dropping. Once the top-line is dropping, it is a bad omen for workers, for the economy and for the country. So, we need to get back as quickly as possible and see how we can re-establish markets in that part of the country and get people to continue with their lives so that companies like ours can also do business in a peaceful environment.
What is the outlook for this season?
The outlook is good. We are hoping that the stability we have seen in the last few weeks will continue. If things are stable and the economy is well managed, the industries can plan better because planning is the key issue. We are looking at stable policies that guarantee long-term investment, not just policies that keep changing. That will be good for the country.
On my side, I am a strong believer in Nigeria. Whatever the problem, my experience shows that Nigeria can always weather the storm and come out stronger. So, I believe that the coming financial years will be better and things will continue to improve in the country.
What do you have to say about the continued fall in the value of the naira?
Devaluation is a two-edged sword; it has positive and the negative aspects. The positive aspect is that it will help the export sector. It will also help the farmer as well because if he produces enough for export and if his commodity is appropriately priced, it will attract interest from the international community.
But devaluation itself should not be overly done. If it is overly done and the exchange is not appropriately crafted, local processing industries in the country will not be able to function well.
Our economy is still basically import-dependent. We import into the country in dollars and sell in naira. The imbalance may be too much for local industries, causing many of them to shut down.
Since there is an imbalance currently, how are you coping in your sector?
We manage to hit the balance very quickly. What it means for us is that the margin is degraded in most of our industries but we try as much as we can to drive volume, increase our marketing activities and get people to buy our products. But in doing that, our profit has declined because of the exchange mechanism.
Some of your raw materials are among the ones restricted from foreign exchange by the Central Bank of Nigeria; how is that affecting you?
We are coping. The situation is inevitable because you cannot give what you don’t have. The message that the CBN is passing is that foreign exchange is not just available. For that reason, we have to be more prudent in allocating to the industries that will need it. We can do without the items on the list at this time. One needs to appreciate the bold step the CBN has taken. An item like rice is what we can produce in Nigeria.
But Nigeria has not been able to produce enough to meet local demand. What should be done?
Then we can eat something else. By the way, the commodity is not banned. The only thing is that by the time you source funds to bring rice into the country, it will be more expensive. So, those who want to eat rice should be ready to pay more.
There is also the understanding that the black market will not be able to absorb the demand for forex.
That is why many people are wondering how long the naira will be able to stay its ground. It is the basic economics of demand and supply. Once the demand is higher than supply, the price will increase.
The parallel market will have a higher exchange rate to the dollar and if the margin is too wide between the parallel market and the interbank, it is a question of time before there will be further devaluation.
Some major manufacturers have gone into the non-oil export sector. Have you increased your non-oil export portfolio?
Yes, we are looking at whatever opportunities we have to export. We import raw materials for our core business but our agro allied business has also positioned us to do certain exports.
These are ways as a group that we look at supporting the aspirations of the government and helping to bring foreign exchange into the economy. We are producing vegetable oil for export currently.
Before now, we exported the by-product of our wheat milling activities and that fetched us some foreign exchange as well. We export woven polypropylene sacks not just to the continent of Africa but also to America.
How much is in your budget for backward integration this year?
Let me just give you an idea of the investment that we have made in the last couple of years.
We invested $250m in our sugar refinery in Lagos. We are investing exactly the same $250m in backward integration for sugar cane farm in Sunti, Niger State where we are developing 10,000 hectares of sugarcane estate. We have invested $100m in oil refinery in Ibadan, Oyo State. We are also doing a backward integration by acquiring an oil palm estate in Edo State to serve as part of the input to the vegetable oil refinery that is in Ibadan. We acquired the largest cassava farm in Ogun State, Thai Farms, three years ago. Our processing plant in Thai Farms produces high quality cassava flour.
We went to Kwara to acquire about 10,000 hectares of land where we are cultivating cassava and as we are talking now, we have cultivated about 3000 hectares of cassava in Kwara State so as to provide in-bound logistics to Thai processing plant.
What is your assessment of the ECOWAS Common External Tariff in terms of similar goods coming into the country?
I think Nigeria has done well in not opening its doors entirely for the CET. Nigeria requested for some number of items on the HS code that we can protect. But generally speaking, CET will aid free movement of people and goods that are produced within the ECOWAS sub region.
The fears have always been there that whenever Nigeria signs such a treaty with other countries, the countries may not be able to apply the rules and principles of the protocol in the way that Nigeria will apply them. What we need to ensure is that we police our borders very well. The Customs should do their job very well because people might use loopholes to circumvent the policy. They should ensure that free movement of goods is only for genuine goods produced within the sub region and not just imported into one part of the sub region, repackaged and then distributed.
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