{"id":25843,"date":"2017-11-15T21:04:02","date_gmt":"2017-11-16T02:04:02","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/nigerians-want-to-consume-more-stuff-from-their-own-soil\/"},"modified":"2017-11-15T22:41:50","modified_gmt":"2017-11-16T03:41:50","slug":"nigerians-want-to-consume-more-stuff-from-their-own-soil-can-unilever-make-that-happen","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/nigerians-want-to-consume-more-stuff-from-their-own-soil-can-unilever-make-that-happen\/","title":{"rendered":"Nigerians Want to Consume More Stuff from Their Own Soil; Can Unilever Make that Happen?"},"content":{"rendered":"

The manufacturing sector accounts for less than 10% of the Nigerian economy[i]<\/a>. This is no surprise for a largely consumption-based economy with a very low manufacturing base. Most local and multinational businesses rely on imports for sourcing a significant percentage of raw materials, with minimal value add (mostly packaging) taking place in Nigeria. The growing food import bill was a major concern to the government considering the sizable fertile land and favorable climate. In 2014 alone, Nigeria spent $6 billion on food import[ii]<\/a>. The consequence of this import fed model was a high level of unemployment and limited inclusive growth.<\/p>\n

Though profitable in the short term, the import-based model was clearly unsustainable. Companies depended on foreign currency supply from the Central Bank of Nigeria (CBN) to pay for imports. CBN\u2019s dollar supply was however limited to oil receipts (Nigeria\u2019s biggest export accounting for 75% of Nigeria\u2019s export and 90% of foreign earnings), a function of the price and volume of Nigeria\u2019s crude oil, both outside Nigeria\u2019s control as it turned out.<\/p>\n

In 2014, international crude oil price tanked touching new historic lows[iii]<\/a> – sub $40 per barrel from a peak of c.$100\/ barrel, while political disturbance in the Niger Delta region (Nigeria\u2019s oil-producing region) hampered oil production leading to a double-dip decline in Nigeria\u2019s petrodollar receipts. Predictably, the CBN\u2019s ability to finance imports was negatively impacted. It was clear something has got to give!<\/p>\n

While the need to domesticate manufacturing in Nigeria was well acknowledged within Nigeria\u2019s political circles, the political will to act was always absent. The dollar shortages in 2014 called for immediate actions and the CBN acted accordingly \u2013 Nigeria placed a ban on the importation of 41 items (mostly imported raw materials for food, clothing and other industries) in June 2015 citing government\u2019s desire to transition the import-dependent economy into an export-led economy[iv]<\/a>; this was also followed by higher import duties further depressing the economics of imports. This development sent shock waves through the consumer goods sector in general forcing companies to reconsider their sourcing model and supply chains. In particular, palm oil, a key input for Unilever Nigeria across its different product lines including laundry, oral, soap, skin care, bouillon, and margarine was included on the list, thus hampering the company\u2019s operations in Nigeria.<\/p>\n

This protectionist sentiment evoked by the dollar scarcity has shaped Nigeria\u2019s trade policy in the last 2 years. After working with the EU for several years, Nigeria refused to endorse the Economic Partnership Agreement with the EU[v]<\/a> (an agreement under which Nigeria is expected to remove or reduce tariff on some imports from Europe in exchange for tariff exemption on its export to EU) over concerns that such an agreement is antithetical to ongoing efforts to promote local sourcing in the country.<\/a><\/p>\n

In the face of the immediate challenges, Unilever\u2019s immediate reaction was to re-route supply through other markets outside Nigeria as a short-term measure, while it immediately commenced exploring strategic partnerships for sourcing raw materials in Nigeria as well as making investments in backward integration[vi]<\/a>. It is in the process of partnering with local suppliers, following which it plans to ramp up local manufacturing capacity. It plans to achieve significant local sourcing by 2020 and potentially supply other West African countries from Nigeria in the long run. The plan is to make the Nigeria evolve into a core manufacturing base for West Africa.<\/p>\n

Despite significant long-term benefits thereof[vii]<\/a>, the transition to local sourcing will not be easy for obvious reasons \u2013 unstable power supply, poor road infrastructure, suboptimal level of farm mechanization etc. The company has to view this as a long game and work with the government for policy consistency to ensure it reaps full benefits. One way to lock-in government support is to involve local farmers through an out-grower scheme. However, a lot of open questions remain: Is the Nigerian government fully committed this its backward integration agenda \u2013 will it return to a dollar spree when oil price recovers making local sourcing uncompetitive relative to imports? Will other West African countries follow Nigeria\u2019s policy, potentially limiting the benefit of regional integration in West Africa? Will this move have any impact on product quality in the short term?<\/p>\n

Word count: 712 words<\/strong><\/p>\n

[i]<\/a> National Bureau of Statistics, \u201cNigerian Gross Domestic Product Report, Q2 2017\u201d, September 2017. www.nigerianstat.gov.ng\/download643<\/p>\n

[ii]<\/a> FBN Capital Research, \u201cGood Morning Nigeria: Movement on import substitution\u201d September 15, 2016<\/p>\n

[iii]<\/a>\u00a0“Oil Prices Fall to the Lowest Since 2009”, Clifford Cross, New York Times, January 12, 2015. www.nytimes.com\/2015\/01\/13\/business\/energy-environment\/oil-prices-fall-to-their-lowest-since-2009-recession.html<\/p>\n

[iv]<\/a>\u00a0Inclusion of Some Imported Goods and Services on the List of Items Not Valid for Foreign Exchange in the Nigerian Foreign Exchange Markets\u201d, Foreign Exchange Circular, Central Bank of Nigeria, June 23, 2015<\/p>\n

[v]<\/a> EU, ECOWAS Urge Nigeria to Sign the EPA, Vanguard, August 1, 2017.\u00a0https:\/\/www.vanguardngr.com\/2017\/08\/eu-ecowas-urge-fg-to-sign-economic-partnership-agreement\/<\/p>\n

[vi]<\/a> Femi Adekoya, Unilever to Explore Local Sourcing, Backward Integration in Nigeria, The Guardian, January 26, 2016<\/p>\n

[vii]<\/a>\u00a0“Local sourcing: A Multi-billion Dollar Opportunity for Companies in Africa”, Summary Report of a Panel Discussion on Africa\u2019s Local Sourcing Opportunity at the Africa CEO Forum, March 2017<\/p>\n","protected":false},"excerpt":{"rendered":"

Falling oil prices stoked economist protectionist policy in Nigeria. The government had no choice but to ban the importation of 41 items due to dollar scarcity forcing Unilever to re-assess its import-based raw material sourcing model. 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