Cover Image
close this book Exporting Africa: technology, trade and industrialization in Sub-Saharan Africa
close this folder Part II. Country studies
close this folder 9. Nigeria
View the document Introduction
View the document Textiles
View the document Brewing
View the document Food and beverages
View the document Conclusions
View the document Appendix: the incidence of leasing in Nigeria9
View the document Notes

9. Nigeria

Oluremi Ogun

Introduction

This report focuses on Nigeria, as a case study within the context of an Africa-wide analysis of new technologies and export-oriented growth. The introductory section provides information on the structural composition of the economy, the composition and destination of exports. the relationship between the economic environment and industrial policies and export incentives and institutions. This is followed by three sections giving the results of a survey of three major manufacturing sub-sectors which engage in exporting: textiles, brewing, and food and beverages.

Structure of the economy

Before the oil boom of the 1970s, the Nigerian economy could be described as predominantly agrarian, with agriculture accounting for an average of over 60 per cent of its national output between 1950 and 1965. The oil boom transformed the economy drastically: by 1985 agriculture was 26 per cent of GDP, while oil and mining, which had contributed only about 1 per cent of GDP in 1960, accounted for about 20 per cent. The detailed picture of the transformation which occurred in this period can be gauged from Table 9.1. In brief, manufacturing has experienced rather sluggish growth since around 1970, while infra-structure and services appear to have experienced persistent growth interrupted only by the economic recession of the 1980s. Another marked trend is the general improvement in agriculture's share of GDP since 1985, standing at about 40 per cent in 1990. Over the same period, oil and mining fell to about 14 per cent of GDP, while infrastructure and services appear to stabilize at lower levels of about 9 per cent and 28 per cent, respectively, between 1987 and 1990.

Table 9.1 Distribution of gross domestic product in Nigeria for selected years (%)

Sector

1960

1965

1970

1975

1980

1985

1987*

1990

Agriculture

64.1

55.4

44.7

26.5

21.1

26.6

40.2

40.8

Oil and mining

1.2

4.7

11.9

23.9

24.1

19.8

13.4

13.8

Manufacturing

4.8

7.0

7.5

4.5

8.9

9.3

9.7

8.5

Infrastructure

8.9

10.4

9.1

15.4

17.6

12.8

8.0

8.6

Services

21.0

22.5

26.8

29.7

28.3

31.5

28.7

28.3

Total

100

100

100

100

100

100

100

100

Value (Nm)

2 493.4

3 146.8

4 219.0

26 283.3

30 808.3

26 159.0

79 270.0

89 100.0

Source: Central Bank of Nigeria. Annual Report and Statement of Accounts, various issues

Note * The naira value of GDP since 1987 reflects a significant policy shift' with the adoption of an extensive liberalization policy.

Except for the 1980s, when the economy experienced zero average growth, the general growth in real output has been impressive, averaging 6 per cent and 5 per cent respectively in the 1960s and 1970s. Oil and mining grew the fastest between 1960 and 1990, at an average rate of 11 per cent, with manufacturing averaging about 6 per cent, agriculture and services about 3 per cent and infrastructure at 0.2 per cent. The oil boom of the 1970s tremendously influenced the growth of the oil sector, which achieved an unprecedented growth rate of about 47 per cent, at a time when agriculture was contracting by about 2 per cent annually.

Composition and destination of exports

Nigeria's exports have always been mostly unprocessed raw materials but their composition has by no means remained unaltered. As can be seen from Table 9.2, food and inedible crude materials dominated the export structure in the 1950s. Their shares of total exports declined markedly after 196O, and by 1985 their export shares had become virtually insignificant. The export share of animal and vegetable oils and fats followed a similar trend. In contrast, exports of mineral fuels and related materials rose from an insignificant level in the 1950s to dominate the export structure in the 1980s. Manufactured exports grew impressively in the 1960s after a stagnant period in the 1950s, but then fell persistently in the 1970s, recording only slight improvements in the 1980s.

A sharper picture of these changes is revealed by Table 9.3, which classifies exports according to economic sectors. Agriculture's share of total exports declined persistently between 1960 and 198O, with a somewhat sluggish recovery thereafter. On the other hand, oil and mining's share of total exports generally increased over the same period. Manufacturing's export share fluctuated widely but declined fairly constantly in the 1970s and the early 1980s.

A closer look at the composition of the manufacturing sector, as in Table 9.4, reveals changes over time. For example, manufactured and semi-manufactured agricultural products, principally cocoa butter. cake and powder, groundnut cake (until 1977), cocoa liquor and cocoa kernel explores (both in 1985 and 1986 only), palm kernel explores, oil and pallets (all three, only in 1985 and 1986) dominated the structure of manufactured exports until the late 1980s when a new entry, textiles, temporarily took the lead, after which another new entry' chemicals, took over in the 1990s.

Table 9.2 Exports by commodity groups in selected years

Commodity group

1950

1955

1960

1965

1970

1975

1980

1985

 

Nm

%

Nm

%

Nm

%

Nm

%

Nm

%

Nm

%

Nm

%

Nm

%

Food

58.4

33.0

61.1

23.5

86.0

26.0

99.4

18.9

167.7

19.1

216.8

4.4

221.1

1.6

243.8

2.1

Beverages and tobacco

0.1

0.1

0.2

0.1

*

0.04

0.08*

*

0.01

*

-

-

0.01

*

-

-

Crude materials (inedible) except fuels

92.9

52.5

160.3

61.7

188.7

57.0

200.4

381

122.8

14.0

57.7

1.2

44.0

0.3

15.2

0.1

Mineral fuels. lubricants and related materials

-

-

0.5

0.2

9.1

2.7

136.2

25.9

510.0

58.1

4590.1

93.3

13330.7

97.4

11335.8

96.7

Animal and vegetable oils end fats

24.2

13.7

32.6

12.6

38.6

11.7

48.5

9.2

32.9

3.8

11.4

0.2

15.9

0.1

0.4

*

Chemicals

0.2

0.1

0.3

0.1

0.4

0.1

0.1

*

0.3

*

1.2

*

0.9

*

1.4

*

Manufactured goods (classified by materials)

0.9

0.5

2.4

0.9

3.0

0.9

35.4

6.7

39.1

4.5

27.5

0.6

17.5

0.1

6.3

0.1

Machinery and transport equipment

-

-

-

-

-

-

-

-

-

-

-

-

0.6

*

0.8

*

Miscellaneous manufactured goods

-

-

0.02

*

0.01

*

0.1

*

0.2

*

0.1

8

0.5

*

-

-

Miscellaneous exports

0.2

0.1

2.3

0.9

5.3

1.6

6.1

1.2

4.1

0.5

15.4

0.3

56.2

0.5

114.2

1.0

Total

176.9

100

259.7

100

331.1

100

526.4

100

877.1

100

4920.2

100

13 687.4

100

11717.9

100

Source: Federal Office of Statistics' Digest of Statistics. various issues

Note: - Negligible amount. * Zero entry.

Table 9.5 shows that the developed countries of the West and Japan bought over 90 per cent of Nigeria's total exports in 1989. The European Community's (now EU's) importance has been falling, and that of the US and the ECOWAS (Economic Community of West African States) countries rising, since the late 1980s.

The economic environment and industrial policies

Two major economic problems confronted Nigeria at the time of independence in 1960. These are (1) the near absence of industrial structures in the economy and (2) a deteriorating balance of payments position which had emerged from the continuous imbalance between the rate of growth of imports and the rate of growth of exports. Nigeria explicitly adopted an import-substitution industrialization strategy in 1961, in line with its economic objectives.1 The assumption behind this policy appears to have been that import substitution (IS) would reduce the amount of imports necessary to maintain output at any given level and thereby help to conserve foreign exchange. Import substitution was also expected to speed up industrialization as more industrial activities would be performed domestically.

The main instrument employed under the policy was tariff protection variously combined with quantitative restrictions and industrial incentives. Before independence, tariffs had been used mainly as a means of generating revenue. They now became the main instrument for solving the balance of payments problem and protecting domestic industry. Tariff rates were raised substantially on increasing numbers of finished goods, while duties on imported raw materials and capital equipment were reduced (Ogun, 1987).2 Import licensing requirements, which were already in place at the time of independence' were used to restrict further the importation of some finished goods. By the end of the 1960s, imports of capital equipment and raw materials constituted over 70 per cent of the country's total imports' as compared to less than 50 per cent in 1960.

As a result' the rate of growth of imports actually fell towards the end of the 1960s. The number of industrial activities performed domestically witnessed an impressive growth. However, one major failing of this industrialization strategy was already becoming evident. It had been hoped that import substitution would reduce the volume of imports' thereby conserving foreign exchange. This, however, did not come to pass. The newly established import substituting industries (ISIs) were making increasing demands on foreign reserves.

Table 9.3 Exports by economic sectors in selected years (%)

Sector

1950

1955

1960

1965

1970

1975

1980

1985

1990

Agriculture

92.1

89.0

89.7

60.6

33.0

5.5

2.0

2.2

2.6

Oil and mining

7.2

9.1

7.8

31.5

62.0

93.6

97.4

96.7

97.0

Manufacturing

0.5

0.9

0.9

6.8

4.5

0.6

0.1

0.1

0.2

Others

0.2

1.0

1.7

1.1

0.5

0.3

0.3

1.0

0.2

Total (%)

100

100

100

100

100

100

100

100

100

Value (US$m)

253

371

475

752

1 240

8 001

25 946

12 548

13 671

Sources: Federal Office of Statistics, Digest of Statistics various issues: Central Bank of Nigeria, Annual Report and Statement of Accounts. various issues; International Financial Statistics, various issues

Table 9.4 Composition of manufactured exports (%)

Sector

1975

1980

1985

1989

1990

1991

Manufactures and semi-manufactures of agricultural products:

Cocoa butter

37.9

28.2

67.8

34.9

13.7

9.0

Cocoa powder

0.6

6.0

-

-

-

-

Cocoa cake

7.8

5.8

-

-

-

-

Cocoa paste

-

-

-

-

-

-

Cocoa liquor

-

-

5.5

-

-

-

Cocoa kernel explores

-

-

14.6

-

-

-

Palm kernel explores

-

-

5.2

-

-

-

Palm kernel oil

-

-

5.2

-

-

-

Palm kernel pallets

-

-

1.6

-

-

-

Groundnut cake

1.1

-

-

-

-

-

Wood products

-

-

-

4.2

3.4

8.7

Textiles

-

-

-

43.9

13.1

29.4

Chemicals

-

-

-

-

18.8

38.2

Tin metals

37.9

20.0

-

2.0

0.7

1.2

Precious metals

-

-

-

0.4

-

-

Other manufactures

14.7

40.0

-

14.7

50.3

13.6

Total (%)

100

100

99.9*

100.1*

100

100.1*

Value (Nm)

53.8

71.0

69.0

291.4

784.8

781.5

Source: Central Bank of Nigeria Annual Report and Statement of Accounts. various issues

Note: * Rounding error.

Table 9.5 Total exports by destination, 1980-89 (%)

Period

EEC

US

Japan

ECOWAS

Others

Total

1980

50.4

33.2

no data

1.7

14.7

100

1981

50.5

29.3

1.5

4.4

14.3

100

1982

41.8

34.8

0.1

2.4

20.9

100

1983

59.0

21.6

0.1

2.8

16.5

100

1984

62.7

13.3

0.1

4.5

19.4

100

1985

66.2

18.1

0.1

3.5

12.1

100

1986

47.8

35.0

0.1

3.9

13.2

100

1987

41.9

47.0

0.1

6.2

4.8

100

1988

36.3

49.8

0.2

7.0

6.7

100

1989

38.5

51.1

2.7

7.0

0.7

100

Average

49.5

33.3

0.6

4.3

12.3

100

Source: Nigerian Export-lmport Bank, 1991 Annual Report & Statement of Accounts

The problem was compounded by the inefficiency inherent in tariff protection, which made it difficult for domestic industries to acquire the capability needed for competition in foreign markets.

In addition, the exchange rate policy had by the late 1960s become protectionist and by the early 1970s the domestic currency was overvalued. The country twice refused to devalue in tandem with the devaluations of the British pound and the US dollar, to which its currency had been tied.3 These protectionist policies led to an outflow of foreign exchange. As a result, the balance of payments was negative for the greater part of the 1960s.

The main lesson that emerged from the economic policies implemented in this period was the need for an ample supply of foreign exchange in order to prosecute a programme of import substitution successfully. The negative effects of these policies were, however, effectively cushioned by the oil boom that was to commence in 1973.

The primary effect of the boom of 1973-80 was the flow of huge foreign exchange resources (over US$100 billion) into the country. Naturally, the government hoped to quicken the pace of economic development on the one hand and achieve a reasonable degree of economic independence on the other hand. Accordingly, overly ambitious economic programmes. were designed and implemented. An indigenization programme was carried out in 1974 and, together with further phases which were implemented before 1980, it resulted in Nigerians taking over the control of several businesses hitherto controlled by foreigners.

It would appear that the policy-makers overlooked the economic side-effects of the indigenization programme, especially its possible negation of the goal of economic independence. The (ISIs) which had been established were acquiring the capability to manufacture for export, but this development was thwarted by the manpower dislocation caused by the indigenization programme. Several of the newly established activities experienced manpower problems and several of them failed as a result.

The expanded oil exports allowed the government to reduce its reliance on tariff imposition to generate revenue and solve its balance of payments problems. In this period, the principal purpose of tariffs appeared to be the need to protect domestic industries. Even the emergence of a serious balance of payments disequilibrium in 1976 (which persisted till 1978) did not alter this policy. Rather than impose higher tariff rates, the government opted for quantitative restrictions in the form of import licensing and import bans. However, whatever benefits might have resulted from the lower nominal tariff rates of the period were effectively reversed by the gross over-valuation of the currency. Net effective rates of protection for all activities (except those processing imported raw materials) were negative in the period.4 Worse still, export-oriented industries were the most adversely affected.

The end of the oil boom around 1980 led to a significant moderation in the economic environment and hence in industrial policy. The basic policy of import substitution was still in place but the extent of use of tariffs and quantitative restrictions was unprecedented. Rather than aiming at industrial growth, the targets were the deepening balance of payments crisis, falling foreign exchange receipts and trade payments problems. The various foreign exchange conservation measures implemented in the period 1982-85 led to several of the industries dependent on imported inputs having to operate considerably below capacity, hence reduced growth and worsening unemployment.

The adoption of the structural adjustment programme (SAP) in 1986 introduced yet another industrial policy regime. The programme represented a fundamental shift in the basic philosophy of economic management at the national level. The SAP was continued in a three-year Economic Consolidation and Expansion Programme (ECEP). Under the new dispensation, export promotion was a major policy focus. And, as a major aim of the new management philosophy was to eliminate, or at least reduce, economic distortions and the bias against traceable goods, intervention has been reduced and import protection lowered. The reforms include the adoption of a largely market-determined exchange rate and the removal or relaxation of quantitative restrictions on many tradable goods. An exchange rate auction market was established in 1986, a period which also witnessed the abolition of the import licensing requirement. In 1987, a preliminary import tariff and excise taxes review led to the establishment of an interim customs tariff and excise tax systems. These efforts created a substantially more liberal trading environment. Exchange rate over-valuation seems to have been checked, import tariffs are generally lower than the country has experienced since independence and, while quantitative restrictions are still in place, their scope has been considerably narrowed.

It is clear from the foregoing that export promotion, as a policy focus in Nigeria, is a relatively recent phenomenon. Hence, most firms operating in the export market have relatively short export histories.

Export incentives and institutions

Export incentives

Following the explicit adoption of export promotion as the industrialization policy in l 986, a significant number of incentives for exports were introduced and incentives already in existence but not operative were reactivated. All are described in the Export Incentives and Miscellaneous Provision Decree No. 18 of 1986. The relevant incentive structures are as outlined below:

• Currency retention scheme: Exporters are allowed to operate special foreign currency domiciliary accounts for export receipts and payments. However, transfers out of the account for whatever purpose are subject to prescribed documentation requirements. The scheme allows for proper monitoring of non-oil export proceeds and easier funding of export-oriented business trips, trade missions, trade fairs, export market research and test marketing. Up to 10 per cent of export proceeds in the case of manufactured goods (5 per cent for primary and semi-processed products) can be readily utilized for such purposes.

• Export licence waiver: No export licence is required for the export of manufactured or processed products. Also, exports have been exempted from tax.

• Export Development Fund (EDF): This is a special fund provided by the government to give financial assistance to exporting companies to cover part of their initial expenses for export promotion activities.

• Export Expansion Grant Fund (EEGF): The fund is to provide cash inducements for exporters who have exported a minimum of N50 000 worth of semi-manufactured or manufactured products. The incentive element lies in the graduation of the grant according to their volume of export sales.

• Duty Draw Back Duty Suspension and Manufacture in Bond Schemes: The Duty Draw Back Scheme provides for the refund of duties on raw materials including packaging and packing materials. The Duty Suspension Scheme provides exemption from duty on such imports. The Manufacture in Bond Scheme allows imported raw materials to be held in a bonded warehouse for export production.

• Export Adjustment Scheme Fund: This serves as a supplementary export subsidy to compensate exporters for:

(a) high costs of production arising from infrastructural deficiencies;

(b) purchasing commodities at prices higher than prevailing world market prices but fixed by government;

(c) other factors beyond the control of the exporter.

• Pioneer status: Any manufacturer who exports at least 50 per cent of annual turnover qualifies for pioneer status and accordingly enjoys generous tax holidays and concessions.

• Tax relief on interest income: Interest accruing from loans granted by hanks for export activities is exempt from tax. With respect to foreign loans, tax exemption on the interest is scaled according to the duration of the loan.

• Export credit guarantee and insurance scheme: This helps Nigerian products compete effectively in the international market and insures genuine exporters against some political and other risks including default in payment. Also, under the scheme, exporters can grant their customers some credit facilities.

• Capital assets depreciation allowances: This is an additional annual capital allowance of 5 per cent on plant and machinery for manufacturing exporters who export at least 50 per cent of their annual turnover, provided that the product has at least 4 per cent local raw material content or 35 per cent value added.

• Rediscounting of short-term bills: This schemes makes provision for exporters of any product to discount their bills of exchange and promissory notes with their banks in order to increase their liquidity and minimize cash flow problems before the realization of export proceeds from the overseas importer. This facility applies to all export products.

In addition to the incentives discussed above, government abolished export licensing in 1987 to remove some of the administrative bottlenecks. An export processing zone was established in 1991 and an export-import bank began operations in the same year.

The incentives, laudable though they may be, do not seem to be totally effective. The reason appears to be the usual bureaucratic and administrative bottlenecks which have tended to delay the implementation of some, while reducing the extent of usage of others. For example' the Manufacture in Bond Scheme did not take off in 1991 as planned although it had been drawn up two years previously. Similarly, the Duty Draw Back Scheme, though it paid about N11 million to about 67 beneficiaries in 1991, is marked by long delays in effecting refunds. The Manufacturers' Association of Nigeria (MAN) has claimed that the scheme has no positive effect on the costing of export products. It appears that the best utilized of the direct incentives is the Export Credit Refinancing and Rediscounting Facility (RRF), under which over N2 billion was disbursed in 1991.

Export institutions

Many institutions had been concerned with export activities in the past. However, the most active are currently the Nigerian Export Promotion Council, the Manufacturers' Export Group and the Nigerian Export-lmport Bank:

• The Nigerian Export Promotion Council (NEPC): The NEPC was established in 1976 and formally inaugurated in 1977. Its enabling Act was amended in 1979 and later reorganized into the NEPC Decree of 1988. The Decree was aimed at giving the Council both structural and functional responsibilities for spearheading and sustaining a dynamic export drive and implementing various incentive packages contained in the Export Incentives and Miscellaneous Decree No. 18 of 1986. Essentially, the operations of the Council were restructured to reduce bureaucratic red tape. The activities of the Council in promoting Nigerian exports abroad can be summarized as follows:

(a) It interacts closely with exporters at the level of education and advice. It organizes seminars, conferences and workshops to create awareness of facilities, support services and procedures in the export field.

(b) It helps to expose exporters to international markets through exhibitions and surveys of export market potential and the export markets in communities such as ECOWAS, the EU and countries such as Kenya, Zambia, Zimbabwe and Uganda.

(c) In conjunction with relevant government agencies such as the Central Bank (CBN), the Standard Organization of Nigeria (SON) and the Ministry of Industry, Budget and Planning, it administers facilities such as the Duty Draw Back Scheme, the EDF and the EEGF.

(d) It influences policy through recommendations to the government. Such recommendations are usually informed by the experience and knowledge acquired through interaction with exporters and international markets.

(e) It presently cooperates with the Raw Materials Research and Development Council (RMRDC) to see how the manufacturing sector can process primary products such as cocoa and rubber locally, in order to ensure that they have improved value added on international markets.

• The Manufacturers' Export Croup (MEG): MEG is an arm of the MAN and operates purely as a pressure group seeking to influence policy impinging on manufactured exports. Its recommendations (to the government) in this regard usually derive from the experience of its members. Recently, it issued a position paper on export-related issues in which it calls for the abolition of the Export Price Clearance Scheme because it is a disincentive to export growth. It also recommends restructuring the Duty Draw Back Scheme so that it can positively influence exporters' costs. It suggests that, instead of the present practice of refunding the cost of imported inputs to export manufacturers (which invariably takes an unusually long period), the draw back should be treated at each year-end as a tax exemption. In its opinion, this would ensure that exporters push for quick repatriation of proceeds and many more will be encouraged to export through the banking system so as to qualify for this rebate. The refund can then have a positive impact on the costing of the manufactured product, thereby making the product more competitive.

• The Nigerian Export-lmport Bank (NEXIM): NEXIM began operation in 1991. Its objective is to provide export credit guarantees and insurance to exporters. With less than two years of operation, it has managed to become the most important and perhaps the most active export institution in the country. As at December 1991 it operates the following schemes and facilities: the RRF, a foreign input facility (FIF), raw materials stocking facility, two reserve facilities and export advisory and education services. Apart from the RRF and FIF, which were carry-overs from the activities of its precursor, the Nigerian Export Credit Guarantee Corporation, the rest were newly introduced in 1991. The Bank appears to have had a successful 1991, as total disbursement under its various facilities were: RRFN 2 billion; FJFN 99 million; Repurchase Facility US$4 million. Total operating profit in 1991 was in the region of N 133 million. Its funds are principally from its shareholders, the Federal Government and the CBN, as well as multilateral agencies such as the African Development Bank.

Textiles

Background

The textiles industry of Nigeria is the third largest in Africa after Egypt and South Africa.5 The industry, which currently accounts for about 25 per cent of manufacturing value added, has passed through various phases of growth. IS policies induced steady growth in the 1960s, which gave way to rapid growth, averaging 12.5 per cent, in the 1970s when the economy was booming. The recession of the early to mid-1980s took its toll: the cumulative textile production index (1972 = 100) declined from 427.1 in 1982 to 171.1 in 1984. The industry recovered in the late 1980s, achieving an annual growth of about 67 per cent between 1985 and 1991, with synthetic textiles alone accounting for about 80 per cent of the recorded growth.

The industry is the largest employer of labour in the manufacturing sector. It currently accounts for about 25 per cent of total manufacturing employment. Capacity utilization improved between 1986 and 1991. And, with the backward integration programme instituted by many firms in the industry following the strict government directive on the issue in the mid-1980s, the level of domestic sourcing of raw materials was put at about 64 per cent in 1991, a steady improvement from 52 per cent in 1987 and 57 per cent in 1988.

The industry is mainly controlled by large private-sector firms, often with substantial foreign participation. Nigerian law has limited this to 60 per cent of the total equity of textile sector firms hut the drive for more capital inflow under the present management philosophy lead to an upward revision of the ceiling. The major foreign investors within the industry are from Hong Kong' India, the UK, Liechtenstein, the Netherlands, the US, Japan and Columbia.

Current information on installed machinery is not available but, as at 1987, the 37 textile firms in the country were operating 716 000 spindles and 17 541 looms. However the output of the sector has never exceeded 55 per cent of annual domestic consumption, allowing for a thriving trade in imported (mostly smuggled) textiles.

Technological gaps in the industry are illustrated by the fact that 12 mills, representing 61 per cent of the total capacity, spin only cotton. Although nearly 25 per cent of existing mills are integrated mills, modernization of spinning capacity is generally lagging behind technological improvements in the weaving mills. Labour productivity in spinning operations is not high because of low capacity utilization and inadequate provision for on-the-job training.

Low productivity levels limit export possibilities. Nevertheless, the substantially liberated economic environment and the opportunity Nigeria offers to avoid quota restrictions under the Multi Fibre Agreement (MFA) - which is not applicable to Nigeria - have induced some foreign entrepreneurs, mostly from Asian countries, to establish export-oriented plants.

History of firms in the sample

Origin ownership and structure

The two firms covered by the survey show similarities in ownership structure and, to some extent, achievements but they differ considerably in age, scope of operation and export experience. Aflon Nigeria PLC (ANPLC) was incorporated in 1985 but commenced operation in April 1988. It is a wholly owned subsidiary of Afprint Nigeria PLC, a textile company which in turn is part of the worldwide Kewalram/Chanrai group, which has business interests and social commitments in North America, the UK, West Africa and South and East Asia.

Spintex Mills (Nigeria) Limited (SMNL) was established in 1980 and began commercial operation in June 1982. It is a 100 per cent subsidiary of Sunflag (Nigeria) Limited, a textile company which manufactures knitted fabrics and ready-made garments, with substantial interests in Kenya, Tanzania, Cameroon, India and the UK.

Both ANPLC and SMNL were conceived of as the means of meeting the yarn requirements of their parent companies. SMNL's establishment was influenced by the announced intention of the Nigerian government in 1979 of not only discouraging the importation of yarn but also imposing a blanket ban on it. Both firms have achieved such tremendous expansion that they now export yarn as well as selling on the local market. Both companies have at different times been accorded pioneer status, which entitles them to a 5-year tax holiday under the provisions of the Industrial Development (Income Tax Relief) Decree (1971). Since they were both set up in compliance with the provisions of the Nigeria Enterprises Promotions Decree of 1977 there is a considerable Nigerianization of manpower in both organizations.

Each of the companies is run by a policy board and a professional management team. The ANPLC policy board comprises four members, of whom three are expatriates. Two of the five board members in SMNL are Nigerians. The professional management team of ANPLC consists of the mill manager, the chief engineer, the development manager and the spinning technologist, along with the personnel manager, the accountant and 13 other senior staff in the areas of production, engineering and administration. In the case of SMNL, the management team comprises the managing director, financial director, chief technological executor, export manager, finance controller, two mill managers, personnel manager, chief accountant, chief of shipping, chief of banking and marketing officers.

Performance and development

Since its inception, ANPLC has focused exclusively on the production of cotton yarn, dividing its yarn output simply between finer and coarser counts. Its success story is reflected in the statistics provided in Table 9.6, which reflects astronomic growth in the asset base and modest but respectable growth in sales turnover, operating profit and the number of employees.

Cotton lint remains the only raw material. The company is able to obtain sufficient virgin cotton of the required quality locally to meet 25-35 per cent of its requirement for exports and all of its requirement for domestic sales. The balance of its export requirement comes from imports, on which the company enjoys a Duty Draw Back benefit.

The SMNL appears to be at least a step ahead of ANPLC, having successfully diversified its output. It now produces spun cotton, synthetic yarns, polyester filament yarn and sewing thread for domestic and industrial purposes. The plant for the manufacture of polyester filament yarn was commissioned in 1985 and that for sewing thread in 1988. Because of its diversified output, more types of input are used in the production process. The main types are polifis cotton, polyester chips, polyester fibre, viscose fibre, coning oil and spin finish oil. Apart from cotton, polyester fibre and viscose fibre, which were used in the production process between 1981 and 1986, the others were later additions, used in polyester filament yarn and sewing thread. Of all the raw materials, only polifis cotton is supplied by both the local and import markets. All the other raw materials are imported.

Table 9.7 illustrates the growth of the company, which has achieved even more resounding success than ANPLC as turnover, asset level and employees have all grown tremendously.

Table 9.6 Performance indicators for ANPLC

 

1989

1990

1991

1992

Turnover

49.0

63.3

60.9

101.5

Operating profit (N m)

n.a.

0.8

0.12

2.25

Total assets (N m)

9.0

6.1

39.3

92.9

Employees

137

139

152

166

Source: Company records

Table 9.7 Performance indicators of SMNL

 

1983

1985

1990

1992

Turnover (N m)

8.7

59.5

349.0

716.0

Total assets (N m)

16.0

11.0

174.6

304.3

Employees

250

480

909

1 834

Source: Company records

Export history and performance

ANPLC's export activities began in 1991 with export sales of US$1.6 million or N16 million. This rose to $4 million or N51 million in 1992. Cotton yarn is the company's sole export item. The market channels used by the company are agents which are its associate companies and which bear all risks relating to credit. The target market is the developed countries of Europe and North America, with France, Belgium, Germany, Italy, the UK and the US constituting the major focus.

SMNL entered the export market for the first time in 1987 with cotton yarn and polyester filament yarn. Sewing thread joined the list in 1988. The export sales in 1987 amounted to US$784 464. This rose and fell sharply in succeeding years, with as little as $25 912 in 19813 and as much as $4.3 million in 1992. In the years in which there was a drastic fall in export value, i.e. 19813 and 1989, the company was actually withdrawing from the export market. Company sources explain this move in terms of the relatively lower profitability of export business vis-à-vis the domestic market, which was experiencing a chronic shortage of yarn in the period. The export arm of the company was reactivated in 1990 following the massive depreciation of the Naira, which significantly improved the profitability of the export sector. The company also saw the development of its export business as a way of widening the market segment of its products and as a long-term development strategy.

The company employs two market channels for its export business. The first is the use of export agents in connection with export sales to the UK. These agents often assist in distributing to other European countries. The second channel is direct sales to buyers in Cameroon. Italy and Belgium. In this case, the company establishes the link with customers through embassies and chambers of commerce.

External factors affecting export growth

Finance

The problem here is one not of access but rather of affordability. Companies cannot afford high-level exposure in the conventional loan market because of the unusually high lending rates, which have not fallen below 45 per cent for over a year now. Assistance with finance usually takes the form of a soft loan from the parent company and a special export financing scheme such as the African Development Bank's sponsored Export Stimulation Loan (ADB/ESL), which is administered in Nigeria by NEXIM. However, occasional long application processing times at NEXIM often reduce the attractiveness and benefits of loans under such special financing schemes.

Raw materials

Domestic cotton-seed production in the country has continued to be inadequate for domestic demand. The domestic cotton output fell from 82 000 tonnes in 1976/77 to 19 900 metric tons in 1982/83. The present level is an estimated one-tenth of that achieved during the mid-1970s. Given the continuous expansion of the activities of existing firms and the growing list of new entries into the industry (the country now has over 46 large textile firms, as opposed to fewer than 35 in 1980), there is obviously price pressure. This implies increasing costs of production as imports are very expensive under the present exchange rate regime.

ANPLC used to meet a substantial proportion of its local cotton requirement from its sister company, Afcolt Nigeria Limited, which engaged in cotton-seed contract farming. However, the Afcolt experiment was halted some time ago due to accumulated losses. In essence, ANPLC, like SMNL, now procures its cotton from the open market and through importation. SMNL is in a more exposed position, as virtually all of its major production inputs, including over 50 per cent of its cotton requirements, are imported.

Inflation

The country's current inflation is unprecedented in its 33 years of independence. Available statistics put the current price inflation at about 50 per cent. Almost every aspect of the operations of the firms - labour, raw materials, utilities, equipment and rents - is affected, with the consequences eventually expressed in the cost of production.

Infrastructural bottlenecks

The infrastructural amenities in the country are in a sorry state and are grossly unreliable. As a result, both companies have had continuously to make arrangements for treated water, compressed air, standby power generation and storage and warehousing facilities.

All of these divert funds from actual operation and ultimately increase the cost of production.

Bureaucratic and policy obstacles

The primary effect of bureaucratic delays on the export activities of the two companies is to reduce the value and effectiveness of export incentives. Take, for example, the Duty Draw Back Scheme. The aim of the scheme is to reduce the overall cost of production of manufactured exports by providing for a refund of duties on raw materials, including packing materials used in the production process. In reality, it would take a very lucky firm one year after applying to get the refund. Given the volatile nature of the economy under the present management philosophy, the refund when it is eventually received is of considerably lesser value in view of the constantly rising cost of capital and continuously falling exchange rate. This has prompted SMNL to suggest that the Duty Draw Back rates should be revised in line with the change in exchange rates between the time imports are paid for and the time the refund is paid out.

Another disincentive identified by the two firms has to do with the customs officials at the point of shipment. They change the official stamps and recognized signatures used on export documents, which have been internationally approved, without informing the international bodies involved. This often leads to the rejection of a document or a considerable delay.

Technology, marketing, investment, productivity and human resources

Characteristics of demand in the target market and managerial response

Firms operating in the export market for textile products appear to be price takers, the price being determined by demand and supply factors in international markets. In the opinion of SMNL, the demand for its products will always outstrip the supply. This guarantees an increasing or at least constant market share over time. However, the ANPLC revealed that in the last two years its export selling price fell from an average of US$2.80 per kilogram to US$2.58 per kilogram, which suggests that the market could sometimes be over-supplied and the price may need to fall for the market to clear. Furthermore, an over-supplied market enables buyers to compare quality and choose from a wide range of product types. This clearly suggests the need for some elements of marketing.

The two firms have different market penetration strategies. For the ANPLC, this contains:

• credit facilities of 45-60 days.

• discounts of 3-5 per cent.

• door delivery.

• replacement of yarn where there are quality problems.

• prompt settlement of claims.

In contrast, the SMNL practices niche marketing, which entails searching for a small market that is not already penetrated by another firm, where it can operate in a seller's market. Hence it does not give any incentives other than normal quantity discounts to customers. It has no door delivery policy, leaving customers to arrange their own transportation.

Investment strategy and capability

The ANPLC's major investments have been for new plant. Decisions are usually taken on the basis of IRR (internal rate of return) and payback period selection techniques. It has adequate in-house capabilities to carry these out. The sources of finance are soft loans from the parent company, special financing facilities e.g. ADB/ESL, tax exemptions under the Pioneer status provision of Income Tax Relief and, to a lesser extent, bank credit (see pp. 262-3). It has recently been experiencing some difficulties in obtaining foreign exchange from conventional sources because of hoarding and rationing by banks. It has therefore resorted to using its export proceeds. The balance at any time is covered forward. In addition, it is considering changing its sales strategy so that only 50 per cent of export production will be sold forward and the balance will be on a spot basis.

With SMNL, investment decisions transcend new plant acquisition and include lease finance, trade (import) finance, cash management, asset management and portfolio management. Whereas asset management principally relates to the financing of the factory and equipment, portfolio management basically reflects the multinational aspect of the business whereby funds could be transferred internationally to maximize returns. Obviously, such decisions are governed by the economic climate in different countries. Like ANPLC, the SMNL has adequate in-house capability to handle the various investment issues. Its sources of funds are generally similar to ANPLC's.

Technology and productivity

Both ANPLC and SMNL have adopted modern process technology. For cotton yarn production they both use open-end spinning, otherwise known as Autocoro. This technology has several advantages when compared with conventional ring-spinning technology. First, higher production rates are made possible in this case by the use of higher rotor speeds. Second, conversion to yarn from fibre takes place in a single stage instead of the two-stage process in ring-spinning. Third, the size of the finished package is such that it can be used directly by end users without rewinding. Fourth, there is a uniform, unvarying quality. In addition, the spinning machines are fully automated from the placement of empty starter packages to the doffing of fully wound packages. Broken ends are rare and when they do occur they are detected, pieced together and restored to production by an electronically controlled robot which patrols each machine. Finally, production data is logged in a dedicated computer which produces process control reports on demand.

The preparatory capacity in the ANPLC's plant is of the order of 12 tonnes per day. With SMNL it is 16 tonnes, although the company only produces around 11 tonnes per day.

Apart from its open-end spinning process, SMNL also uses a ring-spinning process which, though it is also automated, consists of more processing stages. In addition, it uses a different process technology for the production of polyester filament textured yarn. Most of the technology used comes from Europe, with Germany and Switzerland being the main suppliers of machinery and equipment.

The measure of productivity employed by ANPLC is output per unit of marginal cost of technical production. The productivity of the firm is quite high in terms of both the local and international markets. This is primarily because its plant is fully automated.

Although the use of modern production technology by SMNL has tremendously improved its productivity in the local market, it is yet to achieve a competitive productivity level abroad. The problem lies in the increasing cost of production. In the opinion of the company:

manufacturing product of highest quality will necessitate further increases in the cost of production which may not be absorbed by the local market, which accounts for about 85 per cent of company's total produce. The local economy is not particularly quality conscious, hence there could be a backlash in demand from any attempt to pass quality-induced increases in the cost of production on to customers.

Production linkages and subcontracting

Both the ANPLC and SMNL produce their own supplies and do not subcontract production to other firms or process for other producers. Their interaction with competitors stops at the level of lobbying government on issues perceived to be crucial to the growth of the industry. Usually, such cooperation comes under the umbrella of the textile and manufacturers' group or the spinners' forum of MAN.

Both companies have binding agreements with their local raw material suppliers. In fact ANPLC distributes improved varieties of cotton seedlings to farmers to ensure a supply of appropriate quality raw materials, an arrangement that can be described as pseudo-contract farming.

Both companies have binding agreements with their equipment suppliers because of the specialized nature of the equipment, which means that spare parts can only be obtained from the suppliers.

Human resources and manpower development

The composition of manpower at ANPLC is shown in Table 9.8, which shows a pronounced jump in labour growth between 1990 and 1992, which was the most successful operating period for the company. The human development policy of the company has basically remained unchanged since its inception. It comprises a 4-week induction course for new recruits to middle or upper management, during which the employee learns to work the system. They then enjoy regular further training. General categories of staff are trained on the job, though those studying for professional examinations in their vocation are encouraged with an off-duty 'time allowance' and generous funding in the form of the refund of examination fees and books purchased. At least two technical staff are sent overseas each year for training by the manufacturer of the company's equipment. Recruitment of new employees is usually effected through a standard merit procedure involving advertisements and interviews, with outside consultants assisting.

Workers' remuneration takes the form of salaries and an end-of-year bonus. Salary increment and promotion are often tied to productivity. The general conditions of service in the organization appear reasonable, going by the practice in the industry. Workers get a free lunch, free medical attention and treatment, fairly generous housing and transport allowances and retirement benefits.

The statistics for SMNL presented in Table 9.9 suggest a more consistent growth trend in manpower. The human resources and manpower development policy of the company comprises both local and overseas training. The overseas training is usually reserved for technicians who attend the equipment supplier's training centre once every two or three years. The local training is usually meant for the office, administrative and professional workers, and consists of short and long diploma courses once every two or three years, either in-house or in organized centres such as the Kaduna Polytechnic.

Most senior management staff are from India and are usually recruited there by the company. Senior staff from the local economy are recruited by interview. In most cases, junior workers are recruited through contacts.

Table 9.8 Manpower statistics for ANPLC

 

1986

1990

1992

Unskilled labour

3

5

10

Skilled labour/staff

116

116

131

Middle management

13

13

19

Upper management

5

5

6

Total

137

139

166

Source: Company records

Table 9.9 Manpower statistics for SMNL

 

1985

1990

1991

1992

Unskilled labour

400

800

1250

1400

Skilled labour

30

35

200

350

Management

50

68

84

84

Total

480

903

1534

1 834

Source: Company records

The remuneration system is similar to that of ANPLC, i.e. usually in the form of a salary and end-of-year-bonus. Salary increments and promotion are often tied to productivity. The general conditions of service match those of ANPLC.

Brewing

Background

The brewing industry is one of the fastest growing branches of Nigerian manufacturing.6 It contributes about 28 per cent of MVA (Manufactured Value Added) and provides direct employment for over 30 000 persons. The indirect employment associated with the industry is close to 300 000 including the firms producing ancillary services. Beer, which is the most common product, is produced in all states of the country except Bauchi, Borno, Gongola, Niger and Sokoto.7 There are now 32 breweries producing more than 40 brands of beer. In addition, there are five brands of stout and five brands of malt drinks. In 1987 an estimated 2 billion litres of beer were consumed in the country.

Production has grown rapidly. In the period 1980-82, brewing was the fastest growing branch of the manufacturing sector. The volume of production in 1982 was five times greater than in 1970. Even during 1982-86, when most manufacturing branches experienced severe difficulties and production levels fell significantly, the industry continued to grow slowly. Production fell marginally during 1987 and 1988 due to restrictions on the import of barley malt and problems associated with the use of locally produced substitutes. During this period, capacity utilization fell to an all-time low of about 30 per cent. Increasing success with local substitutes for barley malt has improved the capacity utilization rate to about 64 per cent in 1991.

The search for local substitutes for imported barley malt involved most of the firms in expensive experiments with research and development departments as well as substantial plant conversion expenses. Their efforts were complemented by the independent research endeavour at the Federal Institute of Industrial Research, Oshodi (FIIRO), which, through some of its research report series, demonstrated that lager beer could be produced using sorghum exclusively. Today, most of the more successful firms use maize and sorghum in their beer production process. However, the changeover in input mix has necessitated the use of expensive imported enzymes in the production process.

Description and history of the firm

Origin, ownership and structure

Nigerian Breweries Plc (NBPLC) is the country's pioneer brewery. Incorporated in 1946, it commenced production in 1949. It started as a joint venture between the United African Company (WAC) International, UK and Heineken of Holland. Thus, at inception, it was 100 per cent foreign owned. By the early 1950s, when it began operating fully, some indigenous traders already involved with its products were invited to become shareholders. Under the indigenization policy of the early 1970s the foreign shareholders were forced to sell a significant proportion of their holdings. Today, the company is 60 per cent Nigerian owned and 40 per cent foreign owned. The 60 per cent Nigerian stake is held by company employees and members of the public, while the 40 per cent foreign ownership is split almost equally between CWA Holdings Limited (for Unilever) and Heineken Brouwerijen BV.

The foreign partners now perform the role of technical advisers, with Unilever advising on commercial aspects such as accounting, purchasing, marketing and personnel, while Heineken does the same for technology. Organizationally, the company has four divisions: technical, finance, marketing and personnel, each of which is headed by an executive director.

Performance and development

At its inception in 1949, NBPLC had only Star Lager (Nigeria's first) on the market. Over the years it has broadened its product range. Except for the period 1984 86, when sales volume suffered an annual average decline of about 18 per cent, turnover growth in the company has generally been accompanied by growth in profit and production volume. Thus, when normal growth was restored in 1987, the 51 per cent and 83 per cent increases in turnover and operating profit, respectively, for 1987-88 were accompanied by about 35 per cent volume growth. Similarly, the turnover of about N1.7 billion recorded in 1991 was partly the result of 8 per cent growth in sales volume. However, from all indications, product pricing has been the major factor in the impressive growth in operating profits.

Table 9.10 presents indicators of the growth trend in the company. Apart from sales and profit, both net total assets and the numbers of employees have enjoyed respectable growth.

Table 9.10 Performance indicators for NBPLC

 

1971

1975

1981

1985

1991

Turnover (Nm)

40.2

75.7

241.1

179.1

1 708.6

Pretax operating profit (Nm)

6.1

12.4

38.5

41.6

422.5

Net assets (Nm)

11.9

29.1

103.6

161.9

1 248.5

Employees

1 720.0

2 243.0

n.a.

3 998.0

4 297.0

Source: Company records

The deteriorating results recorded by the company in 1984-86 reflected the foreign exchange rationing policy of the period, which was necessitated by the severe balance of payments crisis of the post-oil-boom era. The import licence allocation of the company could hardly satisfy one third of its foreign exchange requirements. The government's mandatory backward integration policy in the mid-1980s saw the company establishing a 5 000-hectare farm, estimated to be worth N30 million, in Niger State. The farm is highly mechanized and produces mainly maize, rice and sorghum, with soya beans and cow peas as rotational crops. The main crops are used as replacements for barley malt. The changeover in input mix was assisted by the company's N2 million R&D facility, which was commissioned in June 1987. and plant conversion costing about N100 million.

The company works with highly structured plans, with annual budgets of intentions translated into explicit targets. The decision board sits towards the end of the year to deliberate on the report of each divisional head. Annual budget estimates are made in the middle of year while decisions on annual plans are left till the end of year.

The company has experienced remarkable changes in its technical capability. In 1949 it used to take between 28 and 30 days to produce a bottle of beer but with technological improvement it now takes about two weeks. The change in input content in the late 1980s also involved changes in processing technology.

Different measures of productivity are used for the technical division and other divisions. In the technical section, productivity is measured in terms of the efficiency of plant operation and also in terms of capacity utilization. In other divisions, it is in terms of the accomplishment of assigned responsibility. The company is viewed as a leader in the national industry and in Africa it enjoys a high rating, in terms of both productivity and product quality.

NBPLC concentrates on the production of its beer and related products, leaving ancillary services such as bottles, crown corks, labels, cartons and crates to be supplied by other local manufacturers. In fact, Nigerian law precludes a brewer from producing such ancillary services. Only the companies in the soft drinks industry appear to sponsor firms to produce such services. Backward integration into farming was a special concession granted to the breweries in 1984 following the stringent foreign exchange control measures introduced in that year. It also uses outside transport companies for 60 per cent of total distribution.

The company cooperates with other producers in the industry in lending materials which are urgently required. Under the umbrella of MAN, it cooperates with competitors to discuss issues affecting the industry, e.g. adverse government policy. There is no collusion with competitors in marketing and no cooperation in technical services, probably because most of the local brewers have foreign technical partners.

The prosperity of the company has been preserved by its efficient costing system, which seeks to protect profit margins in a high-inflation setting by adjusting prices in response to changing costs of production. Input costs rose about 1053 per cent in the period 1982 to June 1992 and selling prices have risen to almost the same extent.

Human resources development

NBPLC's major strength is the quality of its staff, which is of the highest calibre thanks to training and staff development programmes. Both internal and external training occur regularly. Most of the technical training programmes are handled by Heineken, which is known world-wide for its expertise in brewing. The commercial aspect of its training programme is usually handled by its commercial partner, Unilever.

There are two broad categories of employees, management and non-management. Management comprises senior management, middle management and management assistants. Non-management staff is subdivided into senior supervisors, skilled workers and unskilled workers. Technical employees (i.e. engineering and production) comprise about 55 per cent of staff at the management level and 70 per cent at non-management. The changes in the various categories in selected years between 1985 to 1991 are shown in Table 9.11. The company follows standard recruitment processes featuring advertisements, screening and various levels of tests.

Table 9.11 Manpower statistics for NBPLC

Category

1985

1989

1990

1991

Unskilled/semi-skilled

1 944

1 687

1 703

2 013

Skilled

1 306

1 113

1 226

1 257

Foreman/supervisor

388

682

572

552

Senior supervisor

17

87

99

128

Assistant management

157

144

149

156

Management

186

190

193

191

Total

3 998

3 903

3 942

4 297

Critical skills are generally acquired through paper qualifications or on-the-job training. At the management level, a minimum tertiary qualification' e.g. a first degree, is required. After employment, the individual undergoes structured training for about 18 months before being formally recognized as qualified to work the system. For technicians, a minimum of 12 months' training is required. Non-technical graduates undergo a management training programme of 18 months to acquire specific management skills relevant to their vocation. The only exception to this structured programme is for mid-career recruitment, where unexpected gaps in the management structure are bridged with suitably qualified experts from outside the system. This does not apply in the technical division because of its peculiarities: assistance to bridge gaps in the management cadre is always available from the technical partners.

Specific skills training is organized on an in-house basis with suitably qualified trainers in all divisions. Outside resources, both local and international, are often used to supplement the in-house capability. Under the staff development programme, personnel are given opportunities to realize their potential. Their strengths and weaknesses are assessed early in their careers and a career path is suggested which would offer challenging opportunities and rewarding work. Thus, the employee goes on training, locally and internationally, gets specific assignments and is pointed to jobs to grow into in the future. All these factors are articulated into well-laid career and succession plans so that staff members are adequately motivated and identify closely with the business.

NBPLC is a manufacturing concern with many shop floors, so industrial relations are a major plank of management practice in the organization. It has evolved a culture built on understanding between workers and management. Occasional zero-sum relations are usually accommodated.

Remuneration policy is built on a merit-based appraisal system unrelated to age or experience. Working conditions compare well with other manufacturing concerns, locally and globally. Elements of the working conditions include:

• a good safety record.

• fairly generous housing allowances.

• almost free lunch for all levels of management.

• free company medical services.

• free cartons of company products to every category of worker monthly.

The average labour turnover is about 6-7 per cent, which is not regarded as a problem. One minor threat to manpower stability comes from the oil exploration industry, whose members often poach the engineering staff after their rigorous and highly structured in-house training.

Export history and performance

NBPLC entered the export market for the first time in 1986 with about 6 668 small bottles (valued at £24 138) of Star, a mild lager and Gulder, a stronger brew. The number of bottles exported grew to 43 693 (£158 169 or N744 710) in 1987 but fell to 22 144 (£80 161 or N503 571) in 1988, after which the company withdrew from the market until 1992 when it resumed exports. In 1992 about 156000 bottles valued at N814 115 were sold. During both phases of its export history the target market has been West Africans currently living in the UK and Europeans who have visited or worked in West Africa.

The company's withdrawal from the market in 1988 was occasioned by the ban on the importation of barley malt' which forced the company to look for local substitutes. The initial use of maize and sorghum caused a drastic change in the taste of the products. This problem was solved around 1990 after N100 million had been spent on technological change and adaptation, principally the installation of mash filters. In making these changes the company received complementary assistance from its technical advisers in Holland. With the changeover to maize and sorghum, less sugar is used - 5 per cent as opposed to the 15-20 per cent when using barley malt. However, biological catalysts such as enzymes are now required.

The interval between the two export phases saw the emergence of unauthorized' or 'grey', exports. Export strategy now aims at dislodging such grey exports using a price strategy, with the company only seeking to break even in that segment of its operations.

External factors affecting exports

Exchange rates

One major feature of the structural adjustment process which began in 1986 is the emergence of an auction market which determines the exchange rate. The naira has since depreciated continuously. The official rate fell from about N0.89/US$ in December 1985 to about N25/US$ in April 1993. This has tended to enhance the competitiveness of the company's exports since all aspects of costing and pricing are carried out in the domestic currency. Currently! Star Export is invoiced to the company's export agents at less than US$5 per carton. which appears quite cheap when compared with the average selling price of rival products in the international market.

A side-effect of the present exchange rate management system (perhaps, of the underlying scarcity of foreign exchange) is the rationing and hoarding of foreign exchange by conventional suppliers, i.e. banks. The company sometimes encounters problems with obtaining foreign exchange from such conventional sources of supply.

Raw materials

The shift from barley malt to maize and sorghum has already been described. Both maize and sorghum are supplied locally. The bulk of the company's purchases are on the open market, since the company's farm supplies less than 10 per cent of its requirement. A national grains centre has been established in Jos and this centre ensures that the company's requirements are readily met.

Activities of export agents

The company's export sales strategy has been to use export agents. This strategy failed to yield the desired result during the first phase of its export initiative, in 1986-88. The problem was not with sales but rather with returns, as most of the agents failed to repatriate the foreign sales earnings to the company. An investigation conducted by the company revealed that the fundamental problem was that the agents were selected without any investigation as to their reputation and reliability. Under the present export initiative, new export agents were chosen after adequate screening, including an interview at the Lagos head office. The company has taken the fraudulent export agents to court and the case is still pending in London.

Tariff levels of African countries

NBPLC has found it impossible to target African markets, especially the neighbouring West African countries, because of their high import tariffs. Most of these countries depend on import duties of up to 90 per cent to generate revenue, which renders imports quite uncompetitive in the local market. The company, in conjunction with other export manufacturers under the umbrella of the Manufacturer Export Group of MAN, has been pressurizing the Nigerian government to use the forum of ECOWAS to address the problem. In the meantime, smugglers are having a field day dealing in the company's products.

Strategies, capabilities and linkages

Production strategies

The production of ancillary materials such as crown corks and bottles is contracted out under conditional contracts which can be terminated if the service is unsatisfactory.

Outside suppliers are relied upon for 90 per cent of the maize and sorghum used. The company used to engage in contract farming but this was stopped around 1990 because the farmers did not fully comply with the arrangement. If the harvest was bad, the farmers would sell on the open market to capture abnormal profits but in a good harvest season they sold their produce and that of other farmers not privy to the agreement (and which they obviously bought at market prices) to the company at the enhanced contract price. The project thus became too expensive to monitor. A plan to distribute the appropriate varieties of sorghum seedlings to farmers in order to encourage continuous supply was never implemented because the pricing strategy was not agreed upon.

In the 1960s and early 1970s, the company used to produce under franchise for labels such as Schweppes. Nowadays all available capacity is utilized for its own production.

Investment strategies

Investments usually take the form of a new product, a new production line or extensions to an existing one. In all cases, the principles of project evaluation are observed. Yardsticks such as the net present value, IRR and accounting rate of return are usually applied to proposed projects. Adequate allowance is made for human factors such as market demand, availability of personnel, government policy, etc. Where the capital requirement is large, the views of the technical partner are often sought. The company has adequate in-house capability in manpower and equipment to handle its project evaluation requirements and has not so far employed outside consultants for such purposes.

Marketing strategies

The export marketing structure (via agents) has already been described. Product occupies a central place in the marketing strategy. This explains the company's withdrawal from the export market following the perceptible change in product quality in the late 1980s.

Price is perhaps the most used marketing instrument. Apart from its relevance in the context of general sales volume, it is currently being used by the company to dislodge those 'grey imports' that took centre stage during the withdrawal from export markets in the late 1980s. Promotion supplements the price and product instruments, mainly with radio and television advertisements and posters.

Innovation strategies

The innovation strategy of the company combines technology search, product development, human resource development and management control processes. Technology search is basically restricted to foreign countries. It is usually carried out on the company's behalf by its technical partners. Under an agreement with the partners, every article published on brewery technology anywhere in the world is sent to the company daily. This prompts the company to carry out a technical review on an almost daily basis, leading to frequent updating of technology.

The place of product development in the innovation strategy of the company is obvious from the development history of the company given on pp. 270-2. However, with respect to the export market, it is not technically new product but rather small bottle versions of existing brands which are exported.

The company's human resource development policy was also described on pp. 272-4. In spite of its extensive, structured and rigorous training programmes, the company does not depend on its staff for any technological breakthrough. Rather, it expects them to be competent to adapt and maintain any relevant technology.

Management control in the organization basically takes the form of formulating corporate plans, deriving annual budgets from plans, translating overall budgets into departmental budgets and setting standards at the departmental level for individual units. There is always one superior officer to check on a worker's performance and to correct errors.

Investment capabilities

Project identification is usually informed by corporate plans and objectives. Assistance in this regard is readily available from technical partners. The organization does not borrow money because it has access to ample funds from its retained earnings. It does sometimes encounter problems with obtaining foreign exchange from banks.

Production capabilities

The beer production process is completely automated. The production technology and machinery are from Europe, particularly the Netherlands. The repair and maintenance of machinery and equipment used to be handled by the technical partners but due to economic circumstances and rising costs the company has set up its own repair and maintenance division. The technical partners only come in when the skill required is beyond the local manpower.

Marketing capabilities

The company maintains its market shares using a combination of price, product quality and promotion, reinforced by an efficient distribution strategy. Market information is usually collected by company salesmen from wholesalers and retailers and analysed by officers in the marketing department.

Product development policies were dictated by the technical partners until after the indigenization policy. One new product, Rex beer, was developed as an experiment with local substitutes for barley malt. Another, Legend Extra Stout, was a response to the activities of a major competitor, Guinness Nigeria Ltd. which introduced a competing beer and a malt drink. Legend Stout was developed to enter the market for stout and so protect profit levels.

For established products, pricing often follows cost trends. But newly launched products are priced at break-even as a deliberate marketing strategy.

The efficiency of the sales force is measured in terms of monthly sales volume compared with monthly targets. The sales force receive more free cartons of company products than their counterparts in other departments.

The factors which have led to success and failure in exporting are:

Success:

• product quality

• price advantage from depreciating exchange rate

• superb technical back-up

• availability of ample financing

• skilful personnel

Failure:

• smuggling of products into foreign markets

• high tariffs of ECOWAS countries

• dishonest licensed export agents

• limited access to foreign exchange

Linkages

The company maintains links with its technical partners as regards its process technology, repair and maintenance and advice on general technical matters. It interacts with factor markets to the extent that it owns a farm and purchases on the open market but it has no binding agreements with suppliers because local supplies of the crops are adequate.

It has no direct links and interactions with consumers except during promotional exhibitions. Its interaction with government policies is limited to cooperation with other brewers under a common umbrella, such as MAN, to lobby government on matters of common concern.

Food and beverages

Background

The food and beverages industry is one of the most thriving sectors of the economy.8 It accounts for about 13 per cent of MVA in the country. The country's staple foods are millet, sorghum, yam and cassava, which are produced by small-scale and subsistence farmers. Output of the food sub-sector was heavily affected by severe drought in 1987 and 1988, while the availability of domestic produce since 1987 has been reduced by the high incidence of both official and illegal exports to neighbouring countries in order to take advantage of the beneficial exchange rate resulting from free market reforms which began in 1986.

The beverages sub-sector has produced some of the country's quality products, such as Bournvita, Ovaltine, Milo, Vitalo, Benco, etc. These beverages make intensive use of the country's cocoa-bean production. Intermediate stages of cocoa processing, such as cocoa butter, cake, powder and liquor, have been part of the country's traditional semi-manufactured exports.

Capacity utilization in the industry was as its lowest level, about 34 per cent, in 1988 due to the drought. Nevertheless the ratio of domestic to imported raw materials improved from 52 per cent in 1985 to 65 per cent in 1987. Since 1989, capacity utilization has averaged about 45 per cent, while the local raw material ratio has averaged 62 per cent.

History of firms in the sample

Origin, ownership and structure

Cocoa Industries Limited (CIL) is a manufacturer in the beverages sub-sector. It was incorporated in 1965 but commenced operations in 1967. It was established principally to provide jobs. A secondary reason was to add value to cocoa, which was the country's major foreign exchange earner in the period. It was at first fully owned by the government, but in 1990 40 per cent of the company's total shares were sold under the government's privatization policy. Until the late 1970s a technical partnership agreement existed with Coutinho Carrow Company (CCC) of Germany. CCC installed and ran the plant while Nigerians understudied them. Nigerianization in the late 1970s led to Nigerians taking full control.

Until 1981, CIL was only engaged in the processing of cocoa beans into the main cocoa products, primarily cocoa butter, cake and powder. In 1981, it added an instant cocoa beverage, Vitalo.

The company has a relatively simple structure composed of the board of directors, chairman and chief executive, general manager, assistant general managers, heads of departments including the company secretary, managers, including the chief engineer and chief chemist, officers, supervisors and junior staff. Management by objective is the usual practice but sometimes the principle of democracy is allowed in areas of controversy.

Intra-Fisheries Nigeria Limited (IFN) belongs to the food sub-sector. It was incorporated in 1974 but commenced operations in 1977 by importing and distributing frozen fish. It set up cold stores with a total capacity of 7 300 metric tonnes in Lagos, Jos and Warri, complemented by a large network of agents and distributors throughout the country.

Over the period 1980-87, the company successfully designed and implemented two diversification processes. In 1980, it started processing smoked fish products, and in 1987 it moved into fish trawling operations. In 1984 the company discontinued the smoked fish due to the exorbitant cost of raw materials, which was occasioned by the licensing of, and subsequent ban on, fish imports. It stopped the processing of dry fish in 1988 for the same reason.

The company equity is 60 per cent Nigerian owned and 40 per cent foreign owned. The policy board has eight members, the chairman (a Nigerian), a managing expatriate director, four other Nigerians and two expatriates based overseas. Like CIL, the company has a simple organizational structure consisting of a board chairman, board of directors, the managing director, operations controller for each of the technical and trawler divisions, and office staff distributed between the technical division, trawler division and operations.

Performance and development

CIL appears to have grown steadily over time. Sales, which remained virtually static between 1980 and 1985, grew by about 25 per cent between 1985 and 1990 and by an unprecedented 182 per cent in 1990-91. Other indicators of the growth trend are shown in Table 9.12. The general picture that emerges from the table is that of modest but by no means consistent growth in vital areas.

Table 9.12 Performance indicators for CIL,

 

1980

1985

1990

1991

Sales turnover (Nm)

10.8

10.5

13.1

37.0

Net assets (Nm)

14.7

20.1

19.1

28.2

Employees

474

582

445

469

Source: Company records

Until 1981, when production of Vitalo commenced, raw cocoa beans were virtually the only raw material. However, with the. addition of Vitalo to its range of products, other inputs were added: skimmed milk powder, sugar, vitamins and minerals. malt extract syrup lecithin syrup, vanilla and egg powder.

The company has managed to preserve its prosperity by adopting a pricing policy that protects its profit level. Prices are made to reflect cost changes as much as possible. But in the period 1970 84 the Productivity, Prices and Incomes Board (PPIB) allowed only 5 per cent annual increases in selling prices although the cost of production was growing by about 11 per cent. Following the dissolution of the board in the mid-1980s, the prices of the company's products could follow the trend of cost changes. Between 1985 and 1992 prices rose in response to cost increases averaging 20 per cent annually.

This general pricing policy only applies to products focused on the domestic market. The prices of export products are exogenously determined and are usually fixed in contracts. An insurance scheme being designed by NEXIM would compensate exporters for contract losses arising from exchange rate fluctuations.

Slightly ahead of CIL, IFN appears to have witnessed modest but respectable growth. Although Table 9.13 covers only three years, it suggests that sales grew by about 3 per cent between 19130 and 1985 and by 97 per cent between 1985 and 1990. Over the same periods, total assets witnessed tremendous growth' of 416 per cent and 78.7 per cent respectively. However, employee levels experienced 114 per cent growth and then a 47 per cent decline in the corresponding periods.

Like CIL, the company protects its profit level by adopting a policy of replacement costing plus a mark-up. Thus, in 1979-80* when input costs rose by about 47 per cent, selling prices witnessed an average growth of about 50 per cent. Similarly, the 221.4 per cent and 94.4 per cent successive rises in input costs in 1985-90 and1991-92 were more than matched by increases in selling prices of 243.8 per cent and 100 per cent. Export prices are not influenced by the level of domestic inflation.

Table 9.13 Performance indicators for IFN

 

1980

1985

1991

Turnover (Nm)

19.8

20.4

40.2

Total assets (Nm)

1.3

55.5

99.2

Employees

22

47

25

Source: Company records

Human resources and manpower development

The manpower composition of the two companies gives some insight into the relative strength of the companies and their human resources and manpower development policies. Table 9.14 shows the distribution of ClL's employees over categories of status and skills.

Employment at virtually all levels has declined since 1980 but the decline appears less pronounced with the lower and skilled categories. The general decline would appear to reflect the realities of the harsh economic environment in which the company has been operating since the mid-1980s. The abolition of commodity boards in the 1970s, coupled with the adoption of a flexible exchange rate regime around the mid-1980s, has diverted cocoa beans to the export market and created a local scarcity. The effect has been reduced production. Another factor preventing expansion has been the uncertainty hanging over the company since 1990, when the public reacted strongly to the manner and amount of the sale of part of the company

Table 9.14 Manpower statistics of CIL

Category

1970

1980

1985

1990

1991

Unskilled

123

127

204

125

138

Skilled

177

258

273

250

252

Lower

3

56

62

46

51

Middle

10

18

29

14

16

Upper

12

15

14

10

10

Total

325

474

582

445

467

Source: Company records to some private persons. The ensuing court action has left the company starved of funds.

In spite of the labour rationalization which has apparently occurred, the company's human development policies have experienced only minor changes. On being hired, junior staff are exposed to a one-week induction programme during which they are introduced to the company's self-development programme. Under the programme, they are encouraged to register with an appropriate professional examination body, with the company footing all the costs of training and giving a post-qualification award by way of incentive. Apart from the self-development programme, junior staff undergo several in-house training courses (usually organized along functional lines, i.e. production, marketing/sales, etc.) as well as occasional outside training.

In the case of senior staff, the financial problems of the company have led it to replace all overseas training by local in-house and external training. The in-house training essentially relies on outside consultants. On average, a senior staff member in one of the major functional divisions goes on a training course once in two years.

With respect to recruitment policies and practice, vacant positions are filled as and when necessary. All positions must be approved in the relevant year's budget. Recruitment begins with internal advertisements, followed by a screening process to produce a shortlist. The process is handled internally, by the personnel department in collaboration with other relevant departments. Remuneration is by salary, with incentives such as the end-of-year bonus applied across the board and not tied to productivity. Promotion is often tied to productivity.

By industry standards, the conditions of service in the organization are fair: free lunches, occasional gifts of Vitalo, a free medical facility and fairly generous housing and transport allowances.

The human resources and manpower development of IFN appears less formidable and less structured. The company's manpower composition is shown in Table 9.15.

The major picture emerging from the table is the lack of any consistent trend. Although all levels of employment appear to have witnessed changes, the lower management level seems to have been most affected. This perhaps suggests that this level receives more attention during a rationalization process.

The company does not have any particular manpower development and training programme. Most employees are expected to come with the requisite skills, and training thus takes the form of an induction course to become familiar with the system. Staff members are occasionally sent on local seminars and short-term courses in their individual disciplines.

Table 9.15 Manpower statistics of IFN

Category

1977

1985

1990

1992

Unskilled

4

4

3

4

Skilled

3

8

4

l 0

Lower

4

21

8

10

Middle

2

6

5

6

Upper

3

8

5

5

Total

16

47

25

35

Source: Company records

Note: These figures exclude day workers' whose number varies but never exceeds 10

Most vacant positions at senior management level and above are filled through advertisement, with the interview and testing being handled by the company's senior management, including the managing director. Below the level of senior management, most vacant positions are filled through local contacts (i.e. introductions by known people) and subcontract agreements. Subcontract agreements are the major means of securing most of the semi-skilled and unskilled workers.

The incentive system in the organization takes the form of moderate allowances for housing, meals, transport and education. There are, however, full medical facilities. Labour turnover is small and insignificant. Salary increments are usually tied to productivity but promotion is only occasionally so tied. Workers enjoy a Christmas bonus (usually, two months' salary) which is above average in Nigeria. In addition, due to the high and rising inflation experience of the country in recent times, workers who have more than 10 years' service are allowed to take up to 50 per cent of their expected total entitlement upon retirement for immediate use.

Export history and performance

ClL's export activity began when it commenced operation in 1967, with cocoa butter and cake being exported. These two products, particularly cocoa butter, remain the principal export products, although cocoa powder was given some attention in the 1970s and early 1980s. Brokers provide the main export marketing channel. The target market is the developed countries, especially Europe and the US.

It is difficult to gauge ClL's export performance accurately because data on export sales is only available for a few years. The data shows export sales of about N0.6 million in 1985, increasing sharply to about N4.4 million in 1986 and further to about N6.9 million in 1987 but falling successively to N3 million and N0.1 million in 1988 and 1989. Sales recovered in the following year to about N4.3 million and reached a record of N15.1 million in 1991.

IFN's export history is relatively short. It entered the export market only in 1991, with about $0.2 million or N1.7 million worth of export goods. The export volume grew to $1.1 million or N17 million in 1992. The items exported include processed shrimps, lobsters and sole fillets. The major channels are licensed agents and branches abroad while the target markets are the developed countries of America and Europe. At present the focus is on the US, the Netherlands, France and Switzerland.

The market for the company's exports appears to be large and stable, given competitive pricing, so the company sees no need for aggressive marketing or sales strategies. It contracts out the export arm of its business to an affiliate company - Intercontinental Limited - which organizes shipping, appoints agents and establishes branches abroad for 'on the spot’ sales and promotions. So far, the company has no misgivings about this arrangement.

External factors affecting export growth

Finance

Both CIL and IFN have several sources of funding, such as issuing share capital, borrowing and cheap funds from special finance schemes. However, the high and rising interest rate under the free market reforms make borrowing in the conventional loan market unthinkable.

Both companies have access to NEXIM's RRF, which is usually granted at a concessional rate - about IX per cent compared to the money market's 45 per cent. However, the RRF has a time limit of about 90 days, after which the client is forced onto the open market to seek funds. Clients of NEXIM are now proposing a 180-day duration for RRF so as to avoid the open market. Besides the RRF, IFN utilized an ADB/ESL, when buying additional trawlers in 1990/91. IFN also recently increased its share capital from N3 million to N10 million.

The financial position of CIL has become particularly precarious following the disagreement between the two shareholders, the holding company for the government and the new private interest. The ensuing court action, which is yet to be settled, has effectively blocked any increase in share capital. The continuously depreciating exchange rate has further increased the cost of borrowing for both firms (though indirectly). Both firms lose considerable funds through the effect of continuous currency depreciation on forward contracts, which are their principal mode of export sales.

Raw materials

IFN does not appear to be facing any problem with obtaining raw material, given its plan to purchase more trawlers in order to procure extra tonnage. But CIL has frequently experienced raw material shortages since the mid-1980s, due to the instability of farm-gate prices as compared to international prices. The vagaries of the weather have not helped. Most local cocoa beans are exported to gain an exchange rate advantage, which creates an artificial shortage of input locally. In reality, between September 1986 and 1989, the domestic price of cocoa beans bore no relationship to international price levels, even allowing for exchange rate depreciation. The unusual overpricing in the domestic market was unofficially attributed to capital flight. Buying at such prices was clearly uneconomical for a local user of the beans. Together with other processors of cocoa beans, the company has now proposed that government should allow imports or ban exports of the beans. In the meantime, CIL deals with this deficiency in three ways:

1 competitive production and farm-gate pricing

2 stockpiling, subject to funds being available

3 strategic price-setting for the international market

Labour market conditions

High and rising inflation causes wages to rise frequently, which flow on to the cost of production. CIL has recently been experiencing an increase in labour turnover' especially in its engineering and production departments, because newly established processing companies see it as a source for technical staff. Apart from the occasional operational effect of the loss of such skilled workers, this has been costing the company money and time in recruiting and training new hands.

Currency depreciation

The present exchange rate regime is very volatile, which makes forward contracts very risky. To counterbalance this, both companies are requesting that the government establish a price insurance scheme similar to that proposed by NEXIM. Such an insurance scheme would compensate exporting companies for losses incurred on forward contracts because of the fluctuating exchange rate. Given its peculiar situation, CIL also suggests a possible return of the Commodity (cocoa) Board which once served to stabilize cocoa prices locally by announcing fixed buying prices at the beginning of each year. CIL also often encounters problems of access to foreign exchange on the official market because of rationing and hoarding by banks. However, it has a foreign currency domiciliary account into which its export receipts are paid and from which authorized payments are made.

Technology, marketing, investment, productivity and human resources

Characteristics of demand in target market and managerial responses

Both CIL and IFN operate in a buyer's market and so are price takers in their export markets. CIL considers that there is an infinite demand for cocoa butter around the world, with no risk of sudden adverse price movements. IFN's market is described as large and stable' with competitive pricing.

Faced with this market condition, neither company uses demand to plan production. They deal primarily on the basis of letters of credit and forward contracts. They both hope to eliminate the disadvantages inherent in these modes of selling, given the continuous depreciation of the local currency, by means of the price insurance scheme which was discussed earlier.

In the area of interaction with customers, CIL relies on the fact that most of its foreign customers? like itself, belong to the International Cocoa Organization (ICO), which vets each member's integrity and credibility. Locally, organizations such as the Cocoa Processors Association of Nigeria (COPAN) and the Cocoa Association of Nigeria (CAN) serve as forums for interaction.

IFN interacts rather differently. Operating through its affiliate company, Intercontinental Limited, its exports are mainly to its agents in the USA, who are responsible for the development of new markets and have done rather well in penetrating the European market. All the company's export products are marketed under the group's brand name, 7 PRIMSTAR.

IFN participates, along with the group, in most European trade fairs, and its products are well known and widely accepted. The company considers that its newly acquired trawlers will be able to process its products to the European market's requirements.

Investment strategy and capability

The basic strategies of the two companies are similar, focusing on profitability calculations using techniques such as net present value internal rate of return, annual rate of return and the payback approach. Feasibility studies, which are usually handled by their staff, cover issues such as finance, project cost, manpower demand and government policy. In recent years IFN has been focusing exclusively on short-term investment (at most, five years) because of the volatile nature of the economy. It has also been involved in some diversification such as the processing and export of rubber.

ClL's investment continues to be in cocoa processing. The management board usually initiates any new proposal.

Technology and productivity

ClL's production technology is basically European, since that is the source of the equipment. Cocoa cake and powder are often processed to the customer's colour requirements through alkalization. The introduction of nib alkalization (i.e. adding more chemicals to the manufacturing process) has allowed greater colour manipulation. The latest product of the company, Vitalo, is produced by a spray-drying process.

The plant is repaired and maintained locally by the company's technical division. CIL has no formal link with its former technical partners and so does not enjoy any expert advice on technical matters. Some spares have been fabricated locally to reduce the need for imports.

Access to finance, skills, technology and foreign exchange is not a problem but purchasing power is. Open market funds, including foreign exchange, are exorbitantly expensive in the context of the on-going liberalization drive. The company has resorted to leasing factory equipment to solve the problem of obsolescence and worn-out machines but has found the high leasing costs a major strain on its finances.

Productivity in CIL is usually measured in terms of output per unit of labour. It compares favourably with other firms in the food and beverages industry. Its brand of cocoa butter (Oba Brand) is renowned for good quality in the international market, while its beverage (Vitalo) is well received and enjoys a good share of the local market. CIL measures the efficiency of its labour force in terms of productivity per person, compared to set targets. Factory workers' performances are assessed in groups. Incentives are limited to promotion and productivity bonuses.

With IFN, the product technology employed basically centres on sea products such as sole, crab legs, whole lobsters and lobster tails, and shrimps of various sizes and processed in various ways. Until 1988, different process technologies were used for smoked, dried and frozen fish and shrimps. With the end of smoked fish processing in 1984 and dried fish processing in 1988, only the freezing technology remains. The process technology of the company is European and it is reputed to be the industry standard. Virtually all the machinery and equipment involved in the production process is imported from Europe. The plant is, however, repaired and maintained locally, usually by subcontract agreements with Nigerian companies.

The company is a leader in the industry and does not encounter problems in accessing technical skills and technology. It has been experiencing problem of access to finance (due to exorbitant cost) and foreign exchange but has coped with this thanks to the ADB/ESL finance and share issues.

IFN does not use any particular index for productivity measurement. The company concerns itself only with the picture at the end of a budget period (the total output approach). Workers have predetermined tasks which they are expected to accomplish. Output is not directly related to workers' tasks. Productivity incentives are limited to salary increments and occasionally to promotion.

Production linkages and subcontracting

In the days of the cocoa board, the CIL used to have licensed suppliers of cocoa beans, since in most cases the selling price of any particular grade of cocoa beans was fixed and common knowledge. However, since the abolition of the board and the move to a market economy, such agreements are no longer respected by suppliers, who sell to the highest bidder on the open market. Since its inception the CIL has been involved in contract processing. It sometimes contracts its processing to other firms, when it is having problems with insufficient production lines for urgent orders but more often it processes for other producers for a fee. This has been occurring more often recently, to utilize the excess capacity occasioned by the drastic reduction in the scale of its operations as a result of poor funding.

In contrast, IFN sources a great proportion of its raw materials directly through its trawling operations. As a result, it does not have any binding agreement with material suppliers. In addition, it completely processes all its output and no production capacity problems have yet emerged. In fact, with the discontinuation of smoked fish and dried fish in 1984 and 1988 respectively, there appears to be ample space for the expansion of production capacity for existing products. So far, it has not engaged in any form of subcontracting of production.

Innovation strategies

The ClL's innovation strategy takes the form of management control and resource and product development. Management deals with external factors as they affect the company. Performance evaluation is carried out by various levels of management and often leads to new standards or targets. Innovative efforts may be rewarded with promotion, recognition and productivity bonuses. One example of the product development element of innovation is the design and development of Vitalo. The idea behind Vitalo was to find a use for the company's excess cocoa powder. CIL sponsored research to determine consumers' preferences and discovered that the granulated beverage was more popular with consumers than a powdered form, and Vitalo is therefore produced in granulated form.

In contrast to CIL, innovation strategy at IFN combines raw materials' sourcing, product mix and new product development. Following the institution of an 'import-discouraging exchange rate policy' in the country, the company had to look to Nigerian sources for part of its fish requirements. It discovered that a large part of its imports could be sourced locally.

The product mix strategy takes the form of the combination of particular products to satisfy the needs of a particular segment of its export market. With new product development, the company explores its export market to identify niches to penetrate with a new product. For example, crab is plentiful in Nigerian waters: through such a search the company discovered that crab legs and crab meat have good export potential. Rewards for innovative effort are similar to those for productivity, i.e. normally in the form of salary increments, with promotion coming only occasionally.

Conclusions

This study has documented the management, organization and processing of manufactured exports in five Nigerian firms distributed over the textile, brewing and food and beverages industries. The problems and prospects of manufactured exports have been highlighted and discussed. Most of the firms covered in the study were found to have only short export histories. Similarities among firms are noted in the areas of management practices, cooperation within the individual company's industry and with competitors, investment strategy, pricing policy, innovation strategy and environmental problems. In contrast, significant differences occur in the areas of organizational structure, ownership structure, financing mode, production strategy and capability, marketing strategy, human resources development policy and patterns of linkages.

In general, the major strength of most of the firms appears to lie in strong internal control processes, the use of new production technologies and the careful choice and impressive performance of marketing agents. However, problems appear to exist in the areas of the quality of production, the adequacy of financing, access to foreign exchange and bureaucratic and official control, thus creating a wide scope for official intervention on the part of both the national government and the international community.

Appendix: the incidence of leasing in Nigeria9

Origin and growth

Leasing as a mode of business finance began in Nigeria in the early 1960s, with the first documented transactions occurring as cross-border leases between Nigerian companies and their UK holding companies. Following the stringent exchange control measures introduced at the onset of the Nigerian civil war in 1966, this relatively low-level leasing business apparently ceased altogether. Activities resumed after the war as the massive post-war reconstruction efforts saw construction companies considering financial options in capital acquisition programmes. Growth in the industry has been particularly strong since the advent of free market reforms in late 1986. At the beginning of this period a few merchant banks such as the International Merchant Bank, Continental Merchant Bank and Nigerian Acceptances Limited, enjoyed market domination. The market has now expanded to accommodate well over 300 lessors. The Equipment Leasing Association of Nigeria (ELAN), which was formed in 1983, today represents about 85 of the most influential leasing companies (as at December 1991), including the financially powerful merchant banks. In 1986, the total assets on lease by ELAN members were worth about N100 million. By 1991, total assets leased had risen to N895.8 million. This is, however, only about 42 per cent of the total N2 billion in outstanding leased assets in the country as at December 1991.

The tremendous growth in the industry in recent times has attracted the attention of the authorities and institutional regulation has begun. One example is the Statement on Accounting Standards (SAS 11) issued by the Nigerian Accounting Standard Board (NASB) in 1991 to guide the reporting format (information disclosure) in the industry.

Products on offer

Both finance and operating leases are offered. Virtually all registered banks and a sizeable proportion of non-bank finance houses offer finance leases. Almost any equipment can be leased under this arrangement, with the lease rentals structured to pay back the cost of equipment fully during the primary period. Operating lease arrangements are not as common and have come to be associated with specialized equipment. Apart from the big-time equipment suppliers such as Leventis, Mandillas and Rank Xerox, a few merchant banks and finance houses operate in this segment of the market. Under this arrangement, the lease rentals are usually not expected to cover the cost of equipment during the primary period.

Market size

The enormous growth between 1986 and 1991 suggests a very large domestic market for leased equipment. Total capital asset financing in the country in 1992 was over N30 billion, yet the recorded lease portfolio was only about N5 billion (i.e. 17 per cent of the total). Participants in the market find leasing more attractive than conventional loans for a variety of reasons. On the one hand, banks find leasing relatively safer than straight credit advances and have been increasing their exposure in the market. On the other hand, the increasing cost of credit in the deregulated loan market coupled with the effect of the steep currency depreciation on the cost of imported equipment has discouraged many firms from attempting outright asset purchase. It remains difficult to guess the future growth direction in the industry. Recent government provisions have tended to reduce or eliminate altogether the incentives to lessors. For example, as of January 1991, the CBN directed that leasing should count towards banks' aggregate credit volume and almost simultaneously the NASB's SAS 11 ruled that finance leases are not leases and therefore banks as lessors should not claim capital allowances on leased equipment. The capital allowances had previously been a major incentive. However, if the recorded naira value of leased contracts for 1992 (N5 billion, as compared to N2 billion in 1991) is anything to go by, the effects of these developments are yet to manifest themselves in reduced transaction volumes.

Funding arrangements

Funding of leased contracts is basically from own resources. Some banks offer leasing contracts in the form of concessionary financing which involves the use of funds from multilateral agencies such as USAID, KU, ADB, NERFUND (the National Economic Recovery Fund), SME (Small and Medium Enterprises) programme, or World Bank Health Programmes.

Distribution of finance

Of the ELAN member's exposure of about N895.8 million in 1991, manufacturing accounted for 52.3 per cent, transport for 27.1 per cent, agriculture for 4.8 per cent, services for 5.1 per cent, government for 0.9 per cent and others (small equipment for the construction, mining, printing and confectionery industries) for 9.8 per cent.

Notes

1 For further details see, for example, The Sovereignty Budget. Federal Ministry of Information, April 1961.

2 See, for example, Oluremi Ogun, Nigeria's Trade Policy During and After the Oil Boom: An Appraisal, University of Ibadan, 1987.

3 For a succinct review of Nigeria's exchange rate practices since independence, see T. Ademola Oyejide and Oluremi Ogun, Structural Adjustment and Exchange Rate Policy', in A. Iwayemi (ed.) Macroeconomic Policy Issues in an Open Developing Economy: A Case Study of Nigeria (a Ford Foundation Sponsored Book Project, forthcoming).

4 A detailed analysis of industrial incentives in the 1970s can be found in J.W. Robertson, The Structure of Industrial Incentives in Nigeria, 1979-80, Research Report of the World Bank, Washington, D.C., 1981.

5 The information in this section is drawn from the UNIDO Industrial Development Review series, 1985 and 1988 editions; the CBN, annual reports and statement of accounts (various issues); the Federal Republic of Nigeria, First National Rolling Plan,/990-92 (Government Printer, Lagos); and MAN, Half Yearly Economic Review, January-June 1988.

6 For references, see The Brewery Industries: A Major Contributor to Nigeria's Development (The Beer Sectoral Group of MAN); UNIDO Series (ibid.); CBN (ibid.).

7 New states have been carved out of these states since 1991. None the less, their policy of no involvement in the production of beer or any alcoholic drink, based on religious belief, applies equally in the newly created states.

8 For further information see UNIDO series (ibid.) and CBN (ibid.).

9 See ELAN, Lease Awareness Seminar January, 1993; Corporate, Corporate Journal on Leasing; 'The New Order' in Corporate Magazine, November/December 1991; ELAN, Annual Report and Accounts 1991.