Budget delay can hamper growth
The Managing Director/ Chief Executive Officer, Coleman Wires and Cables, Mr. George Onafowokan, speaks on the need to expedite the resolutions of the issues delaying the 2016 budget in order to kick start the economy for real growth.
What is your view on the 2016 budget?
We got this six trillion naira budget which to us is fantastic and very unprecedented with the size of the capital budget. But it is not good enough when we increase the recurrent expenditure in the same way we increased the capital budget.
We had N4.9 trillion the year before and we are now having a N6 trillion budget this year with a N1 trillion difference. If we have the difference purely in the capital budget then everyone would have been happy.
There is the argument of job creation but from the efficiency and waste cutting measures we have, the government would not need an extra spending in recurrent expenditure.
Besides, when we put money in capital budget we are also creating jobs because there is no capital project without a supply chain effect. The money we spend on building for instance, the people will get jobs
The element of spending our way out of trouble is what we want to try and do and it makes a lot of sense if this budget is implemented on time. There is no point in saying we have 30 percent for capital projects and at the end of the day we cannot achieve much with that figure, then we will not see the job creation effect.
If things go right as we strongly believe because people are quite optimistic about this government’s ability to achieve between 70 and 80 percent, by 2017, we will then start pushing for a further increase in the capital expenditure.
How is the budget going to affect the manufacturing sector?
The budget is going to affect us positively if it is passed as early as possible. We see clearly that the capital component will drive production especially in the works and housing sector.
We are aware that steel rods and twisted rods are produced in Nigeria and you cannot build a house without steel rods. So it will guarantee production which will in turn guarantee expansion.
This also goes for the cement manufacturers and the cable manufacturers as well because these are necessary components in every construction.
So we see a very big positive, we see a general increase in manufacturing locally. that is why we are calling for early passage because if a budget is delayed, it also hampers growth.
Based on the information we saw in the budget proposal, most manufacturers and businesses start making projections against it.
As much as I agree with the President to see some of the fine prints of the budget, the earlier we sort these grey areas, the better for the economy.
Foreign exchange scarcity is another nightmare for manufacturers, would that not going to block the gains you expected?
That is the only sad part of this budget because the budget is only as effective as we can guarantee supply. A particular aspect of this government policy as reflected in the budget is to increase real sector participation in Nigeria in a bid to increase local content or what we call the 'Nigeria-ness' in our products.
Let me share the experience of a manufacturer colleague who took N600 million from the Bank of Industry (BOI) for machinery and expansion based on his projections on this budget. For three months he could not get one dollar to convert this facility and procure his machinery and he is paying BOI interest on a monthly basis. So he said BOI, "please come and take back your money". Because he cannot continue to pay interest for a project that would never take off if the machinery are not imported.
We understand there are constraints, but if the focus is the real sector, the government must be prepared to bite the bullet for the long term benefit. This guy that had borrowed for machinery, you must guarantee he gets the forex and the raw material.
If we don't do this, this fantastic capital budget will become an import budget also. If a manufacturer cannot get N600 million, you can imagine N1.8 trillion coming into the economy and you need about N1 trillion of that as forex to import machinery and raw materials
Frankly, we have seen increased capacity utilisation. For the first time we used our hours very effectively with 80 per cent capacity utilisation in a particular shift. But systematically, raw materials started running out and those percentages have started dropping.
As they dropped, rather than the cost of the goods reducing, the cost of goods increased. The word ‘Forex’ now means uncertainty. We are not sure when we will be able to get it. We can’t make plans because we don’t know when next we will get raw materials.
That uncertainty is why government today is overburdened because if I have a business and have run out of a lot of business deals; instead of ordering raw materials on a month-by-month basis, because of uncertainties, the minute I find Forex, I will try to buy so much raw materials because I am not sure when next I will have access to Forex.
What is happening is that there is a flood of demand, which in my own view is not real demand because the uncertainties have created added requests. This is because there is no guarantee of what tomorrow will be on Forex. They are making astronomical request on the Forex that is not necessary. For us, we are struggling to get today and we are one of the few that are getting once every two to three months. That doesn’t help capacity utilization.
Do we have the capacity to produce the quality of material that would be required in our economy?
If we do not believe in allowing time to take effect on any product, we will never see improvement in that product. All the countries from where we import and talk about their fantastic products started somewhere.
When our government banned canned juice, we all screamed in this country that nobody can make this juice better than the ones imported. At that time, we had Fuman and Chivita, they existed, but nobody patronized them. Today 90 percent of those quality juices are made in Nigeria and people are not interested in the foreign ones.
They may not be the best when they started but today the ranges are there and the taste buds are also there.
We do because in recent times, many companies like Coleman have invested in expansion. Today, Coleman has over 4,500 tonnes a month copper capacity and over 3,000 tonnes a month aluminium capacity.
The combined capacity of every other company in West Africa is not even up to half of ours. We are not utilising it because unfortunately we don’t have a situation where the government is encouraging local buy as much as they should.
You spoke to us previously on the positive aspect of the forex constraints, how does that work?
Based on the current situation, access to forex is so tight because we don’t have enough. The situation has given us an opportunity to have a peep into government infrastructural projects. We are shocked at the size of some of them which we have seen in the last six months.
Because the contractors could not get forex, they started looking for local solutions. we have learnt about projects we did not even know existed because the contractors were used to getting the money from the government and going to their countries to import every cable. Now because of lack of forex, they are forced to look for local solutions and they are finding them.
We have found these government projects that are so huge and you wonder why they will allow the huge funds to leave the country. We are not encouraging internal growth. Why will a Federal Government project be totally import-dependent? The money is supposed to be for all of us. If the government is giving money to contractors to import 90 per cent of what they need and only 10 per cent goes towards the labour, then we defeat the point of the growth.
Growth internally through government infrastructure projects is not determined when 10 per cent of the money stay in your country; it is achieved when 90 per cent stay within the country and 10 per cent go out.