We’ve iron ore, excavate it, process it, make steel out of it, stop steel importation
OLUYINKA KUFILE, a prominent Egba chief in Ogun State, is the Chairman/CEO of Qualitec Industries Limited, a leading manufacturer in the aluminium and steel sector of the Nigerian economy. He is also the Chairman of the Basic Metals and Allied Products Group of the Manufacturers Association of Nigeria (MAN), which works to protect the interest of members and advocate policies that can foster the growth of basic metals and allied products manufacturing in the country. A business a.m. team made up of PHILLIP ISAKPA, TEMITAYO AYETOTO & CHUKWUEMEKA OBIOMA, sat down with him at his office in Lagos, where he fielded answers to questions on the state of the economy, manufacturing and the state of steel and aluminium production in the country. The following are excerpts from the interview.
We know that businesses in Nigeria take a cue from government pronouncements on the budget; but six months into the year, the budget is still not signed by the president. Can you share with us, as a manufacturer and sector leader, how this is impacting on business generally?
Well, it is impacting negatively, but it is gradually becoming our culture because, if the budget is not signed it means we cannot spend money. If we cannot spend money, how can we have circulation of fund for projects? We will be at a standstill [and we are at a standstill].
In specifics, for manufacturing, especially the steel and aluminum sector, what are the specific impacts?
You know the steel and aluminum sector is basically related to projects and when projects are not being awarded or funded, how are they going to buy steel? What are they going to do with steel? In the past, individuals used to build houses and estates, but all those ones are no longer there. Of course, they are there but not as they used to be. The situation has changed drastically that you can hardly get anything right now. It is affecting everybody. All the sectors are crying because things have really changed.
But what I don’t understand is where we are actually going. This problem started not with this administration. It started towards the end of 2013. In 2014, it was a major issue that even the government could no longer fund anything. There was no dollar to fund any import. There was no dollar to fund all our inputs. So they had no choice but to start appealing to manufacturers to scale down, thinking of what we can produce locally; what we can do locally; how we can reduce our import bills and all whatnot. Of course, good intention but they could not push it through; because before the election, we discovered that all the monies that were supposed to be used in importing raw materials and inputs were being doled out in large quantum to lobby people for the election and all that. That was the beginning of the mess we are in today.
We are approaching another election cycle. It’s almost like a throwback to 2014, what are the differences? What do you see different, between 2014 and now?
Before June in 2014, we were already in major crisis. They had started throwing money about. But when it got to about September/October, it was the peak. What they did is still affecting us today. It is still haunting us today. Tell me any industry in basic metal sector, in manufacturing of iron and steel that are laughing today. All the industries are in a big mess. Most people cannot pay their debt in dollar; or they took loan from overseas but couldn’t get dollar to pay. Most of those things are piling up. Let us hypothetically say you have the capacity to produce 1,000 tonnes [of steel or aluminium], if you produce 500 tonnes and there is no buyer, what do you do? You reduce your production level. If you reduce your production level to 200, will 200 meet up the demand to sustain you? Will 200 tonnes be able to service your loan? Will it be able to pay your staff salaries, whereas you were producing 1,000 tonnes and you were aiming to produce more. So you can see major problems that I’m not sure, how many of our members, in iron and steel, are still able to sustain operation today.
Let’s look at the enabling environment for business, what would you say about the policy environment as it stands now?
Most of the things required are still not there. For instance, there are certain things that we do in Nigeria that are supposed to be protected. If you are doing something and you are being protected, you will grow in it and do it better. Let us assume that somebody produces exercise books, we know that in Nigeria, there is nothing you can produce and match up with the imports from China, for now. Where do you want to start? Electricity is not there. If you buy diesel generator, how can you buy diesel at N230 for production and you want to survive? If you go to your bank and get huge loan to install gas generating set or gas plant, you buy gas for about $7.62 now, whereas in other parts of the world, it is about $3, so how are you going to survive? If you want to import any input today, where is the dollar? Government is telling us the dollar is available at the banks. Maybe the banks don’t want to give us, I don’t know. But they have kept on telling us it’s not there, so where do you run to? You don’t have power; you don’t have energy, you don’t have the input and even the ones you manage to produce, you cannot sell. It literally means everything is crashing because, along the line, as we were coming in, it was very bad. Maybe the government will take a U-turn and change so many things. If they can, maybe things will pick up.
Recently, the Manufacturers Association of Nigeria (MAN) came up with an executive report saying that unsold inventories were worth about N321 billion and they attributed this to factors like low consumption, counterfeiting, smuggling among others. Do you share in this reality as a player?
I do because first, in Nigeria, you discover that if you want to do business and stand right, you will definitely suffer. There are a lot of huge inventories. If you produce and you cannot sell and they are in your warehouses that is what they mean by unsold inventories. If you owe the bank and the stocks are there, the stocks that you have produced, you are also paying interest on those ones and you know the interest rate in Nigeria. It is costing you so much; you are paying your staff salaries, you cannot produce another one; how do you move forward?
Those ones you have produced, some people will go to other parts of the world and ask for whatever they want. Of course, what is the standard of checking quality here? We are still having problems with that, except we are deceiving ourselves. That is why you still find inferior products everywhere. In an environment where people are unnecessarily poor, definitely they look for the way out. If they look for the way out, they go for the cheaper material and definitely they are impoverishing the people. If you are supposed to sell a phone and they bring the one that is of no value and you have no money, what do you do? You go for that. Of course, when you use it for about three days, you’ll no longer have a phone. Today, in our own sector of roofing, people are ready to use anything. Mark you, while you are strong and still active if you build a house, that house is supposed to sustain you throughout your life but when you are weak and your roof is leaking and everywhere is perforated, where will you get money for replacement at old age. But if we control the influx of what we use here; if we create the standard and we are able to follow it up, of course, everybody will be at peace. So the Manufacturers Association was very correct, because they relate with all the sectors. We tell them what is happening. They see it and inspect it.
Some industry analyst believe that manufacturers might be shooting themselves on the foot by overly relying on imported raw materials which complicates the cost of production, do you also share this sentiment?
Let’s take aluminum first. The past government, about 40 or 50 years ago, realized that we would need aluminum. The same government realized that we would need steel to grow. In aluminum, we were told they spent $3.3 billion on Aluminum Smelter Company of Nigeria to produce 190 tonnes in a year. Now, how many years have we been able to run the plant? I’m not sure, for the few years that plant was in operation, we were able to produce 30,000 tonnes in a year. If they produce that, we are supposed to take the ingot, their own product is supposed to be our raw materials, we don’t need to go anywhere. Are they in production, the answer is no.
Sometimes ago, there was a case in court between the two people that bidded for the plant when the federal government wanted to privatise it. Thank God, early this year, the minister for mines and steel, resolved the issue with the backing of the federal government. But the people are yet to start any operation. If they are in operation, do we need to bother to look for dollar? When they were in operation, you paid naira. They calculate in dollars, but we paid naira. We didn’t need to bother about naira.
For a long time, Ajaokuta has been in contention but is it in operation today? Two weeks ago, they were saying that we are going to spend over $600 million to complete it. Equipment that have been there for 50 years or more, how reliable will they be? If the federal government itself were able to complete their own project to produce raw materials for the takeoff of steel industries in Nigeria, do you think anybody will be looking for dollar? If the Aluminum Smelter is in operation, nobody will look for dollar. All they need to do is just to put up the plant and use the raw materials to produce and even export. Even the scrap metals that we are supposed to utilize, which we have already paid for, through hard earned dollars, now the federal government closes its eyes, some people are melting the scraps and taking them away and they think they are doing something good. There is no country in the world that will allow such thing because what you have is yours. You cannot throw away what you have to go and get what you don’t have. It is already in the country. Turn it around. It is a product that is recyclable. The same goes for steel. When you go round now, most of the iron companies are surviving on scraps. If you can recycle something, it reduces the pressure on you, but if the same government now allows people to be taking them away, too bad.
As a player in Nigeria, do you receive any international demand at all?
There is no way we can receive any. They know our capacity. What we have in Ikot Abasi is supposed to determine what we are producing in Nigeria. They know the location of each metal in the world. They know the ones in operation and the ones that are not in operation. They know that what we have in Nigeria is not in operation. So it is possible for America to say, you Chinese, before you bring your steel into America, you have to pay 10 percent. Forty years ago, where was China in the aluminum world? America was number one in everything aluminum. They took more than 6o percent then of production. But today, China has taken over; they have more than 70 percent of production globally. So if you are talking about Nigeria, where is our place? We don’t have a place there.
For emphasis, are you saying you do not receive any foreign attention for export? If inventories are high on low local demand, why aren’t you looking at international market for export?
Most of the things that are coming to Nigeria from China are being subsidized by their own government. If you export, government will give you certain amount of money as a rebate. In Nigeria, you are on your own. Out there you don’t need to bother about anything – water, road, electricity or gas. But here, what we pay for gas is higher than what they pay out there. What we pay for diesel is higher than what they pay there. In most cases, some of them don’t need generator. They don’t even know what power generator is. But in our case, that is our main source of power and to manage all those things can be frustrating. So the level of competition is nil. We are only surviving.
What do you think the government should do differently?
It is simple. We have the equipment. Today, if we are to set up another one, it might cost as much as before. We were told that in South-Africa, they spent $2 billion to put a plant in Hillside, Bayside, another one in Mozambique, all with a total of two million tonnes in a year; whereas we spent more than that to produce 190, 000 tonnes and their own is running. It is possible for people like that to ship to anywhere. Most of what South Africa produces is consumed in America. We don’t produce. You are a farmer, you plant yam, the yam is not even enough for you and your family to eat and third party wants to buy, it is not possible.
We are in trouble, all of us! But what the government is trying to do is to stabilise and chart a new course. If they can, then we will get it right. Whatever equipment we have acquired, let’s put them into use. If we do that it will reduce the demand on dollar and from there we can also generate the income in foreign exchange. It is possible but the government has to sit properly and think about it.
In relation to that, do you think Nigeria understands the interplay of the notion of commodities markets; that a product like aluminum or steel has an international commodities market value?
Well, I believe so. I believe they know what they are doing. Maybe they have limited capacity. You know, to take decision in government can be very difficult. The way we are going now, if they can push it and push direct, everybody will sit right and understand their position. But if we are in the industry and some people still have to go back and lobby, it cannot take us anywhere.
Of course, there are still a lot of ambiguities, cogs in the wheel of production in Nigeria. Before we were able to fight it out, it was difficult. For aluminum sheets, we paid five percent duty. Now, to produce aluminum coils, you will need ingots. On the ingots, you pay five percent duty. Does that make sense? Will anybody produce? Where are you going to get money? All your loans, how are you going to pay it back?
Fine, the government agreed years back to remove the duty on the ingots. We now looked at and say if you produce in Nigeria, you add value. We coloured it and everybody started putting coil coating lines. But because people take advantage of Nigerian factor, the government agreed to increase the duty to 35 percent so that there will be margin for each operation. Where are we today? The people that are bringing in this coated coil will tell a bunch of lies to the Customs and Customs will allow them, thinking it is plain coil and they will pay five percent. So, how do you move forward? If they are unable to sell, where you are supposed to have quality, you will reduce the quality. How do you expect the Customs to know? What is their level of technical experience that they will know all these details? But it’s so complicated, unless the government wakes up and say enough of all these. But with what is happening lately in the last couple of months, it shows that the government is trying to get the policy right.
What is the capacity of your steel mill production and would you say you are producing optimally?
How can you produce optimally? Even if you produce 10 percent today, where is the market? Everybody is just waiting and floating till when it will get better. There are so many producers that can no longer come to meetings because they are indebted to the banks; they cannot pay their debt or salaries and they have sacked everybody.
Probably, when there is a revolution, companies will spring up and everybody will put up efforts; but in between 10 and 20 years they will die off. Maybe that is where we are also going because most of the companies are dead. You can’t say you are living, when you can’t service your debt, you can’t pay staffs, you are not selling, you have stocks, which you are supposed to sell to make payments to the bank.
What is your production capacity?
There are about three stages of production but today what is happening is that anybody that is producing at all cannot produce more than 10 percent. People are just keeping their line afloat.
It has been observed by experts that general production as it concerns steel is at 300,000 tonnes and consumption is put at 20 million tonnes. How can we bridge the gap?
Well, experts may know better than we do. If consumption is 20 million tonnes, it means everybody will be busy. The 300, 000 tonnes being produced, are they able to sell? It depends on the product we are talking about. If you are talking about iron rod, importation has been reduced drastically. There are only few places you will see imported iron rods today, unlike the past when you can find it in every nook and cranny of Nigeria. Most of the major projects are using Nigerian steel. But then, how many projects. If the consumption is 20 million and production is 300, 000, there shouldn’t be breathing space. We are supposed to work 24/7.
Local production of steel, it is believed, will significantly reduce Nigeria’s importation of steel and save the country a whooping sum of $3 billion in foreign exchange annually; how do you describe efforts towards the realization of this goal?
We have everything to produce steel, are we producing? Where we are supposed to start the production is Ajaokuta; are we? All the monies expended there, is anybody returning the fund to us? The answer is no. We have iron ore on the ground, excavate it, bring it out, process it, make steel out of it and stop importation. Today, the little effort we are making, we are using scraps which we already pay for. Majority of what is brought into this country is made of steel. When you throw it around, we pick them and turn them around. Those are what we use today. Railway wagons that have been there before 1900; abandoned commercial buses; they are no longer useful. We turn them round to produce iron rods.
But if you are talking about virgin materials, whereas we have them in abundance, excavate it, process them and make iron out of it. If we are not doing that we are still nowhere.
Do you think there is an international conspiracy, apart from the corruption that seems to have permeated the system, that’s making Nigeria unable to make that leap in steel production? Is the international community afraid of what Nigeria might become?
We can get it right. Take for instance, before the current president came in, were we making use of our refineries? Were they in production? Today, are they not in production? Yes. Another way to look at it is that in the past, government established the fertilizer company, Onne. They are producing today. The federal government established the petrochemical. Were they producing then? Today are they not producing? They have been privatised and given to the right people. The petrochemical is in operation today because the right people are handling it. In most cases in most part of the world, government will start something; sometimes they then lease it out to good people to run it so that the economy can rely on it. Very soon, apart from the government production of petroleum, the private enterprises are coming up. When that time comes, will it be possible to have shortage of petroleum? Federal government has given license to so many people to explore iron ore; maybe if they are supported with incentives, we might be able to produce steel.
There are small countries that are not as big as Nigeria that are producing steel. Turkey doesn’t have iron ore, but they claim they are the largest importer of scraps all over the world and they produce huge quantity of steel. The other day, at the D8, that was part of their presentation. If the government is ready, everything is possible. Before anybody can do anything, there must be discipline. The government must know where we are going. But most of the policy makers in Nigeria may not like what the present government is doing because people believe in eating what they can when there is any project. They don’t care whether the project survives or not. This is a place where they put you in position and your community will be congratulating you in the newspaper, so that you go and steal and bring them money. I do not know how many people will go to government project and will not steal. They are very few in Nigeria. But maybe the fear of Buhari will be the beginning of wisdom.
One of the key objectives of privatization is the desire to achieve profitability and efficiency. How will you describe the level of profitability and efficiency in your sector?
Efficiency is limited because we do not have the required technical level of development. For instance, towards the end of last year when we met with some other countries, we promised to go to Turkey in April, but we still have not been able to go. If you go out, you go to learn the way other people are making their own. Somebody who is not making money; somebody whose business is dying, you want him to come and go anywhere, where will he go? And it’s not government venture. Government has no money to finance you. And when you look at the whole setup, sometimes I’m afraid because Nigerian faces are being wiped out of the global steel industry. In the past, the faces you saw there were Nigerian faces; but today, non-Nigerians have taken over virtually everything and it will be a shame if we sit at the comity of nations with no industry. Local industries are dying and there will be no local industry to represent us at international forums.
How would you describe government’s commitment to repositioning the steel sector to access its own share of what has been estimated as $10 trillion worth industry globally?
If the government is ready, the first step is to produce the raw-material from the core. If you are still buying and bringing to process, what level can it take you? International delivery is a commitment. If America comes here and signs a contract with you, it means you are going to deliver as and when due, maybe for two years. Can you then claim you are looking for dollar to import your raw material? But if you have the raw material from the ground here, and you are able to extract it, process it and turn it into money, then we are talking. But without that, we are still not in contention. The global wealth can be $1000 trillion, but where do we stand?
In terms of commodity pricing, if a lot of import is done by your sector, it means you must be following prices across the world. How are global prices impacting businesses, like yours?
Everything is being controlled by those prices. For instance, if you are talking about aluminum, it is about London Metals Exchange (LME). The Chinese have theirs but then, where can you get to buy? So, whatever they buy is what controls everything both in Nigeria. Sometimes, Chinese prices can be high; it can be low but then who are you when you cannot produce your own. Whatever prices they want to sell, you have to buy.
Are you saying you are at the mercy of global pricing?
It is not about being at their mercy. It is the global price mechanism that controls everything. You have no choice. Yesterday’s LME is different from today. They are trading now and after the trading, you will see whatever the price is today. If you need it, you have to pay the price. Even in Nigeria, when Aluminum Smelter was working, you would calculate the LME for seven days and pick the average. And then they add some margins depending on when you are buying. That is the way it’s being done everywhere.
You said in the next 10 to 20 years, steel, aluminum companies will die, can you elaborate?
It is not about steel and aluminum companies. In 2014, one of my friends, who is one of the major players in steel industry in Nigeria, called me. He said if you have someone who wants to put money in steel plant in Nigeria, tell him to hold on. I said why? He said because in the next two to three years, there will be so many plants that would be available for sale. And you don’t need to go far. If you go on the internet, you will see so many companies that are up for sale, both small and medium and large industries. They are there and our fear is that, who will buy? They are advertising because they owe banks. The banks want their money. There is a major crisis now. Hopefully, as we are going now, the government will refocus more on the industry. They have tried as much as possible to sanitise the system. The sanitisation of the system will continue. The cheap funds are no longer there. The stolen monies are getting dried up. The real monies are now coming to play, but before we benefit from the real money, we still have to pass through difficult times. There is no doubt about it. But today, I’m sorry to say, so many companies may not survive it. How will you survive a situation where you owe the bank, they are putting pressure on you and you have no new fund to inject into your business, so how are you going to survive? Even if you produce and the purchasing power is not enough to buy, how are you going to survive?
Your friend said in two to three years time, ask them to wait, that there would be many companies available for sale. Has his prediction come true?
Yes it has come to pass in the sector. Apart from steel industry, which industry do you know, that are smiling today? Maybe, the food industry; but how many in the food industry are happy today? If you talk about textile, how many textile companies are in operation? If you go to drug manufacturing, what is the level of their inventory, because they couldn’t sell? So, there is a major issue.
What would you outline as the big impact situation that the steel, aluminum subsector and manufacturing as a whole faces?
If we are talking about manufacturing, there are stages. There are light and major industries. Most of our policies are still creating a lot of ambiguities. You have a product that if you import, you pay five percent to the government and you want to produce in Nigeria and survive. Whereas to manage your equipment, hypothetically, let’s say heavy bearings, you will pay 10 percent on engineering equipment. Where is the sense in that? And when you bring those things, what you are going to produce will carry five percent duty. You are not being protected. We must sit and look at what we actually want to do. If anybody wants to import any machinery, categorise it. They don’t need to meet anybody. Put the correct duty that they need to pay. If I want to import any equipment, I don’t need to go and see anybody, but the government must have put in place a policy that will make sure you are better off. Where are the incentives? We believe this is crisis time and it is always better to be in crisis, so that you can repackage yourself. And as it is today, it is in repackaging time. Those that will be able to survive it will, of course, do well, but they need government to do it right.
You talked about appropriate tariff for production equipment. Should this cut across all sectors of manufacturing?
Tariff should be tariff. Generally, you don’t need to go lobby anybody to import your equipment. But if to be able to benefit from zero percent, which is normal for manufacturing, I still need to go and see someone, it’s wrong?
You said stolen money is getting dried up and the real money is coming into play, could you please expatiate on this? What is real money?
Real money is sweat money. Sweat money is the money you work for. Or are you telling me that as it is today, it is still the same thing it was years past. In other parts of the word, people live on their salaries. Maybe the salary is small, but you don’t have any opportunity that someone will come and give anything to you in your office. If you work in England, America or in other parts of Africa, nobody is coming to give you anything. There is no basis for you to expect anything. But in Nigeria, if you ask any civil servant, they say, how much salary is. Even in the private sector, most people don’t want to join the company because of the salary; they want to join because of what they will be able to pilfer. Stolen money will affect the economy.
Given where we are coming from since 2014, looking ahead, what kind of projections will you make regarding the future of the Nigerian economy?
Whether we like it or not, Nigerian economy will not die. As it is, if we strive through this tough times … it was like this before, but we came out of it, and it was far better. The only difference now is that the government is trying to streamline things. Whether anybody likes it or not, Nigeria is growing. You can walk into the petrol station without cash. You can pay electricity bill without cash. You can pay your tax without cash. Gradually the level of pilfering will reduce. Whatever it is, you will discover that things will change for good, but the government just needs to do more so that we don’t continue to lag behind. As bad as it is now, in Africa, we are still one of the leading nations when it comes to manufacturing. But then, we have the largest population; our economy is the largest and we need to do more. Do more in the sense that the government must protect that industry to enable them stabilize and grow. Where there is no stability, you can’t grow.
I’m bold to say that when we started coil coating operation in Nigeria, they didn’t know what it was in China or other places where they were producing aluminum; and we were producing large quantities. But today, they have taken it over. If we had been protected, it will still remain our main trade line. Then we can export, but where are we today?
In any case, any country that cannot produce its steel is still sleeping. We look at aluminum for roofing sheet, but there is virtually nothing you will do without aluminum; from your car to your aircraft, drink, yoghurt, medication, aluminum is involved but have we started? The answer is no. Government must try as much as possible to make sure they create the enabling environment. The equipment we have in place should be reactivated and put into use so that the future can be better.
We are expecting a new minister of mines and steel development to be appointed. The one that has resigned has set in motion certain things regarding the ministry and the sector. Do you have any message for whoever is coming to take over?
I’m not interested in who occupies the place, but I’m only interested in the right policies. There is no reason why we should put heads together and because the occupant of the seat resigns, they should start another, no. If it is a good policy, why not?