Local raw materials sourcing hits five-year low on insecurity

The rise in insecurity and limited investments for local raw materials production in Nigeria is taking a toll on the local sourcing of raw materials by manufacturers in the country, BusinessDay analysis has shown.

Data obtained from the Manufacturers Association of Nigeria (MAN) showed that local sourcing of raw materials in the first half of this year was 52 percent, the lowest in five years.

Between 2017 and 2021, local sourcing of raw materials hovered between 53 percent and 60.72 percent. During the period under review, foreign exchange shortage, naira devaluation as well as the disruptions in global supply chain caused by the COVID-19 pandemic and the Russia-Ukraine crisis forced many manufacturers to look inwards for production inputs.

MAN said in its latest half-year report that the sector is generally faced with limited investment in domestic production of raw materials for utilisation in most of the sub-sectors owing to limited funding and policy incentives in the country.

“The basic industrial chemical sub-sector faced severe inactivity in the first six months of 2022 due to lack of domestic production of basic chemicals,” it said.

BusinessDay had recently reported that Grif, makers of aluminium drums, and Federated Steel Mills, makers of iron rods, exited Nigeria because they could not get annealed cold-rolled steel, which was its key raw material, causing the country to lose vital investments.

Economic experts and manufacturers told BusinessDay that issues around rising insecurity, unavailability of some materials and low product quality constitute setbacks for the anticipated 100 percent local sourcing of raw materials through partnership with local producers and backward integration activities.

Since the security situation became intense a few years ago, agricultural activities from which most fast-moving consumer goods (FMCG) firms benefit from have been greatly impacted as farmers had to abandon their farmlands because of kidnapping, banditry, herder-farmer conflicts, terrorism and other forms of insecurity in major crops-producing states.

Over the years, insecurity in the country has increased significantly, especially in the northern part of the country, with data from the Global Terrorism Index showing that Nigeria is the third most terrorised country in the world, after Afghanistan and Iraq, with record terror-related deaths estimated at 1,245 in 2019 and 1,606 in 2020.

Data from the 2021 Economic Value of Peace report by the Institute for Economics and Peace show that the cost of violence in Nigeria from 2007 to 2019 was $1.34 trillion.

Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, told BusinessDay that insecurity in some parts of the country is posing a major threat to fostering local sourcing of raw material as well as the backward integration plan of the federal government despite huge investments made and the commitments of companies.