Nigerian industries are increasingly turning to local alternatives as the ongoing foreign exchange (FX) constraint limits their ability to buy raw materials.
As demand for local alternatives from manufacturers continues to climb, businesses supplying those alternatives are able to expand their capacity thanks to the FX shortage in Africa’s largest economy.
If the trend continues, it is anticipated that the nation would avoid spending billions of dollars on the importation of the inputs because the money will stay in the economy and assist drive growth and development.
According to Samuel Sewonike, head of operations at Answer Industries Limited, “when we started producing our chicken and egg powder in 2016, we reached out to a couple of manufacturers in the country who use them as raw material, but they didn’t want to buy from us since they were importing the products.”
He claimed that since foreign exchange has become more scarce in recent years, manufacturers’ support has increased. “These manufacturers are now patronizing us,” Sewonike continued.
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Due to the current increase in demand, Loom Chocolate’s CEO, Uzoamaka Igweike, stated that her firm manufactured and sold 22,000 bags of local chocolate in 2021, with a target of 70,800 bags.
Bakers and confectioners who previously bought foreign brands of chocolate for baking are now supporting local artisan chocolate producers in the nation due to the depreciation of the naira and importers’ inability to get FX for imports.
We attribute the recent increase in demand to the fact that foreign exchange is hard to come by, which raises the cost of importing goods, according to Igweike.
Since the COVID-19 outbreak, the largest economy in Africa, which depends heavily on the sale of crude oil, has had sluggish foreign inflows, creating a liquidity problem in the country’s foreign exchange market.
The Central Bank of Nigeria (CBN) depreciated the naira twice in 2020, from N306 to N361 and then to N379 to a US dollar. The Nigerian Autonomous Foreign Exchange Rate was also made the CBN’s official rate last year. Serious pass-through impacts on imported goods have been caused by the circumstance.
The Russia-Ukraine situation has made the nation’s foreign exchange problems worse this year. On July 12, the naira closed at 425.75 to the dollar on the official market and at 615 to the dollar on the black market.
Local sourcing of inputs has increased since 2015 in Africa’s most populous nation, affecting industries ranging from breweries and pharmaceuticals to agroprocessors.
According to the Manufacturers Association of Nigeria, the use of local raw materials in the food, beverage, and tobacco subsector climbed to 68.7 percent in the second half of 2021 from 66 percent in the comparable half of 2020.
According to Damilola Adewale, an economist based in Lagos, “a huge number of actors in the industrial value chain now source most of their inputs locally to reduce rising production costs brought on by the persistent FX issues.”
In a 2020 interview with BusinessDay, Baker Magunda, managing director of Guinness Nigeria plc, stated that the brewer was investing domestically to address import concerns.
“We’ll keep replacing imports with locally produced goods. We have quickly increased our local sourcing from 53% of our overall production two years ago to nearly 80% today,” he said.
Guinness, Nigerian Breweries, and other companies are now providing farmers with free inputs, such as improved seed varieties, as well as technical support to increase local sorghum production, which the sector already uses to replace imported barley.
The high exchange rate has further reduced importing, according to Godwin Onyekazi, president of the Nigerian Importers Integrity Association.
“Importation is being killed by the naira’s ongoing decline versus the dollar. The amount of importation at the ports has already sharply decreased. The extremely low level of work for haulage companies and clearing agencies at the ports is evidence of this, he claimed.
Nigerians are more concerned about locally manufactured goods now than in the past, according to Helen Ajayi, marketing and communication associate at Johnvents Industries Limited.
“Over the years, we have observed that the processed cocoa that is sold to other nations and returned to us lacks the essential nutrients that the natural cocoa seeds possess, prompting us to manufacture our own cocoa and butter.”
Uzo emphasized the need for local producers to continue raising the bar on quality and competitiveness, stating that if the FX situation improves, importers will resume importing, which would be to their detriment.