Analyzing the Non-Oil Export Sector in Nigeria Today

2008

Interview with Founder

Imoniyame Holdings Limited has become a blue chip of Nigerian non-oil companies and is an example of what a Nigerian company is able to offer to the world first class demand. This company has a clear fast track career of success in the Nigerian non-oil export sector, and today is the Foremost Natural Rubber Export Processing Company in Nigeria. In this interview Mr. Obrutse highlights the potentials of rubber manufacturing and plantation development in Nigeria and the investment opportunities arising not just from this sector.

“My perception is that Nigeria is seen at the moment as a competitive environment for manufacturing, but with important challenges that should be overcome. With those challenges accomplished, I can assure that Nigeria will remain one of the most attractive countries and one of the major industrialized economies in the world.” Mr. Stafford Obrutse, Executive Chairman, Imoniyame Holdings Ltd.

Q: Imoniyame Holdings Limited since 1987 is a leading Nigerian firm active in the natural rubber Export Processing and plantation development. Please tell us more about the history and the background of the company in Nigeria and what key strategic moves were made to bring the company where it is today?

R: Imoniyame Holdings Limited (IHL), my company, commenced operations in 1987. After the initial three years of Export Trading on Crepe Rubber, Ribbed Smoked Sheets and Crumb Rubber, we were inspired by the tremendous potentials of the Nigerian rubber industry. We took bold steps in 1991 to set up a Crumb Rubber Export processing plant at Ughelli, Delta State, with the funds disbursed under the 1st tranche of an ADB Export Stimulation Loan Scheme. The company was also among the first set of performing ADB/ESL supported companies in 1995 to fully repay their loan through the Nigerian Export-Import Bank (NEXIM).

We saw big opportunities in the insatiable global demand for crumb rubber, and from internally generated funds we started the expansion of our operations in 1995 with the installation of a second production line. Imoniyame Holdings is wholly indigenous limited liability company and today we are the leading and the largest Nigerian Producer, exporter and supplier of premium crumb rubber grades TSR 10 and 20 to the global tyre and allied rubber product industry with an ultra-modern factory located at Ughelli, Delta State, Nigeria. We have carved out a niche for ourselves as a major non-oil sector export processing company in the Nigerian, African and International Rubber Market. Our premium quality crumb rubber finished products have received international recognition when we became one of the only three Nigerian rubber processing companies out of over 60 to be formally accredited as a “Quality Crumb Rubber Producer / Supplier” by the leading world (Japanese/American) tyre manufacturer Messrs.’ Bridgestone/Firestone. Today my company has become a blue chip non-oil sector company operating in Nigeria.

Q: What are your main strengths and competitive advantages?

R: We enjoy a good reputation in Nigeria due to the high quality of our products which are also well accepted internationally. What makes us strong is the insatiable demand for the company’s products, and our long-term relationships we have with our principal buyers. Our strength lies in the capacity of our ability to finance the production and the delivery of an average of 6 metric tonnes (Dry Rubber) per hour, more than any of our competitors. We have the availability of approximate 60,000 square feet bonded warehousing complex for stockpiling of buffer stock raw materials to meet off-season requirement.

Our seasoned and battle-tested management and production teams have the ability to maintain its production machinery in-house. Those are our main strengths in this challenging manufacturing market but besides the current number and capacity of our production lines, the availability of raw materials to sustain all-year-round operations, and of course the quality of our product in relation with the low production costs are also important key factors of our success.

Q: What are your main strengths and competitive advantages?

R: We enjoy a good reputation in Nigeria due to the high quality of our products which are also well accepted internationally. What makes us strong is the insatiable demand for the company’s products, and our long-term relationships we have with our principal buyers. Our strength lies in the capacity of our ability to finance the production and the delivery of an average of 6 metric tonnes (Dry Rubber) per hour, more than any of our competitors. We have the availability of approximate 60,000 square feet bonded warehousing complex for stockpiling of buffer stock raw materials to meet off-season requirement. Our seasoned and battle-tested management and production teams have the ability to maintain its production machinery in-house. Those are our main strengths in this challenging manufacturing market but besides the current number and capacity of our production lines, the availability of raw materials to sustain all-year-round operations, and of course the quality of our product in relation with the low production costs are also important key factors of our success.

Q: Can tell us your vision for the company within the next five years?

R: Looking at the Central Bank Annual report for 2006, which shows the Top 100 non-oil exporting companies in Nigeria, you can see we are listed as number 9. Our goal is to be number one on that list. We can earn USD150 million annually if we increase our operational capability, and automatically we will become number one of the list. This fact will also will make us the number one foremost natural rubber exporter and processing company in sub-Saharan Africa. These are the objectives we are working on. In fact, once we have access to more working capital and access to more raw materials, we will be able to utilize optimally our processing plants and we will definitely achieve this objective.

Q: In order to get a clear view of the actual size of the company, could you please give our readers some key figures and indicators, such as number of employees, production, the annual turnover and growth rate of the company?

R: The Company is employing approximately a thousand people.  In terms of turnover, in 2008 we obtained an amount of about N 4 billion (Naira) Last year, 2009, our turnover was roughly N2 billion (Naira) because of the global economic recession. The recession that affected the commodity prices all over the world, also affected tremendously the rubber prices. This year we are already experiencing a correction. If the worldwide crisis had not occurred our growth rate would had been almost 40 to 50 % per year.

By the time we get to the optimal capacity utilization of our export processing plants, we will jump to higher figures. We are aiming at internationalizing the company to have higher performance. We are at the moment looking at possibilities of cheaper offshore financing, which will reduce our costs of interest, the costs of borrowing and also it will give us an adequate funding to optimize the operations.

…Continued

Q: The local industry has a role to play in ensuring that investors explore the country’s potentials, what is your opinion regarding the possibilities the industry can offer to its investor?

R: Apart from Power (energy) supply issues, Nigeria remains a formidable investment market. During a recent trade forum that was organized by 1FC, I met the representatives of a company called Zannoubif, which is a business partner of the well-known Shopping Mall Chain called “Shoprite” with presence all over sub-Saharan Africa. When they first came into Nigeria, although they knew they had to buy their generators to provide their own power, they soon realized how deep the Nigerian market is, with an offtake capability of 150 million people. They regretted their late entry into Nigeria. Nigeria is a very big market, and even if one is in the manufacturing sector and one produces for the local market, the potentials are enormous. If one produces for export, the Government offers very attractive incentives.

In terms of labour in Nigeria, the costs of a worker are much lower than in many other countries. Investors should do a balancing study; Nigeria has an epileptic power supply thus there is a need to rely on generators to get effective power, but there are huge savings in terms of labour costs. Potential investors should take all these factors into consideration, to get more insight on the possibilities of the local industry. Companies that have assessed all these conditions and ventured into Nigeria didn’t regret it. I can reference MTN as an example, In the telecommunication sector, companies from France, Germany, America and Italy were invited to invest in the first GSM license bidding round but they refused and passed on the opportunity. It was Only MTN, a South African company that invested and believed in the project, and now one can see the profit they have made in the country, this has proved to be one of their most important operations worldwide. They have also improved the living standards of the Nigerian people. This is a clear example of what a company can do in a country like Nigeria.

The Nigerian market is very deep and has unbelievable potentials for any foreign company or institution that decides to invest in it. Any company that decides to invest in Nigeria, especially the manufacturing business, either for local or export market, can be sure of the high profits. People don’t realize that we can produce and package many products to meet with international standards that the whole world is requiring today. For example, there are tremendous opportunities in Agriculture and Agribusiness and in the industrial sector, and once the Government is able to solve the power problem, this country will become a reference to the whole world. My perception is that Nigeria is seen at the moment as a competitive environment for manufacturing, but with important challenges that should be overcome. With those challenges accomplished, I can assure that Nigeria will remain one of the most attractive countries and one of the major industrialized economies in the world. We however need to improve on many areas. For example, we have limited access to long term capital and very high cost of financing. In Nigeria you are able to obtain short term financing but not long term. If you need long term financing, you have to bring your capital from abroad. Foreign companies that invest in the country also need their own power supply. The Federal Government in this sense is doing its best and maybe in the next one or two years they will be able to solve this problem.

There are also different problems that many Nigerians complain about, such as corruption, fiscal policies and different economic programs. All these are problems that we should identify and change for improving Nigeria’s global competitiveness. In Nigeria, many investment opportunities are waiting to be exploited and some of them are really exciting. We invite foreign investors to provide us with the needed joint venture partnerships and long term financing for attractive and profitable projects that are possible in Nigeria. My country, in fact, can become one of the major platforms of an intensive and sustainable production of raw materials for the industrial sector thanks to the natural resources we are blessed with. The country remains one of the untapped frontiers for investors worldwide. And as you may know, there are many possibilities in the extraction and exportation of natural gas, limestone, gold, silver, zinc, lead and iron among many other resources. That makes Nigeria an investors haven. In addition, we have an extensive territory and fertile lands with lot of other possibilities in the Agriculture and agro-business level. A few years ago, Michelin did a study on Nigeria analyzing the possibilities of 8 million hectares of suitable land for the rubber plantation development, due to the composition of a kind of land called “acid sand land”. Imagine that Nigeria made use of only 2 million hectares out of the 8 million hectares available, this will produce an approximate of 6 million tonnes of rubber. This 6 million tonnes at three thousand dollars per tonne with today’s world rubber prices, gives us the figure of US$18 billion potential export revenue from rubber alone. And this is a world commodity, which demand is inelastic. I am talking only about one commodity, but we could talk in the same way about Cassava, Cocoa, Cashew nuts, Palm oil, finished leather, chili pepper, Banana, ginger, sesame seeds and many other agricultural products that you can cultivate here. Many things are changing now in Nigeria, for example we used to import mineral water and packaged fruit juices but recently some companies saw the opportunity of producing them locally and we practically don’t need to import these products anymore. If any serious investor wants to do business in Africa, this is the perfect place to start, and that is why many American, Chinese, Russian, South African investors, have already seen the opportunities that my country can offer to them in almost all the relevant sectors of our economy, and are making incredible profits because of the right decision to invest in Nigeria.

Q: Mr. Stafford Obrutse, you are a renowned industrialist who has been a seasoned banker leads management team of proven achievers in various areas of competence, including lump rubber buying, rubber estate management, crumb rubber processing, and plantation development. Can you tell us more about your personal and professional background and how you became the Chief Executive Officer of such a successful company as Imoniyame Holdings Ltd.?

R: I started in the banking sector, where I worked for ten years. I had accomplished a very successful commercial banking career, from Barclays Bank to several Nigerian banks. The kind of training that my banking career gave me has been really useful to understand deeply the economy, and to acquire the necessary financial knowledge to run a business successfully. I have been seeing the different financing projects that came through the bank, so I have the knowledge of the necessary details you must know when a company needs foreign investment for its business. Before quitting my banking career, I had already started to do different business, because I knew that by putting in only 10% of my time and effort in this business I was going to succeed. I had extensive experience in International Banking Operations, Branch Control and Treasury Management while at New Nigeria Bank and Societe Generale Bank so I have familiarity with many important aspects of the banking system. After that, I started to get involved in foreign exchange business related to non-oil export sector, more specifically rubber trade. We bought and shipped rubber for export in semi processed form, and when the African Development Bank gave to Nigeria 240 million dollars, in 1988, to facilitate the establishment of export oriented industries in Nigeria, I took advantage of that. We applied to obtain a loan and we started our first production line in 1991. From the first production line we started growing and we were able to implement a second production line; subsequently we installed the third and the fourth production lines. The Government policy of granting incentives to export oriented non-oil industries and creating a low interest funding from the resources given by the ADB was the fact that metamorphose our company into a very successful business. We started with a small factory, and I had a vision of what the product could become for us, where I wanted to go with it, and what I was going to get.

Our first commitment was to produce first quality rubber with the lowest cost possible, and our objective at that time was to be the foremost natural rubber exporter processing company in Nigeria – an objective that I have already achieved many years ago.

Q: What is your final message to our readers, entrepreneurs and CEOs, regarding to the market and the opportunities in Nigeria. What would you say to people who have historically been fed negative information and have been misinformed regarding Nigeria?

R: My advice for all the foreign investors that wish to come to Nigeria, is to do a thorough analysis on potential sectors, focus on the sector which they want to invest in and prepare their investment plans carefully while taking the necessary steps of implementing it. They should go, first of all, to their country’s Embassy, Manufacturer’s Association of Nigeria and to Nigerian Chamber of Commerce and Industry. I will also recommend them to visit the Nigerian Investment and Promotion Council, so they can get useful information about all the sectors and the incentives the government is giving to the different industries. By visiting these institutions, they will know who are the key players in each sector.  On the other hand, it is essential to make collaborations with local companies that already know how things are done in the country, so I advise they enter into joint-ventures with companies that are already successful in the area of interest. Also it is important to take bank references on the companies they want to work with in terms of credibility. If they follow these steps and invest through these channels, they will be successful. The key factor is that they come through the correct channels. Foreign investors come with capital and expertise but they don’t know how to navigate in the country. Concluding this message, I am sure to say that the most important key factor of success in Nigeria is having a good local partner to collaborate with.

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