Richards: There Will Be a Big Boom in the Economy with More Electricity Supply

25 Feb 2013 Promasidor Nigeria Limited is in the business of manufacturing food, essentially, dairy and beverages. Its managing director, Chief Keith Richards, lamented the deplorable situation of electricity supply in the country and its attendant cost to the 20-year-old company as he spoke with Kunle Aderinokunon prospects and challenges for the manufacturing concern, amongst others. Excerpts: Though 2012 has come and gone, but how will you describe its impact on the dairy business and what is the business outlook for 2013? Last year was difficult because of the crisis that attended the fuel subsidy removal and the attendant increase in pump price of fuel. When that was laid to rest, we had the issues of insecurity in the north and the flooding that swept through the southeast. All that affected our market last year. We hope this year would be more peaceful, though there are still nagging issues in some sections of the country. One good thing is that Nigerians are very resilient people. I think the market has settled down and this year should be more positive. The early signs are good for us. All our range of products performed very well in January and I'm told that the packaging company has seen a little more over-booking which suggests that there is a general boom across consumer products. There is a little more optimism in the air, the demographics are right, the population is there, demand is there, the question is around micro-economies. If Nigeria's economy is growing around 6 to7 per cent, how much of that trickles down to the ordinary Nigerians? If some of the money that the country is earning from oil, or investment starts getting down, it will be a boom market for the milk and other consumer goods. But the big question is how effective is this government in ensuring that this revenue trickles down to ordinary Nigerians on the streets. A high percentage of our sales are in the North. All our brands especially those in the N10 and N20 range are very popular there. Also very popular in the north are our Top Tea brand and our seasoning. It goes beyond what is happening directly, you know, the north is a big trading out-post for export to Cameroun, Chad, Niger even up to Mali and what happened is that for lots of months, the borders were closed and even when they were re-opened, there were scepticism about all exports outside the country. The Boko Haram threat and what is happening in Mali makes the security forces nervous leading to serious restrictions of movement at the borders. The other issue is that the North which heavily relies on agriculture have had their lives disrupted by this sectarian violence. A lot of transporters do not want to go to the North anymore. Some want to charge a 25 per cent risk premium and that’s costing us more and costing other FMCG money and making it more difficult for farmers and anybody producing in the north to get their goods to the urban market like Lagos and the south. So there is a direct impact that trickles down and affects the economy as a whole. In the north in particular, it’s difficult to measure but it’s definitely there. How strong is Promasidor on export? Well we do export to Benin and neighbouring countries, but you know Promasidor is a group so we have our own business in Ghana and we have other business around that export to some of these other countries. We definitely export to our neighbours. How healthy would you rate the demand and supply curve of your products? I think in demand there is no doubt about it that consumers want our products. Where we are having issues is the ripple effect of insecurity on the economy. For example, even in the east, less people went back home for Christmas this time around because of the concern that rising cases of kidnapping is generating. That reduced consumer demands in the east for the period. Very interestingly, the seasoning market did very well; like Onga seasoning out-performed other brands which are not hard to see. If you have a security concern and you are not going out after dark, there would be more demand for food, after all if you are not going out to have beer with your friends and you are not going out to Mai shai to drink tea what would you do? The average man would stay at home and ask his wife to cook a pot of soup and he will eat at home with his family. That’s good for the seasoning market but difficult for other brands. I mean it’s difficult for the beer market, the soft drinks for those kinds of things that are consumed in places where people are reducing their visit. Lagos is ok but you know if you go to Owerri, Enugu, Aba, the security issue definitely means less traffic at night and less socialising. Are you satisfied with your share of the market? No, because I am never satisfied. I learnt from Chief Ralph Alabi that the reward for hard work is more hard work. Late Chief Alabi, who then was the chairman of Guinness, told me that and I have passed it down to my team. I am always looking for more. I am looking for more from our existing brands and am looking for how to develop more products, and more brands. I can never rest; the day a company decides to rest is the day it begins to slide, so I am never satisfied. Do you think the Federal Government is doing enough to improve the macro-economic environment? Well, I think I will spilt it into two, I think they have the right intent and they have some very good policies, but, they are not doing well on implementation. Take power for instance, that Mr President understands that it is the backbone for industrial growth is very glaring, but look at the way the privatisation is being implemented. The whole thing is just going anyhow, it’s been delayed and I am sure that must be frustrating the President and other members of the cabinet. I have no doubt that he has the right intent and I really believe that they have the right policies but the implementation is not happening fast enough. The implementation is not meeting the need of ordinary Nigerians. All these infrastructure, power, roads, particularly education, health, this government has been earning more money from oil revenue, but I think the money is not been utilised as effectively as it should be. What is your take on electricity generation? Lack of constant electricity is affecting us considerably. The cost of producing an alternative is huge. We spend up to N100, 000 per hour on diesel. Because gas is now available we have just installed a gas generator that has cost us $1.2 million and the payback time is less than one year to show you how damaging the cost of power is. It is not the direct cost, if we switch on to PHCN, besides being epileptic; the voltage is unstable, so bad that it does enormous damage to the machines. Machines stop and start that means you get less machine efficiency, you are less effective. For a company like ours, at least we have the employment muscle and the ability to plan around these shortcomings and do the best we can but what of those other companies that lacked the capacity. There are small businesses that want to produce goods so that we stop importing from china or India, instead they first have to invest in a generator and get bogged down by the diesel headaches, these are the drawbacks that cause the death of SMEs. This is sadly not affecting only big companies like ours, the ordinary people on the street with small businesses are also affected, there is no doubt that there will be a big boom in the economy if there is more electricity supply. What other challenges are you encountering in your operation? You know I have referred to transport and that the government understands and the Coordinating Minister for the Economy and Minister of Finance, Mrs Ngozi Okonjo-Iweala, has been to the port to make sure that they are run efficiently and we have seen some improvement. But even if you clear your goods quickly, you have just come out of a queue at Oshodi-Apapa expressway which has gone bad over time due to non-maintenance. Rather than maintain the road through which 90 per cent of the raw materials come into the country, what you see is the tension between the federal and the state government over the management of the road. They are too busy playing politics while all manufacturers are suffering because of the very bad state of that road and poor management of that road and the fact that trailers particularly fuel tankers have blocked the road. They are trying, there is no doubt you know the Benin-Ore road has improved that’s a very important road structurally built in the country but look at the Lagos- Sagamu express for how long will that contract last given how much we have spent? And now it’s been given to other people. So things are happening and that’s why I said the government has the intent but it is the implementation that is holding everything up. Promasidor Nigeria will be 20 years this year, what has kept the company so far? Well, it has been a fantastic journey for Promasidor. We have so much opportunity in Nigeria and they far outweigh the difficulties we have had in those 20 years. This company has gone through a lot, the company came in 1993 and has gone through all the problems with democracy in 1995, everything and yet this company has grown astronomically. That is very positive, it shows the possibility and the potential in this country despite the problems that we have been talking about and it shows that if we fix this thing, this is a great place for investment. So we are very positive about Nigeria particularly in relation to the long term and that is why we are constantly re-investing. We are investing money in a plant for new product that will be launched before year end, we are investing in research and development, and we are bringing technology which will enable us to work with local raw material we have signed a memorandum of understanding with University of Ibadan where we will take some of their students to France on some sponsored programmes and when they return, they will help us to work on those products developed with local raw materials. Things have been very exciting here and the great thing is that we do have shareholders in Promasidor that take the long-term seriously. They are making investment that will enable us to continue to grow in the long term. So I think the outlook is very positive and exciting. Later this year we will celebrate our 20 years and we will do a lot of things; for example, 460 workers who are celebrating their 10 year anniversary this year would be celebrated. In effect, we will be having a great celebration of long service award and we will be celebrating our 20th anniversary for Promasidor and particular the Cowbell brand in Nigeria. Are you thinking of getting your raw materials locally? Well, first of all let me talk about agriculture; I think the ministry of agriculture is bringing new energy, new insight and a new focus on agriculture which is great for Nigeria. Again some of the policies, some of the implementation are proving tougher than the minister had imagined. There is a lot of focus on local raw materials development which is excellent but backward integration is not something you can do over night. So the research and development we are doing in the use of local raw materials some of the technology cannot be used in sub- Saharan Africa, so adapting it for you will take time. We are started doing these things, for example seasoning; we used to import, but now, we just import certain aspect of it and we source most of it locally and we blend and manufacture them. We have just started doing that in the last few months. That is an example of how we are improving made in Nigeria goods. Of course the big question is dairy. We have seen that there are a few dairy farms in Zimbabwe, Ilorin in Kwara State, Jos, Obudu but we are talking of a few hundred heads of cattle. To produce the amount of milk needed in Nigeria as researched by all of the dairy industries through the manufacturing industry in Nigeria, you need about 600,000 cows to produce this amount of milk and an investment of about US2 billion, because for example to produce a litre of milk you require two hundred litres of water because you have to irrigate, the cows have to drink, then clean and all the processing. Really what Nigeria has to focus on are those crops that are indigenous to us here. There is a reason why God put palm oil, cocoa, cashew, soya, cassava in Nigeria because they are suitable to the Nigeria climate and what we have to do in Nigeria is to resurrect those crops instead of bringing in foreign cows and cattle, and invest in something that is not naturally produced. We should be developing rubber, palm oil, we should be processing these here. Rather than exporting cocoa we should be processing it here. One of the success stories is cement and now Nigeria is producing and exporting cement that is what we should be doing with our indigenous agricultural products we have available. We should be processing cocoa, processing palm oil, cashew and developing agriculture that way. Promasidor will continue to do her own, we will substitute import with local raw materials wherever we can. We are already working with local businesses, we buy a lot of our nutrients from bio organics, a Nigeria company producing vitamins and nutrients locally rather than importing them. So we are doing what we can and I think it is a major structure issue and the government needs to focus on those crops that we can easily develop. What is your take on the proliferation of imported goods? There is no doubt that there are different standards by and large, companies in Nigeria are much regulated. NAFDAC do a very good job, SON do a very good job. In fact we just had our ISO certification and I am very positive and optimistic that we will get our accreditation. Now a lot of products that come in from overseas particularly those from China and India are not properly accredited. You know, they just bring in a container and one wonders how they get through the ports and how they get distributed when we local producers go through so much inspection. If you take seasoning for example, there are so many powders that come from china that are available in the market. They claimed to be allowed but have they been inspected, they do not have NAFDAC registration, and somehow they are allowed to come into the market and then they sell at a very cheap price. That has a cost not just to , but some of our competitors who are world class international companies, who make sure they produce here meeting all the high standards and then somehow they are made to compete with cheap imported products. One has to say that some of the businesses that is coming into the market, one wonders if they are subject to the same type of regulation and inspection or whether there is some short cut that they take. These things are bad for the consumers because Nigerians deserve to have good quality and safe products. What is your view on multiple taxes? I am always complaining about multiple taxes and I think the government does not understand. Multiple taxation is very difficult to explain, you have the federal, state and local government eyeing the same revenue. Everybody is looking for revenue, you know if I want to put a plant here I need environment impact assessment certificate at the state, at the local level, I have to pay this or that levy to pay. If I want to do a promotion, I have to pay some fees and inspection are also randomly done, I have to bring both the national and state lottery commission, SON, Consumer Protection Commission (CPC) and all of these people are charging you fees that must be paid or you face sanctions all of these give rise to duplication. We pay company tax, we pay expatriates tax which are paid to Lagos state government in fact for three out of the last four years, we have won awards from Lagos state presented by Governor Fashola, for other state integrity when it comes to paying taxes, so if I pay my taxes why should I pay another N100,000 to an agency for inspection? Why do I have to pay something like N10 million every year on different local government levies, if one of my vehicles with Cowbell on the side drives from here to the east, every local government would stop them and make them pay levies and if they are missing one sticker they will arrest the driver and arrest my salesman then I have to go and pay money to get them out and these all constitute multiple taxation. Now I have to say MAN is making a very big effort. The great thing about Chief Kola Jamodu as the president of MAN is that he has been a minister. He was a very good minister, you know the cement that we are talking about comes from his days as minister of industry, he understands the industry and I understand that the economic management team chaired by the President has announced the complete review of taxes to address the monster called multiple taxation. Do have any advice for prospective entrepreneurs? Well the first thing I say to young entrepreneurs is remember the adage if you want to eat an elephant eat it one mouthful at a time. If you are a young entrepreneur, make sure you have achievable targets and goals, understand the customers and consumers make sure that your business plans are filled with the right kind of data and information. You know people are too busy to produce something and not realising that they can’t sell it at that price. Do your research, talk to your consumers, talk to your costumers and then take a step at a time and progress. That way, if you get something wrong, you can address it and as you achieve a step or a goal you can celebrate it. I think the entrepreneurial spirit in Nigeria is strong and it’s still very much part of Nigeria. I hope that this government provides power I hope that they can persuade the bank to lend to small businesses and entrepreneurs to enable them to grow because that is a big issue for SMEs at the moment. It’s difficult but there are definitely opportunities for young entrepreneurs in Nigeria. Last year, Promasidor launched the Promasidor Quill Awards to reward excellence in the media, what is the situation now? This is our first full year, the panel is been appointed and they will start reviewing. I think we have extended the date for submission, to make sure we have enough application that are of interest and articles, columns, photographs, so we are very excited about it and we take that it will stimulate excitement in our sector, it will stimulate understanding and a higher quality of reportage of our sector and it will show Promasidor as a partner to the media and enable us to get our views across. After two decades as a private business, are you thinking of going public? Yes, for sure, the company’s intention is to move towards an IPO and we are definitely planning on moving towards that goal. We have appointed financial advisors and we are looking at making sure that the company moves from a private company to the kind of structured governance that will enable us to have a very open and clear IPO. The stock exchange now is a lot more rigorous in the management of the exchange and that is fantastic and has earned a lot more confidence for the Nigerian stock exchange. Even though there are signs that the stock exchange is growing and there is more confidence, I think there is still some way to go and I think we in Promasidor have a few things to do to complete our preparation. But I am hoping that in a year or two, we will be ready to take Promasidor Nigeria to the Nigeria stock exchange and to enable our consumers, costumers and stakeholders own the business.`