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Tuesday, March 28, 2023

Flour Mills’ Investment in Backward Integration Projects to Spur Economic Growth

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The copious investment on the expansion of sugar plantation across the country by Flour Mills of Nigeria Plc through its backward integration project is expected to spur economic growth and bolster food sufficiency.

The largest food-focused agro-allied conglomerate, has invested more than N141 billion in the expansion of its sugar business, as it recently acquired 20,450 hectares of land in Nasarawa State.

The land is situated in Umaisha Development Area of Toto Local Government Area of Nasarawa State on the north bank of the Benue river, about 70 kilometers upstream from Lokoja.

“It is expected that land preparation, including surveys and the initial designs will start immediately in anticipation of the commencement of operations during the course of this year,” said Omoboyede Olusanya, Group Managing Director, FMN.

“The plan is to develop up to 15,000 hectares under cane and to construct a state-of-the-art sugar mill in line with our BIP commitments and Nigeria’s drive for self-sufficiency in sugar production,” said Olusanya.

Interestingly, the chief executive officer said the projected cost of the Nasarawa project which will significantly benefit neighboring communities is at least $300 million.

Analysts are of the view that the millers’ copious investment in the backward integration policy will help reduce the huge import bills that are stoking devaluation and undermining economic growth.

They added that it will also create jobs where the unemployment rate is 33 percent, reduce poverty, and shrink the balance of payment deficits.

The term ‘backward integration’ describes a situation in which a firm moves to produce certain segments of its supply chain. It involves the expansion of a firm towards producing specific inputs or raw materials that would eventually be used in the production of its core product.

Godwin Emefiele,the Governor of the apex bank, said that Nigeria spends between  $600 million to $1 billion to import  sugar into the country annually.

Emefiele explained that the development caused the CBN to include sugar and wheat on the foreign exchange restriction list.

“We are looking at sugar and wheat. We started a programme on milk about two years ago, eventually, these products will go into our FX restriction list,” said Emefiele.

According to the International Trade Centre (ITC), Nigeria imported $463,387,000 worth of raw sugar in 2019 to become the second largest importer of the commodity in Africa, behind Algeria, which spent $646,129,000 in its sugar imports.

Economic analysis also indicates that the import of sugar is likely to rise further as the country returns to post-Covid-19 normalcy and business activities gear up, including the confectionary and other industries that rely on sugar as one of the important ingredients.

President Muhamadu Buhari’s led administration is working assiduously hard to ensure that the economy is diversified away from reliance of crude oil that is susceptible to volatility in price.

To protect the external reserve clobbered by a precipitous drop in crude oil price, the central bank had removed some imported goods from the list of items valid for Forex Exchange.

Nigeria’s current account (CA) position stayed in a deficit position for the tenth consecutive quarter, with the balance in the fourth quarter of 2020 ($5.26 billion or -4.5 percent of GDP) representing the largest CA deficit since the fourth quarter of 2019 ($ billion).

The deficit in Q4-20 was primarily due to the goods imports ($14.69 billion) outstripping goods exports (USD8.44 billion).

Despite the rebound in oil price on the back of gradual reopening of the economy and the successful roll out of vaccines, trade deficits increased by 1,098.42 percent to $9.61 billion in the first quarter of 2021.

Not surprisingly, the Naira has weakened in the forex markets to N505/$ (parallel), according  to data from Aboki Fx,  but is expected to recover in the third quarter (Q3) towards its fair value of N470-480/$.

The nation’s external reserves lost $2 billion in the first half of 2021, H1’21, declining 0.5 percent to $33.37 billion from $35.37 billion recorded on December 31st 2020.

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