When Nigeria launched its backward integration policy in 2002, it ignited the country’s drive to improve local content.
Previously, local content initiatives had floundered and failed due to entrenched corrupt practices and associated vices like mismanagement of resources, poor infrastructure and regulation lapses.
In January 2013, President Goodluck Jonathan introduced the Nigeria Sugar Master Plan (NSMP) with a view to expediting the result of the backward integration policy; three of Nigeria’s biggest industrial conglomerates were drafted to anchor the programme for the first decade.
These companies, Dangote Sugar Plc, BUA Sugar Ltd and Golden Sugar Company Ltd. (a subsidiary of Flour Mills of Nigeria), were charged with implementing the National Sugar Master Plan with the objective of achieving self-sufficiency in sugar production and saving foreign exchange on the importation of sugar and ethanol.
Nigeria’s manufacturing has depended heavily on imports, which the resultant effect of draining the country’s foreign reserves and having adverse consequences on the value of the national currency.
In 2018 alone, the country imported over $400 million worth of sugar to be refined and used in various finished goods and for daily domestic consumption.
The goal of the backward integration policy was targeted at getting manufacturers to source local raw materials as an import substitution policy. Unilever, Nigerian Breweries, Nestle and other Nigerian industrial giants have been implementing backward integrated policies for some time now, in their respective sectors.
The government expects that effective backward integration programmes will help conserve foreign exchange, boost local manufacturing output, create employment and enhance human capital.
The Naira lost over 45 per cent of its value since 2016 when the Central Bank introduced the flexible foreign exchange policy. It rose from the exchange rate of N199 to U$1, before June 20, 2016, to the present official rate of N305 to US$1; on the black market, however, the exchange rate can be as high as N358 to $1.
This new foreign exchange policy and the fluctuation of the rates forced numerous companies out of business and many more moved operations to neighbouring West African countries; the natural consequence of this was a massive loss of Nigerian jobs.
For the past seven years, Dangote Sugar, BUA Sugar Ltd and Golden Sugar Company; three of Nigeria’s biggest manufacturers have been in a joint race to produce sufficient quantities of sugar in Nigeria.
Data from the Nigerian Sugar Development Council, NSDC, estimates that in the 10 years preceding 2012, importation accounted for 97 per cent of the total sugar supply with a cost implication of about N530 billion ($3.4 billion) to the country.
Nigeria Sugar Master Plan
As part of the backward integration goal, the National Sugar Master Plan was designed to attract over $1 billion annually in local and foreign direct investments and create an estimated 107,000 jobs over the first ten-year period.
By 2020, the government expected Nigeria would have become self-sufficient in sugar production, thereby stemming the losses in foreign exchange and reducing the importation of raw materials.
Shortly after launching the NSMP on January 1, 2013, the Goodluck Jonathan administration assigned the monitoring and implementation of its objectives to the National Sugar Development Council (NSDC), a federal agency which had been established in 1993 but had fallen into obscurity over the years.
The NSDC estimated that by 2015, Nigeria’s sugar demand had surpassed 1.5 million metric tonnes from 443,000 metric tonnes in 1995. But conversely, , local production had stagnated within the period.
Subsequently, the council collaborated with three prominent manufacturers in that sector who possessed the capacity to anchor local sugar production and designed a plan to extract maximum output from each of them using a peer review mechanism.
Sugar production quota
Before the introduction of the sugar master plan, import quota approvals were arbitrarily awarded by the government.
This practice allowed many manufacturers, at the time, to railroad their competition by obtaining licences to import massive sugar quantities with low tariffs.
But the NSDC decided to discontinue this practice and introduced a new transparent scheme which would see sugar manufacturers obtain import quotas based on their ability to submit to a realistic backward integration plan and continually meet the published criteria.
When the sugar master plan came into effect, Dangote Sugar Plc, BUA Sugar Ltd and Golden Sugar Company were approved as backward integrated operators and they signed up to commitments upon which their performances would be evaluated.
All the three companies have sugar-producing subsidiaries at different facilities across the country, but their facilities and outputs are aggregated under their respective parent company/brand. There are various other sugar-producing companies still operating in the country, but their projected capacity disqualified them the sugar master plan.
The NSDC allocates production quotas (which require presidential approval) to the three companies based on six key criteria that assess their individual investment:
● How much land is available to grow and harvest sugarcane.
● Land Development – irrigation, dykes, etc.
● Mill processing capacity and investment
● Infrastructure, including community development.
● Job creation.
● Quantity of sugar produced.
Even though the NSDC has been the country’s preeminent sugar regulator since its establishment in 1993, the agency appears to have capitulated under pressure, from time to time, in order to optimise its evaluation criteria for the backward integration policy while appearing to favour certain manufacturers over others.
In recent times, the Nigerian government, through the council, grants concessionary tariff waivers for sugar importation with the understanding that these savings would augment investments by sugar producers into their backward integration programmes to sustain Nigeria’s mission to become self-sufficient in sugar production.
The government approved N170 billion in production quota and tariff concessions (import waivers) for the three companies. Of that amount, Dangote received the largest share at N102 billion; Flour Mills received N46 billion while BUA held N22 billion.
An August 2019 status report from the NSDC reviewed the Sugar Mills installed by the three major Millers to see how they stacked up in the sugar production policy.
Dangote Group’s subsidiary, Savannah Sugar Company Limited, has a mill in Numan, Adamawa State; an integrated sugar production facility with an installed milling capacity of 50,000 tonnes per annum.
But unlike recently-built facilities, like the one by Flour Mills in Sunti, the Savannah farm was built in 1976 and privatised in 2003, long before the master plan was adopted in 2013.
The production area covers 32,000 hectares, with considerable prospects for expansion. Dangote Group also recently acquired additional land in Tunga, Nasarawa State, which the NSDC factored as ‘available land’
The Tunga Sugar Project is an integrated sugar complex in Awe Local Government Area. It has an estimated 60,000 hectares sugarcane plantation and two sugar mills with the potential capacity to produce 430,000 tonnes of refined white annually.
For BUA, there has been little of note to record in terms of an integrated sugar production facility, but the firm plans a $300 million integrated sugar production area in Lafiagi, Kwara State, which is projected to be completed in 2020.
It’s expected to produce 200,000 metric tonnes of refined sugar annually.
The report also found that Golden Sugar Company, a subsidiary of Flour Mills, had an estimated 17,000 hectares of arable land. About 3,000 hectares is currently under cultivation and the production area is producing 4,500 metric tonnes of sugarcane daily.
Approaching optimal capacity, the plant will engage about 10,000 people working in temporary and rotational capacity annually.
An additional 50,000 indirect jobs are expected to be created from Golden Sugar Company’s multiplier effect on job creation in the region – including 3,000 outgrowers tasked with cultivating sugarcane to feed the mill. The plant is projected to produce 150,000 metric tonnes of sugar by the end of 2019.
In addition, the NSDC found that Golden Sugar Company had invested heavily in power, roads and other essential infrastructure for residents of its host Mokwa Local Government Area of Niger State.
The NSDC believes this newly completed sugar estate with a capacity to produce 50,000 metric tonnes of sugar per annum, is perhaps the most productive investment in the sugar sector since the launch of the National Sugar Master Plan.
Although the master plan appeared to have had a significant impact on Nigeria’s prospects for self-sustenance in sugar production, a slew of challenges continue to impede delivery on critical stages of its implementation.
The NSDC has identified challenges in the area of land acquisition by investors, climate-related problems like flooding, uncoordinated bureaucracy at federal and state levels, counterfeiting of refined sugar, lack of technical manpower, smuggling and sporadic and sometimes violent, agitation within some communities.
Speaking during the mid-term review of the sugar master plan in June 2017, Latif Busari, executive secretary of NSDC, said sugar manufacturers have lost billions of naira stemming from “community hostility over land, incessant flooding of sugar estates and smuggling in of foreign sugar cubes”.
He added that “many projects that would have raised the implementation profile of the NSMP were stalled by government and host communities unwillingness to give out land.”
Mr Busari said “Golden Sugar Company, Sunti, has witnessed so many disruptions during its development, BUA Group has also reported community hostilities against its operations at its BIP project site in Lafiagi Sugar Estate,” Mr Busari said. “Four such incidents of physical attacks against contractors working on estate roads and irrigation canals were recorded within the period.”
Beyond community hostility, incessant flooding has also plagued some of the BIPs. Sunti Golden Estate in particular, has experienced flooding in three out of the last four years.
Protection dykes constructed at huge costs, were breached resulting in large areas of cane fields washed away. Farm infrastructure and irrigation systems were also damaged.
Despite these factors, the council believes Nigeria remains on track to meet the objectives of the sugar master plan.
Since the policy commenced, 481 hectares of out-grower farms supplying cane to sugar estates have been put in place, up from 81 hectares in 2013, representing a 600 per cent increase.
During the mid-term review in June 2017, the NSDC scored Golden Sugar Company highest at 58 per cent in implementation of sugar master plan as part of backward integration policy.
Dangote Sugar came second at 45.8 per cent; while BUA Sugar Limited had only 17 per cent at 3rd place. The review aggregated the number of projects implemented, new sugar factories, land developed, land under sugarcane, out-grower farms, sugar produced and job creation.
The review credited Flour Mills’ success to the new estate and Mill established in Sunti, which “appears to be the key significant achievement under Phase 1 of BIP implementation.”
This production area was commissioned by President Muhammadu Buhari in March 2018.
‘Huge miles to cover’
When the first phase of the 10-year sugar plan was concluded in 2016, overall performance was below average at 40 per cent, which the NSDC found unacceptable. However, the council acknowledged that Dangote Sugar Plc and Golden Sugar Company did relatively better.
While the master plan has helped mitigate Nigeria’s sugar consumption liabilities in recent years, participating companies still have more contributions to make in order to meet the specific goals of the backward integration policy, according to the regulator and industry experts.
The NSDC said the setback, which it blamed largely on the “poor” performance of BUA, has led the Ministry of Finance, Central Bank of Nigeria and other crucial agencies, to raise questions about how some of the manufacturers are being allocated quotas for sugar imports.
Dangote, Flour Mills and BUA all declined comments about the concerns raised by NSDC on the lopsided implementation of the masterplan which regulators said had rendered all the three performing below average.
Steven Adebanjo, a Lagos-based business analyst, said deliverables can still be met if there is better and near-identical progress from the three main anchors.
Mr Adebanjo said. “All hands must be on deck to achieve success — not the lopsided efforts that we have seen from some of the major players.
He added that “the industry policymakers should fasten their belts so that this situation does not persist for too long.”
Also, Brenda Anosike, an agric economist, said the major anchors should see the sugar master plan as a critical economic policy for Nigeria and ensure adequate implementation.
She also urged the NSDC to live up to its responsibilities and prevent a recurrence of the issues which made the council moribund prior to the introduction of NSMP in 2013.
“The policy was started in 2013 and only a few Nigerians are even aware of it,” Ms Anosike said. “This indicates that the NSDC itself is not selling the policy to Nigerians.”
“The NSDC needs to recognise that its role in supervising this policy through a fruitful end for Nigerians is not restricted to merely appraising the work of the three main actors in the sugar master plan,” the economist added. “Crucial policy frameworks that suggest practical solutions should be introduced regularly in the course of the project.”
The NSDC had warned in its guidelines that firms that failed to satisfy performance criteria, based on its BIP commitments, may be penalised, including seeing its production quota reduced to measure up with its prevalent output.
Still, Ms Anosike said the three companies have received significant support from the government already, and “now have the responsibility of ensuring delivering optimum outcome to help the country attain its target for self-sufficiency in sugar production and overall food security”.