When Kazeem Ganiyu shut down operations at a bakery in Muslim-Odinjo area of Ibadan, Oyo State, last February, he lamented the rising cost of production and the ripple effect on the market. Mr Kazeem told PREMIUM TIMES that as a baker, he could no longer cope with the rising cost of materials needed for baking because the cost of production had pushed away many of his suppliers.
“They (retailers) complained at the time that our bread was too small, and we started recording poor patronage. Yet, the cost of baking materials had skyrocketed,” he told PREMIUM TIMES in an interview.
“The challenge is that we could not break even, pay staff salaries and all that. I had to quit. Sadly, things have even gone far worse than it was at the time I shut down operations in Ibadan and so has the food situation in the country.”
In March, a report by the United Nations Food and Agriculture Organisation said that about 19.4 million people will face food insecurity across Nigeria between June and August 2022. The report, put together by the Federal Ministry of Agriculture and Rural Development and other stakeholders, analysed acute food and nutrition insecurity in the Sahel and West African region.
The report identified insecurity especially insurgency in the North-east states, mostly in Borno, Adamawa and Yobe, armed banditry and banditry in some North-west states such as Sokoto, Katsina, Zamfara and Kaduna States, as well as North-central states of Benue and Niger as key drivers to the upcoming food crisis.
An equally bigger problem, it said, was high inflation in soaring food commodity prices, which could be associated with an economic downturn, which will ultimately contribute to the hunger crisis.
Global Crisis; Local Effects
Russia’s invasion of Ukraine in late February dramatically worsened the outlook for already inflated global food prices. The war disrupted the food supply chain, especially grains, from leaving the “breadbasket of the world”, shooting up the prices of food across the globe.
The development is poised to worsen shortages, hunger, and political instability in many struggling economies, including Nigeria, since Russia is the top global fertilizer producer. Also, about 90 percent of wheat and other grain from Ukraine’s fields are shipped to world markets by sea but have been held up by Russian blockades of the Black Sea coast.
Global food prices were already climbing before the Ukraine-Russia face-off, but the war has worsened the situation, making it difficult for traders to import some 20 million tonnes of Ukrainian grain into countries in the Middle East, North Africa, and parts of Asia. Russia and Ukraine export nearly a third of the world’s wheat and barley, more than 70 percent of sunflower oil, as well as corn.
Some agro-allied importers and manufacturers who spoke to PREMIUM TIMES lamented the impact of the war on their supply chain. They also lamented the duty evaluation on some essential commodities and raw materials for food processing, saying that the situation threatens the efforts of Nigerian food, beverage, and tobacco processors to counter the shortfall in supply amid global supply disruptions buoyed by the Russian-Ukraine war.
‘Duty Burden’
A manufacturer and another importer, who both spoke to PREMIUM TIMES under condition of anonymity, complained about the nation’s import duty pricing of some critical raw materials which are being valued based on spot price instead of the transaction value of the commodity.
They also argued that the Customs randomly adopt prices without considering importers and manufacturers who may have secured goods at cut-rates based on records of trade partnership and long-term business relationships.
According to details of import duty payment on the website of the Nigerian Customs Service, importers are expected to pay an administrative charge of 1% of FOB value of all imports based on the exchange rate on the approved e-form M.
“All imports shall continue to be assessed for duty at the C.I.F (Cost, Insurance and Freight) value of the goods using the rate of exchange on the approved e-Form M,” the details of import duty payment shows.
Importers allege that Custom officials often resort to spot price valuation using a global price benchmark of the goods and raw materials at the time of duty calculation.
“The problem with this valuation system is that it is a ‘burden’ for manufacturers who get their supply from long-time traders and suppliers at rates far lower than the so-called global benchmark rate,” an importer told PREMIUM TIMES.
But a customs official, who does not want to be quoted because he was not authorised to speak, noted that the service adopts WTO agreement on value which allows the use of the transaction value as presented in an invoice.
However, he said they consider the international benchmark whenever there is a conflict in the rates quoted by importers and the prevailing value of the import. He wondered why some businessmen choose to reflect a reality that is at variance with the reality of the world.
He added that the Customs isn’t responsible for the rising cost of goods across the world, noting that although manufacturers face challenges, the issues can only be addressed by the government.
Customs Speaks
Timi Bomodi, the national public relations officer of the Nigeria Customs Service, corroborated this view by stating that the Custom Service acts within extant rules in the discharge of its duty of facilitating trade. He noted, however, that when there is discrepancy in the transaction value as presented in an invoice and global economic realities, Customs adopts the global price benchmark based on value.
“The reality is that it’s a global reality. If for instance they are complaining about what is the duty on wheat for example, the duty on wheat hasn’t changed. It has been the same now for, say, the past 10 years,” he said.
“But the value for duty can change and it all depends on what the prices globally are. Our own is to capture the real thing. If for example, globally, the price of a commodity has gone up, do we say because the price has gone up then we will have our own different value for wheat?”
He explained that under-declaration, which is designed by some manufacturers to cheat the system, remains the crux of the matter. He wondered whether it is fair for a manufacturer to import goods at, say, N10 per tons, and then declare to customs that it was N5 in order to cheat the system.
“We expect that when people come to us, that they are honest in their declarations to us. Every other consideration is beyond us,” he said. He suggested that manufacturers should appeal to the government for possible adjustment, so as to ease the pressure on them and the consumers.
“Government hasn’t raised (the) duty on import, but what they will pay on import can go up based on the fact that the international prices of these things have gone up. Why are they expecting us to accept prices that we know are lower than global prices?”
“We only say anytime you come to us for the purpose of taxes or duty, tell us the truth,” he said.
Uncertainties loom
In July, the Monetary Policy Committee of the Central Bank of Nigeria unanimously voted to increase the benchmark interest rate (monetary policy rate) to 14 per cent from 13 per cent, the second hawkish move by the apex bank in 2022 to check rising rate of inflation.
The bank said it was part of its move to arrest the nation’s rising inflation pressure which has resulted in skyrocketed prices and rising social tension ahead of next year’s general elections. But despite rising rates and deep concerns among businessmen who have been restricted from accessing bank facilities, Nigeria’s inflation rate continued to rise exponentially, 20 per cent above the World Bank’s projection of 15.5 percent.
The National Bureau of Statistics said that the nation’s inflation rose to 18.60 per cent in June, the highest since January 2017 when it was 18.72 per cent. “In June 2022, the inflation rate increased to 18.60 percent on a year-on-year basis. This is 0.84 percent points higher compared to the rate recorded in June 2021, which is 17.75 percent,” the NBS said.
Dotun Oke, a policy analyst, told PREMIUM TIMES that the inflationary pressure has had an enormous effect on the manufacturing sector, pushing many industries out of business. This has been worsened by the nation’s electricity challenge, constant hike in diesel price, and scarcity of forex for businesses and investors, he said.
In 2022 alone, Nigeria’s electricity grid has collapsed more than five times, throwing households and businesses into darkness.
Due to a ghastly combination of dollar shortages, poor logistics, infrastructure decay, difficulty of doing business and electricity, a Punch report said earlier in the year that more than 50 Nigerian manufacturing companies had shut down in the last five years. Some of the manufacturing companies that have exited the industry in the last five years include: Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries, Stone Industries, Solo Industries, Quick Born Industries, Supercor Industries, Arabi Industries, and Rola Industries.
Despite the increasing price of crude oil, Nigeria’s external reserves depreciated by $1.37billion or 3.37 percent in the first six months of 2022 to $39.16billion as of June 30 from $40.52 billion it closed in 2021, according to data obtained from the Central Bank of Nigeria (CBN) daily reserves’ movement. This has put enormous pressure on the naira, which crossed the N700 mark against the greenback a few weeks back amid forex scarcity but now hovers around N685 today.
The National Bureau of Statistics (NBS) said recently that Nigeria’s headline inflation rate increased to 19.64 per cent on a year-on-year basis in July, amid soaring food prices.
Nigeria’s food inflation rose in June as the composite food index rose to 20.60 percent, according to the NBS. The rate of changes in average price level, however, declined by 1.23 percent compared to 21.83 percent in June 2021. Nevertheless, analysts opine that the nation must address the rising food inflation by supporting manufacturers with the right policies.
“The government and the CBN must be deliberate about supporting the manufacturing sector and not crowding out businessmen by providing the right incentives and policies to facilitate growth,” Mr. Oke said.
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