BEVERLY HILLS, May 02, (THEWILL) – BEVERLY HILLS, May 02, (THEWILL) – The high rate of insecurity in the country is a serious cause for concern to manufacturing companies and other operators in the real sector of the economy. The menace which was first noticed in the early years of Nigeria’s return to democracy has grown into a monster.
For instance, it started with the kidnapping of foreign oil companies’ workers for ransom by the Niger Delta militants who were demanding for resource control in their region. Later was the localized Boko Haram menace in the North East demanding for institution of Islamic country/ideology amid its total rejection of Western education.
These problems have escalated into greater dimensions. Nigeria is now facing increased insecurity crises in form of terrorism, kidnapping, banditry, herdsmen attack on farmers and other cases of insurgency resulting in unwarranted killing of innocent citizens across the country.
These challenges, put together, have affected the activities of manufacturing companies, with some either shutting down completely or relocating their operations within the country. Others have left Nigeria for other West African countries.
It is on record that Boko Haram insurgency has led to many manufacturing companies withdrawing their presence in the North or shut down operations amid worsening insecurity. Among the challenge to corporate bodies include the damage to telecoms masts thereby making communications difficult in those areas.
Manufacturing companies operating in other parts of the country but depend on agricultural produce from the troubled region, find it difficult to get raw material supplies as farmers no longer go to their farms for fear of attack by herdsmen. This situation has resulted in many firms losing revenue, as their goods cannot be sold.
With all these, and the rampant kidnappings on major highways in some part of the country, at times caused by dilapidated spots, some roads have now become no-go areas, making traveling difficult, thereby reducing production capacity
The result of this is the death of economic activities as agricultural produce and finished goods have been badly affected. This means no significant investments in the North-East region for now and, perhaps, in some other parts of the country badly hit by insecurity.
It is this very worrisome security perception that made Nigeria ranked 148th out of 163 countries by the Global Peace Index (GPI) 2018.
Backward integration and beyond
The development has serious impact on manufacturing companies which adopt the backward integration policy – that is local sourcing of raw material. It also affects the raw material producing small and medium enterprises (SMEs) which feed the larger manufacturing outfits.
Then, for those companies that managed to get raw materials from other areas, they produce and sell at a high cost to the end users, who bear the brunt of insecurity. This also impact the companies’ top and bottom lines.
Some of these locally-sourced raw materials include rice, sorghum, wheat, groundnuts, cashew nuts, sugar cane, and many others.
It is pertinent to point out that insecurity has worsened the plight of companies as foreign investors are now scared of investing in Nigeria which is a minus to local companies that would have benefited from them, in a way or the other.
At the end of the day, efforts at trying to create jobs for the teeming unemployed in the country through these companies, is defeated; there will be no meaningful development in such devastated areas as most infrastructures there would have been destroyed and no new ones built.
The case of Nigerian Breweries, a company that gets most of its local raw materials from the North, and has a location in the Kaduna South Local Government Area of Kaduna State as well, gives a good picture of the effect of insecurity on manufacturing firms.
According to Chief Kolawole Jamodu, chairman, Nigerian Breweries during his address at the 73rd Annual General Meeting (AGM) in 2018, the loss recorded by the company was due to harsh business environment, such as low customer’s purchasing power, lack of expected improvement in the state of social infrastructures like access roads and power and insecurity.
Guinness Nigeria in 2019, recorded a low performance as it posted revenue of N131.49 billion in 2019 as against N142.97 billion in 2018. Profit before tax in 2019 was N7.1 billion as against N9.9 billion in the previous year. The chairman cited hostile operating environment where distribution is affected by widespread insecurity across the country.
“The nation’s socio-political and economic environment remains increasingly challenging for the company resulting from poor multiple taxation and high interest rates, insecurity, infrastructure significantly under-developed as getting out imported raw materials and the general poor state of our roads and transportation network, are prevailing.
“The challenges enumerated above have in no small measure contributed to the high cost of doing business in Nigeria and a drastic reduction in consumer purchasing power. For most companies, margins continue to decline with profitability under immense pressure”, the company Chairman, Babatunde Savage said. This is only a glimpse into how insecurity has affected manufacturing companies’ businesses in Nigeria.
Industry experts believe that a lot needs to be done to curtail the insecurity situation in the country, so that manufacturing companies could operate viably.
Ambassador Ayoola Olukanmi, Director-General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), at a recent conference on review of Nigeria’s Foreign Policy in Abuja, said there is the need for significant improvement in security across the country in order to ensure confidence of foreign investors in the Nigerian economy.
While also reacting to the recent figures on inflation rate in the country released by the National Bureau of Statistics (NBS), which showed a surge from 17.33 percent recorded in February 2021 to 18.17 percent in March, as well as the rising cost of food, Olukanmi said “Most significant in this regard is the issue of insecurity, which is spreading across the country and its consequences on agricultural production.
“Steps must be taken by the government to arrest the trend. In all of these, perhaps most important is the issue of insecurity. An enduring solution must therefore be found to the problems of banditry and other sources of insecurity across the country”.
Similarly, engineer Frank Onyebu, Chairman, Manufacturing Association of Nigeria (MAN), Apapa Branch, in one of his write-ups recently said drastic measures have to be taken to tackle “our worsening security challenges. There is a symbiotic relationship between unemployment and insecurity just like there’s a relationship between security and the economy”.
Also, Olumide Adesina, a member of the Chartered Financial Analyst Society, in a report by The Africa Report, recently said, “It’s critical to note that certain aspects of Nigeria’s financial markets are largely affected by the prevailing violence sited in the northern part of Nigeria … investors hearing such news about Nigeria’s rising insecurity and unrest, are changing their plans because issues of rising security are paramount to international investors”.