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Thursday, 11 September 2014 15:43

Foundry in Nigeria: Investment Opportunities, Challenges and Recommendations

Written by DON OKEREKE, SECURITY ANALYST/CONSULTANT
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Introduction

For the interest of the uninitiated and to further appreciate the subject, a definition and brief introduction suffices. Simply put, a foundry is an industrial unit where metal castings are produced, usually in large quantities. The process basically involves casting metals into desired shapes by melting them in a furnace (generally at very high temperatures) and by pouring the metal into a mold and removing the mold material or casting after the metal must have solidified as it cools. Two major types of foundries are: jobbing foundry and captive foundry. The first is a foundry that creates a wide variety of castings, in small quantities for a range of customers. The second type i.e. captive foundry is a foundry that that is wholly incorporated into a larger manufacturing operation. Captive foundry only produces castings for the operation that it is a part of. Commonly processed metals include : aluminum, cast iron, bronze, brass, steel, magnesium, zinc etc.

 

Brief History of Foundry/Metal Casting in Nigeria

Before the advent of Nigeria’s colonial masters, history has it that Nigerians especially the people of the ancient Nri Kingdom in present day Awka area which is reportedly founded in about 900 AD and the Bini Kingdom’s were very much acquainted with bronze sculpture and metal casting. The large scale discovery and production of steel in the 18th century tremendously revolutionized manufacturing and became a precursor to the industrial and technological growth that we bask on today.

Indigenous Foundries in Nigeria

Ajaokuta Steel Company (ASC) was conceptualized and established over 30 years ago in Nigeria at a dangling cost of about $7bn. Since then, the Ajaokuta Steel Company has been bogged down by challenges that have hampered the smooth running of the plant. A lot of conspiracy theory, buck-passing and finger-pointing are flying around as to why the ASC is moribund.

Enter Nigerian Foundries Limited (NFL), a household name founded in 1969 (45 years ago) by the Barberopoulous brothers. Nigerian Foundries Limited is widely acknowledged as the leading ferrous foundry group in sub-Sahara Africa (excluding South Africa) and has two plants in Nigeria: the Ilupeju plant in Lagos state and a second one at Sango-Otta, Ogun State. Sequel to restructuring, the two plants were merged and boast of a total installed capacity of 8,500 metric tons per annum. NFL’s diverse product range encompass: Stainless steels, Moly chrome steels, Ni-Hard steels, Manganese steels, Grey irons, ductile irons etc. NFL sister companies include : Metec West Africa Limited, Hemisphere Technologies Limited, Indapp Limited and Herbst Software Africa Limited.

Other foundries in Nigeria include : African Foundries Limited (AFL) situated at Ogiju in Ogun state, Grand Foundry and Engineering Works Limited, Integrated Foundry owned by Nigeria Machine Tools Limited, Kano-state based Castmaster Metallurgical Co. Nigeria Limited and Wempco Steel Mills Limited (located along Lagos-Ibadan expressway) amongst others.

Investment opportunities in Foundry

Nigeria is said to have about 3 billion tones of proven iron ores reserves. It follows that there are vast investment opportunities not only in the foundry industry but in Nigeria generally. Foundry is the primary basis for virtually all technological takeoff and industrialization hence it must be given its pride of place in Nigeria. It is obvious that many industrial, technological and home-based appliances are produced from metals. Components of airplanes, cars, bicycles, refrigerators, air conditioners, fans, spoon, plates etc, are all derived one form of metal or the other. A country peopled with 170 million people and endowed with abundant human and material resources definitely holds a lot of prospect. Put another way, the artificial and man-made challenges are business opportunities in disguise. Good return on investment awaits folks, establishments that can damn the odds and swim in this shark-infested ocean. No wonder investment savvy folks are thriving in Nigeria despite the challenges. Nigerian non-oil export is witnessing an upward swing lately. According to the Nigerian Export Promotion Council (NEPC), Nigeria realized $2.970bn from non-oil export in 2013, from $2.561 in 2012 representing an increase of 15.9%. This is the good news; let’s look at the other side of the coin.

Challenges Bedeviling Foundries (Metal casting) Companies in Nigeria

Not too long ago, in the 70’s and 80’s, there were scores of steel foundries and other end use industries in Nigeria. Large scale production of metal castings is capital intensive - a multi-billion naira venture. This factor alone is enough to discourage prospective investors with insufficient funds. Life as they say is all about the survival of the fittest and nothing good comes easy. We all appreciate gold but end users seldom see the toil, the high temperature that gold ores are subjected to and the pummeling it suffers before we see it as precious ornaments. Without much ado, the challenges bedeviling industries and particularly foundries in Nigeria include :

Rising theft of scrap metals. Copper Cables, railway metals, crude oil pipelines are increasingly stolen by criminals and scavengers. A while ago, the Nigeria Police reportedly arrested 17 Indians involved in illegal export of scrap metals from Nigeria at the Apapa Quay, Lagos State. Theft of scrap metals is not just a Nigerian problem. In July 2014, Scrap metal thieves ‘stole’ chunks of railway track said to measure about 10 kilometer in South Africa. The stolen railway track is said to have a scrap metal value of about $120,000 and caused about $2.3m damage. In 2012, United Kingdom Police Forces seized more than £500,000 worth of smuggled metal from Ports along the countries East Coast while 200,000 gas cylinders were also reportedly stolen by scrap metal thieves in Britain during that period.

Another problem confronting local industries in Nigeria, in this case, local foundries, is the over-dependence on imported end-products and reliance on foreign technologies. In many cases, these sub-standard and less durable products are imported by unscrupulous folks and sold at cheaper prices. This is where the Local Content Act comes into play which unfortunately is not been robustly implemented at the moment.

Poor infrastructure and logistic challenges such as lack of power supply which entails local industries operating on generators sometimes upwards of 24 hours daily. Not forgetting weak linkages to supply chain due to poor road and distribution network in Nigeria. The rail network would have been better suited for transporting these heavy iron products.

Outrageous interest rate regime said to be in the neighborhood of 23% per annum which restricts access to credit. It’s almost impossible for a business to thrive at this Shylock rate.

Poor standardization of products and falsification of records/documents

Other challenges include : failure of implementing agencies to accept Negotiable Duty Credit Certificates (NDCC) issued by the Federal Ministry of Finance, frequent policy summersault occasioned by vested interests, sourcing of foreign exchange (FOREX) usually at very high rates mostly from the black market and finally but in no way the least of the problems, is the unprecedented insecurity cum terrorism challenges stifling Nigeria.

The foregoing are some of the challenges that increase production cost of locally manufactured foundry products in Nigeria thereby making them unable to compete against imported products.

Recommendations

The Standards Organization of Nigeria (SON), the Manufacturers Association of Nigeria (MAN) and other stakeholders must synergize and ensure that the Nigerian market is not flooded with sub-standard foundry products. Strict pre-shipment inspection of goods bound for Nigeria is hereby recommended to the effect that metal or Iron castings produced or imported into Nigeria must meet international certifications such as ISO 9001:2008, ISO 14001:2004.

The intention of the Local Content Act or Law and the recent Automotive Policy are meant to encourage the capacity development of local skills, technology transfer, use of local manpower, local manufacturing and to create an enabling environment for Nigerians to get more involved in running the country’s economy. The Local Content Law also aims to tackle rampart incidents of capital flight from Nigeria. The government and relevant agencies of government must make sure that this law is not circumvented and does not become a paper-tiger.

If they are not in place and implemented, it is high time incentives such as the Export Expansion Grant Scheme, tax reliefs to local industries, exemption of duty on essential raw materials, duty draw back amongst others were re-introduced. Imported foundry products should also attract high import duties. This will no doubt make Nigerian exports competitive in the international market.

Tackling the unprecedented insecurity, terrorism and insurgency situation in Nigeria will definitely boost business activities and also attract the much needed foreign direct investment (FDI).

Conclusion

The foregoing buttresses the fact that there are vast opportunities and potentials in the Nigerian Foundry (Metal casting) sector. It behooves on the government and stakeholders to get their acts together towards tapping or actualizing these potentials. Bring to mind that fixing these challenges will have multiplier-effects in terms of job creation and an enhanced revenue stream to the Nigerian government especially now that many countries are discovering alternatives such as Shale gas to Nigeria’s crude oil causing demand for crude oil to dwindle in the international market.

Given that local industries are arguably the foremost drivers of a nation’s economy, it is important that government gives them all the assistance and support they need.

 

Read 2211 times Last modified on Friday, 03 September 2021 19:39

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