Nigerian steel, aluminium firms in crisis, could go extinct in 10 to 20 years

Companies operating in the steel and aluminium subsector of manufacturing in Nigeria are in trouble and it has been estimated that if a rescue package is not put in way by way of effective policies in 10 to 20 years from now they may go into extinction. A raft of huge financial indebtedness by sector operators to banks, occasioned by distortions in the policy environment and the economy, means many are owing loans taken to run their operations but which policy distortions have made a mockery, with production hardly taking place and the little production caught in the web of economic downturn that has reduced purchasing power and left inventories piling in manufacturers’ warehouses, Yinka Kufile, chairman/CEO, Qualitec Industries Limited and serving chairman, Basic Metals section of Manufacturers Association of Nigeria, told business a.m. in an exclusive interview.

Kufile noted that operators in the sector are facing a lot of challenges with cost of production racing ahead of revenues and stifling margins, brought about by lack of clarity in the tariff regime for manufacturing equipment imported for the purpose of production, tariff on finished products, which makes locally produced products unable to compete against products from places such as China, Turkey, among others.

He averred that the inability of the sector to produce optimally and the noticably poor product quality plaguing the sectoral market are attributable to the harsh fiscal policy environment the sector has had to operate in, adding that currently, no manufacturer of steel and aluminum in the country operates above 10 percent in terms of production capacity. “Even if anybody produces 10 percent today, where is the market? There are so many of them that cannot attend meetings because they are indebted to banks; They cannot pay their debts, they cannot pay their staff salaries, they’ve sacked everybody. Probably, when there is a revolution, companies will spring up and everybody will put up efforts, but between 10 and 20 years, they will die off. Maybe that is where we are going,” Kufile said.

In 2015, the ministry of industry, trade and investments announced that the number of functional steel plants in the country had risen to 21 from five a few years ago; a factor attributed to the implementation of the Nigerian Industrial Revolution plan. Delta Steel Company and Ajaokuta Steel Company were among those 21 functional companies announced at the time, but presently, they are both not operational. Delta Steel Company was reported to have gone into liquidation due to its indebtedness to the banks, to the tune of $31 billion and several millions owed to its suppliers, workers and other service providers.

The Ajaokuta Steel Company, on the other hand, has obsolete machinery that cannot meet the demands of modern day steel production. Other steel plants that are seemingly functional in the country may not be out of business yet, but their operational costs , Kufile discloses, have continued to prove inimical to their success. “If you’re owing banks, the stocks are there, the stocks you have produced, you are also paying interests on those stocks, and you know interest rates in Nigeria. You’re paying interests on those ones (produced stocks), you’re paying staff salaries, you cannot produce new stocks, how do you move forward?” Kufile queried.

The list of the functional companies released in 2015 included: Eket Qua Steel Products, Union Steel Company, Commercial Metal & Chemical Industries, Jos Steel Rolling Company, Nigerian Spanish and Engineering Company, Katsina Rolling Company, Baoyao Futurelex, Asiastic Manarin Industry, Continental Iron and Steel company, Universal Steel Company, Kew Metal Industries, Major Engineering company, Alliance Steel Company, Federated Steel Industry Company, Allied Steel Company, Metcombe Steel Company, Niger Steel Company and Ajaokuta Steel company. The Ajaokuta Steel Company has been a subject of major discourse for policy makers and stakeholders in different circles.

The project which has remained non functional, even after declaration by government to get the steel mills up and running, has been a major setback to optimal steel production in the country; a situation which has also hampered export earnings. Kufile also notes that dependence on scrap metals and the dollar as output determinant is fast running the industry aground. “Ajaokuta has been in contention but is it in operation today? If the federal government itself were able to complete their own project to produce raw material for the take off of steel industries in Nigeria, do you think anybody will be looking for dollar? If the Aluminum Smelter Company is in operation, nobody will look for dollar. All they need do is just to put up the plant and we’ll use the raw materials to produce and even export,” he explained. He adds: “Even the scrap metals that we are supposed to utilize, which already we have paid for through hard earned dollars, now the federal government closes their eyes, some people are melting the scraps and taking them away.”