Govt’s position on fuel subsidy removal totally illogical, says Osibo
Monday, 09 January 2012 00:00 BY ADE OGIDAN and ROSELINE OKERE
What is the present state of paint industry in the country?
There is not much difference from what it has always been. You could look at the state of the industry in many ways, like the cost of survival or cost of continuous survival and the market potentials. These are the most important things. Like how easy it is to continue to survive in the environment, how buoyant is your market and your own efficiency in between your top line and the bottom line, also come into play.
The paint industry, unfortunately, in this country, is mostly associated with the building and construction industry. Because painting comes in at the last stage of construction, it suffers neglect. The reason is because by time the building is completed and ready for painting, you would have spent a lot of money. You would have over built. You would have spent so much on cement, concrete, iron rods and many other materials.
Another reason is because, a lot of construction in the country is done by personal funds, so, by the time you get to the painting stage, the whole money would have finished. Unfortunately, we do not realise that what we put into a construction is for investment and that the investment needed to be protected. Paint, apart from making the building beautiful, also protects. For instance, no car is ever sold if it is not painted. The paint protects the car from rust. If the paint in the car trips up and it is not repainted immediately, it will begin to rust and you could have a hole developed. That shows that the car is not protected and it could lead to more damages. Also, houses that are not painted could easily wear out because of activities of other elements. The house could also be damaged if the paint is of low quality.
So, paint, as a protective element has not been really acknowledged by the people. It is damaging to use inferior paint or not painting at all. Also, in this country, we do not have a good maintenance culture, to prompt us to continuously repaint our houses. Another problem is because many of us live in other people’s houses as tenants; so, we do not really care about the maintenance of the house. Also, due to shortage of housing, the landlord does not care about maintenance because; he believes that somebody will definitely take the house irrespective of its state.
There is a huge shortage of housing of about 15 million units in the country. With that kind of shortage, people can get away from maintaining their houses. If a very good mortgage housing scheme is encouraged, we will not even have any problem building our own houses. People will prefer to purchase a house rather than spending so much to build. If we adopt mortgage housing, we will end up having better houses in the country.
I really do not think we at a stage, where we begin to talk about export market because paint products are coming in, but not going out. Some us have tried our hands on exports and it has its own difficulties. There is no company in the paint industry is actively engage in export at the moment.
What is the level of competition between Nigerian paints and the imported ones?
I will boldly say that about 20 per cent of the paint consume in this country are imported. The most unfortunate thing is that the paints that are coming into the country are for use on government projects, which is a little bit sad. No individual will go ahead and import paint for personal use. The foreign companies, which are the major contractors of government on construction projects are the ones that actually import paints for government’s projects. The whole idea of Ghana being a better investment destination is also having a threat. Those companies which are planning to set up factories in Ghana to manufacture paints are only seeing Nigeria as a potential market. They only want to pitch a tent in Ghana and thereafter, export to Nigeria. There is new technology also coming in as we now have computer finished paints and is also threatening the market.
How is local production cost impacting on competition?
At least, 60 per cent of the materials being used in the paint industry are imported. If the national development agenda had been positive, our raw materials should have been coming from the local petrochemical industry. We are still importing our raw materials despite the local facility for petrochemical production in Nigeria. The cost of importation of raw materials is one major challenge facing the paint industry. Even the raw materials we buy locally, are also imported by the company that we buy from. We all understand the difficulties associated with importation in this country as cost of the dollar to a Naira is always going up, coupled with the difficulties at the ports, multiple taxation and delays. All these add up to the cost of production. When you finish making your paint, it becomes another story entirely getting it to the market. A company like mine has 15 depots all over the country. It is not possible to own your own fleet of lorries to distribute to all these depots because you want to be efficient. There is also linkage with transporters. The transport business has its own difficulties. The roads are very bad; the lorries owned by the transporters are old and rickety. They were brought in as fairly used, probably after being used for more than 15 years abroad. There is always constant breakdown of these lorries. There is no security. The factors that affect the cost of production are well known and these also add to our costs.
Does the preference for imported paints by the foreign contractors has anything to do with the quality of Nigerian made paints?
It is not that they do not have confidence in paints manufactured in Nigeria. In fact, if it has to do with quality and confidence, they should be buying Nigerian paints. If you make paint in Germany, there, six months in the year, the temperature is very, very low. In some months, it is even below zero, and making your paint for that climate, and you now bring that paint to Nigeria and take it to Maiduguri, where the temperature is on the high side almost all year round, such paint is unlikely to survive on your wall. In Nigeria, we have places like Bonny for instance, where your wall is wet nine months of the year. If you just go to the United States of America and buy paint because it is manufactured abroad to use it in your house on the creek, it is bound to fail the water resistance test. Those foreign contractors do that because of their own patriotism. This is because almost all the materials they use have import waivers because they are government’s contracts. These contracts are really, really big, some worth billions Naira and the government will want to give them waivers. If you allow them, they will even bring water from their countries. So, it is not because of lack of quality, but due to their lack of patriotism in Nigeria. It is unfortunate that they do not want to give back to the country, what they get to support the growth of their own countries. There is no aspect of construction, where these foreigners do not want to import everything they need to execute a contract. There are lots of jobs that could be executed by Nigerians, which these foreign companies still import their people to execute. Many of these so-called expatriates are not even as qualified as Nigerians. So, it does not have anything to do about the quality of Nigerian paints. It is not everything that is manufactured abroad that is of good quality.
Shouldn’t government be blamed for this?
Of course yes, but what can we do? The government, at the end of the day, is the supervisor of everything. So, if it gives preferential condition to some people on their own project, there is nothing we can do. I remember very well that in the days of former President Olusegun Obasanjo, he made a categorical statement that all building materials should be sourced locally. All that did not translate into a sustained policy thereafter.
Has your association tried to petition the government over this issue?
We ‘ve sent several memoranda to the government, through the Manufacturers Association of Nigeria on issues besetting the industry. The textile sub-sector may be in a worse situation than the paint sub-sector. Theirs was more critical. I agree that the average textile factory is more capital intensive than a paint factory. Another thing is that the cost of establishing a paint factory is much more lower than the cost of setting up a textile firm. So, before you actually set up a textile manufacturing plant, I have worked in one so I know much about the sub-sector. In our own case, what we have been trying to do, is to get government to realise that some of these things we can produce should be given the necessary protection. We know that there are some our raw materials that we may not have control over, in the sense that they cannot be manufactured here in Nigeria. Government is listening, I must really, really say. There was a meeting recently, where four departments of government came together to meet with the chemical and paints sub-sector, because they wanted to know what the problems were. They trying, but they are not doing enough, I must say.
How do we solve the issue of sub-standard paint in the country?
Faking of paint products in Nigeria is a very serious issue. It is a big problem and it comes in many ways. It is either they are using your brand name to sell fake paint or repackaging a low quality paint on a high quality paint. It is so rampant that we have been fighting the saga for so long. Some people are fully into that kind of business permanently. Unfortunately, the laws regarding prosecution of culprits are very, very weak. Just like in some other countries, people are afraid to go into crime because of the possibility that you may be caught and punished. In this country, crime is very lucrative because there is possibility that you may not be caught, even if you are caught, you will cheaply go out of it. In this paint business, it is thriving because there is the possibility that you may not be caught, and even if you are caught, the penalty is very minor. If you may know, in this sub-sector, if you are caught adulterating paint, the penalty is N1000, so I could decide to go into it and be caught up to 10 times a day because of the mild penalty. Until that law is changed, people will continue to thrive in their faking businesses.
So, adulteration of paint products persists. We have tried on our own. On some occasions, we have destroyed their facilities. Unfortunately, it has not helped.
Have you been interfacing with the Standards Organisation of Nigeria on this?
We are cooperating very well with SON. The organisation has come in to set the standards. The fact that you are making low quality paint is not a crime. Paint can even be made from the back of your house. What SON is trying to do, is to get you to realise that you need to make it up to a certain standard. Even, that is a bit difficult due to the size of our membership. We have over a thousand members both big and small, registered and unregistered. What SON is doing is to ensure that the manufacturers are able to produce up to a minimum standard. If you must make paint, try and make it up to a certain standard. So, SON is assisting very well. They are setting up laboratories, they are now well equipped. They are now quite serious about standardisation and certification. The problem is that we have not developed to that stage as a nation where you will reject a product because it is not certified. I think by the time we get to that stage, it will work better. SON is doing a lot at the moment. I think with better cooperation from both sides, things will be better.
The recent removal of fuel subsidy by the government has shot up pump prices of petrol. What are the likely impacts on the manufacturing sector?
The impacts are direct and obvious. If the price of a component of manufacturing goes up, the prices of the products will automatically shoot up. There are also indirect costs that we will also contend with. Despite the fact that diesel and black oil prices had been deregulated, the new high cost of petrol will add to the total cost of operations. You know, the Small and Medium size industries use more of petrol than the big companies for direct production. It also has to be said that big companies run fleet of vehicles that use petrol, besides the fact that our products also get distributed by petrol using vehicles.
On a more worrisome note, workers will now start clamouring for salary increases, as the new fuel price has directly decimated their respective incomes. It has now made last year’s salary increase to become obsolete. This is clearly an avoidable crisis. One will find it difficult not to appreciate the workers’ plight as the resultant decimation of the respective incomes could lead to worsening living conditions and lower productivity.
The totality of the effects of fuel subsidy removal will definitely be negative on the industrial sector, in terms of development and growth.
Are you affirming that the fuel subsidy removal was ill-advised?
Certainly, it was uncalled for. By government’s argument, there appears to be no subsidy in the first place that was said to have been removed. The figure the government had been mentioning was only a product of corruption, a clear concoction by a group of people for their own selfish interests.
How do you mean?
The Governor of the Central Bank of Nigeria, Lamido Sanusi, at a recent forum attended by some of us, said he received some import documents affirming that some fuel imports were not real. The false importation figures are manifestly a component of the N1.3 trillion subsidy level, which the government claimed to have paid last year. Now, the puzzle was how the payments were approved, despite the detected anomalies. Why did the CBN governor not bring up the issue earlier as a criminal case? How did the government exceed the N240 billion subsidy budget to such a whooping N1.3 trillion without eyebrows being raised or queries being issued? How much fuel did we consume that made the subsidy jump to N1.3 trillion from N240 billion?
Again, we all know where to buy fuel for importation into the country to make up for shortfall in local [production. Why did the government not effect the importation directly itself, rather than give mandate to private companies that would profiteer immensely from it, at the expense of the people?
Also, look at the demurrage issue incurred by the country for the fuel importation. Why should the government pass the inefficiency of port operations to the consumers. To some of us, looking at the various regimes of fuel subsidy removal since the era of Babangida, the subsidy itself must have been over-removed years back. I need to stress again that the government’s argument over the subsidy issue has no leg to stand on. It is the cardinal mandate of the government to make fuel available to consumers at cheaper rates, as an oil producing country. Doing otherwise is a clear abdication of governance mandate.
But the president at the weekend, announced 25 per cent cut in the salaries of political office holders and reduction in foreign trips…?
I laugh. What is 25 per cent cut in the basic salaries of political office holders, when under the current corrupt system, they can do away even with the salaries? The President needs to address the burgeoning allowances, easy access to public funds by these officials even when the expenditures are not auditable. President Jonathan also needs to address the issue of long official convoys, as the vehicles are being fuelled by tax-payers. Essentially, the corruption saga should be tackled frontally. At the end of the year, if the president pursues these options, the government would have saved over N2 trillion, over and above the N1.3 trillion it is targeting from the so called fuel subsidy removal.
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