Border shut down improves sales and profits for Nigerian Agroproducers

2020-08-25 17:24:52
Border shut down improves sales and profits for Nigerian Agroproducers

The year 2019 was not quite good for Okomu Oil. During that year, it reported revenues were down 7% year on year while profits also fell 40% to N5 billion its worst year since 2016, the year Nigeria fell into its last recession.

One of Nigeria’s largest Agro-processing companies, Okomu Oil has been around for over 4 decades and is in the business of developing oil palm plantation, palm oil milling, palm kernel processing, and the development of rubber plantation.

To make money, it sells processed fresh fruit bunches into crude palm oil for resale locally and via exports. Most of its customers are manufacturers of consumer goods such as soaps and cosmetics. It also makes money by processing rubber lumps into rubber cake for exports.

The company blamed Smuggling or Illegal imports as its major reason for the revenue drop experienced in 2019. But things could have gotten worse were it not for what the company describes as the “timeous” intervention of the government in closing all land borders.

Nigeria’s President Muhammadu Buhari-led administration had in October 2019, closed the country’s land borders to imported goods. According to the president, the closure of the borders was due to the smuggling activities of food items, particularly, that of rice.

The impact of this very controversial government action has been positive for Okomu Oil. Since then the company as seen its profits nearly doubled to N4 billion 20% shy of profits for the whole of 2019. Revenues are also up5 8% to N13.5 billion in the first half of 2020 compared to the same period in 2019, all thanks to the border closure. Okomu Oil is not alone in this tale of good fortune.

Presco, another Nigerian company in the Afro processing space has also seen its revenue and profits jump in 2020 all thanks to the government’s controversial policy on closing the border.

Nairametrics research has also observed a similar trend among local manufacturing companies who face stiff competition from foreign substitutes. They have all reported higher revenues and profits in spite of the Covid-19 pandemic. Flour Mills Plc one of Nigeria’s largest manufacturing firms reported revenue growth of 9% to N574 billion while profits jumped 184% year on year. The company attributes this to better performance of its Agro-Allied segment and recognized border closure as a major boost for 20 volume growth of its pasta business.

Honeywell Flour Mills, a rival competitor also saw revenue rise from N74.4 billion to N80 billion at the end of its financial year-end of March 2020. Honeywell and Flour Mills of Nigeria both report March 31st as their year ends. Both companies also report impressive year on year growth in revenues in the period ended June 2020 despite the impact of the Covid-19 economic shutdown.

As these companies report a significant boost in revenues and profits the negative impact of the border closure has not gone unnoticed. The inflation rate has galloped to 12.5% as of July 2020 compared to 11.2% in September 2020. Food prices have driven Nigeria’s inflation rate in recent months particularly staple foods like rice.

The border closure has also not favoured other manufacturers particularly FMCGs who rely on imported raw materials to produce. In a recent article on Nairametrics, we reported that FMCGs with strong export operations have seen their export activities significantly affected as they can no longer push goods through the land borders to the West African markets where they have core export operations.

Essentially, they are required to pass through the seaports which make distribution cost more expensive, while delivery time takes longer. Accordingly, importing and exporting goods via the seaports has exposed more FMCGs to the Apapa menace.

Despite this, some FMCG’s have faired quite well in the in 2019 and into 2020. Nestle, Dangote Sugar, Nascon all saw their gross margins suffer a bit but the still managed to post profits in the first 6 months of this year.

Error! Error occured!