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Reverse integration into sugar, cement and butter: who benefits?

Reverse integration into sugar, cement and butter: who benefits?

First there was sugar … then cement … now oil refining. The cycle of research into protectionist reverse integration policies to protect multiple actors in limited sectors continues to repeat itself. Only then, what should strengthen our collective economy is to protect some large companies and shut down others, thereby holding Nigerians hostage.

Let’s face it, we’ve seen this before, with all kinds of initiatives in different areas. One of Nigeria’s greatest businessmen is determined to enter a new industry. The government is doing its best to support this dream through various incentives, because it is supposed to “support the economy and make products / goods more affordable and accessible.”

What always happened afterwards was that the government-backed reverse integration plan was backed by the same entity, which is almost always the main driver in the private sector. This is followed by a systemic closure of the workspace for others, which begins to occur against the backdrop of a gradual rise in prices. However, local production of these goods is increasing. Why, then, does Nigeria continue to provide such a policy for the benefit of some, even if the benefits have not diminished as promised? Have these so-called reverse integration programs ever helped or provided sustainability?

Let’s look at the sugar industry in Nigeria, a prime example of the success and failure of the protectionist backward integration policy (BIP). Twenty years ago, during the then administration of President Olusegun Obasanjo, a policy of reverse integration of the Nigerian sugar industry was pushed to ensure that the Big Three sugar factories – Dangote, BUA and Flour Mills established sugar plantations and were able to make this is. use domestic sugar instead of imported raw sugar. This was aimed at lowering local sugar prices and deepening Nigeria’s sugar industry. Has it worked so far? Is sugar cheaper? Is the market accessible to smaller players?

Twenty years ago, the Dangote Group bought out Savannah Sugar after being acquired in a privatization process. How did they do it? Many speculate that savannah sugar may be poorer because of this. Apart from minor investments in new sugar fields, nothing seems to have been done. To date, the plantation has not undergone major improvements and still cannot produce white sugar because it does not have a sugar factory. About five years later, the factories in Nigeria, the producers of the Golden Sugar brand, took over their Sunti BIP.

Although they received more than 40 billion naira in funds for the FG intervention, their Sunti reverse integration site cannot yet produce edible sugar and only has a sugar factory similar to the Savannah plantation in Dangot. The third manufacturer, BUA, is no different. BUA acquired its site in Lafiaga 10 years ago and did not start developing the site in time. They argued that this was due to the fact that the government did not transfer the land and associated infrastructure until 2014. To date, there is still a bit more work in their sugar and ethanol plant in addition to their plantation. Dangote and Flour Mill to deliver agreed SDS results. What serious companies does it take one to two decades to get things right?

What did it lead to? Sugar prices have skyrocketed since the launch of the BIP program, even reaching NY 25,000. per bag during the COVID pandemic. It took public outcry and government intervention to bring prices down. It is said that another price increase may occur by the time of the Muslim fast. Why is sugar always expensive at this time of year? Who will successfully regulate these all-powerful oligarchs? New players find it difficult to get into the industry, and those who try are quickly kicked out.

Even worse, it seems that even among our oppressors there is oppression. All players trying to get out of the ranks are being challenged by others, as may be demonstrated by the recent collapse of the new export-oriented BUA sugar mill in the Bundu Free Zone in Port Harcourt. A recently leaked memo, written by two other players to the Secretary of Commerce, urged the minister to close BUA operations in Port Harcourt, despite the fact that the increased volume of transactions could potentially solve supply-side problems and, accordingly, reduce the price. finished goods are a problem even when the duties required to ship sugar to mainland Nigeria are paid. Simply put, imagine that a sugar company, unable to achieve its goal, is struggling to close another, even as the proceeds are being spent on sugar imports into mainland Nigeria. What, then, can the smaller producer or consumers hope for, who bear the brunt of these machinations?

It doesn’t end with sugar; Nigerians saw the same thing in the cement industry, with the same characters. Despite a series of rejections, pioneer incentives and backward integration policies that were initially promoted by Dangote Cement and then followed by Lafarge and BUA, two other players in the Nigerian cement industry, cement retail prices rose. day Nigerians question the benefits of backward integration into the cement industry. In a recent interview, BUA President Abdul Samad Rabiu, who is a participant and beneficiary of the system, ironically admitted that Nigerians pay the most for cement in much of Africa. His peers did not consider Nigerians worthy to hear this truth, preferring to leave their mother behind.

I have to say that reverse integration policies should not create more cumbersome and extremely profitable monopoly companies that somehow end up holding Nigerians by their pockets and therefore by the jugular vein. Rather, such policies should create a more open and competitive industry, offering opportunities for everyone who comes in without fear of the system and the few actors that upset them.

At a weekend briefing, Nigerians were shocked to learn again that one of the same players who is building a 600,000 bpd refinery is actively advocating for crude oil purchases in Naira and a new reverse integration policy. for oil refineries. This was more or less confirmed by the recent visit of the Senate Commission to the Dangot refinery last week.

Here’s a conclusive argument: the same company that has benefited hugely from other sectors at the expense of Nigerian consumers is now calling for this policy to be extended only to those with ACTIVE recycling licenses. This means that, like sugar and cement, only these companies with valid licenses will be able to import these products into Nigeria. This will effectively reduce the market to 600,000 barrels per day at the Dangot refinery. In light of its current plans, Dangote Group will be the only one to take advantage of this policy and possibly BUA when its 200,000 bpd refinery comes out in 2024.
It is perplexing, however, that such a policy, if implemented, would ensure that only a regular elite group would be able to import petroleum products, as we saw in the case of sugar and cement. This also ensures that our dear NNPC will also be forced to buy their petroleum products from these companies, providing volatile margins and arbitrary prices that are harmful to Nigerians. Crude oil is traded all over the world in dollars. Why would they pay for our oil in Naira and then resell it to Nigeria in dollars? The same will likely apply to BUA, and these two companies could also control over a third of our GDP.

Here’s a conclusive argument: the same company that has benefited hugely from other sectors at the expense of Nigerian consumers is now calling for this policy to be extended only to those with ACTIVE recycling licenses. This means that, like sugar and cement, only these companies with valid licenses will be able to import these products into Nigeria.

This will effectively reduce the market to 600,000 barrels per day at the Dangot refinery. In light of its current plans, Dangote Group will be the only one to take advantage of this policy and possibly BUA when its 200,000 bpd refinery is launched in 2024.

It is perplexing, however, that such a policy, if implemented, would ensure that only the usual elite group would be able to import petroleum products, as we saw in the case of sugar and cement. It also ensures that the NNPC will also be forced to buy its petroleum products from companies, providing volatile margins and arbitrary pricing to the detriment of Nigerians. Crude oil is traded all over the world in dollars. Why would they pay four of our oil in Naira and then resell Nigeria for dollars? The same will likely apply to BUA, and these two companies could also control over a third of our GDP.

To save our country, the government must eliminate the true backwardness of this reverse integration policy, except that it guarantees truly free markets. It never worked for Nigerians. Rather, it only helped a few people enlarge their already fat pockets. At this rate, if left to survive, Nigerians could end up paying triple the price of gas, as happened with Sugar and Cement.

The backward integration policy that has been pursued so far has only allowed monopoly, which limits the country’s chances of sustainable development of its commodity market, and we should not pledge our oil in this way. The government must force these oligarchs to sit down and renegotiate conditions in these key industries, as is done, for example, in other countries such as Senegal.

The bottom line is that the Nigerians and their involvement in the oil industry seem to be facing a perilous end. So I still ask myself: BACK INTEGRATION IN SUGAR, CEMENT AND NOW OIL: WHO ARE THE REAL BENEFICIARIES? Certainly not Nigerians.

Source: – Politics of Nigeria.

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