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Cocoa Processors Groan Under N50bn Debt, Huge Losses

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  • Cocoa Processors Groan Under N50bn Debt, Huge Losses

Cocoa processors in Nigeria have invested billions of naira in the cocoa value chain in response to the Federal Government’s call for value addition to the agricultural produce meant for export.

Instead of the desired returns on investment, they have however suffered huge losses and indebtedness as a result of the harsh operating environment in Nigeria.

A prominent cocoa processor and Managing Director, Ile Oluji Nigeria Limited, Mr Akin Olusuyi, was quoted as saying in a new report that “the total debt in the industry today is not less than N50bn.”

According to him, the current capacity utilisation in the industry is less than 20 per cent and the sector as a whole is losing about N720bn annually.

Another leading cocoa processor and the Managing Director, Multi-trex Integrated Foods Plc, Mr Dimeji Owofemi, said for them to underwrite debts owed to banks, the government must intervene in terms of facilitating long-term fixed asset refinancing loans at a single-digit interest rate.

A wholly Nigerian owned company consisting of two factories with installed capacity of 65,000 metric tonnes of cocoa per annum, processing equipment and machinery for manufacturing chocolate bars, drinks and others, Owofemi’s company reportedly owed Skye Bank N8.5bn. In 2011, the Asset Management Corporation of Nigeria bought over the loan facility.

Multi-trex’s case became complicated when the Central Bank of Nigeria barred banks from lending to companies indebted to AMCON above N5m. Following this, the firm became handicapped and unable to access working capital to produce and pay back the debt owed to AMCON.

In June 2015, the factory was shut. Over 300 workers were retrenched and its modern processing plant and equipment are currently rotting away and exposed to vandals.

“If they can write off the loans of people who borrowed to buy shares, why can’t write off our own? Underwrite the debts for existing factories by half because most of them are made up of interests,” he told our correspondent in a recent interview.

Although the facility has been under lock and key for four years, interest on the loan has been mounting, according to him.

“The loan was N9.1bn in December1, 2017; today, it has grown to N10bn. AMCON has to be realistic and know that an asset that is shut down cannot be earning interest for them. How can a shut factory accumulate N1bn debt in eight months?”

Owofemi disclosed that his firm was being owed N4bn from the Export Expansion Grant scheme of the Federal Government and suggested therefore that the firm’s debt be written off with the N4bn.

An Ogun State-based cocoa processor and Executive Director of FTN Cocoa Processors Plc, Mr Akin Laoye, said he owed banks N4bn after investing N5bn in the plant.

Production at his factory had been on and off due to paucity of funds and the local banks attempted to throw the firm into liquidation, so Laoye had to appeal to a foreign investor to buy into the business.

The latest financial statement of FTN Cocoa, a firm listed on the Nigerian Stock Exchange on February 29, 2008, showed that its loss after tax rose from N263.4bn in 2016 to N419.7bn in 2017.

The company was also reported to have recorded a drop in revenue from N842bn in 2016 to N23bn in 2017; and the export of cocoa from the firm dropped by 99 per cent from N508.2bn in 2016 to N1.9bn in 2017. It had a 94 per cent drop in local cocoa sales from N334bn in 2016 to N21bn in 2017. The company last paid dividend in 2017, according to reports.

The Nigerian Export Import Bank had established a N500bn export stimulation fund for exporters and Laoye is hoping to access it to continue production.

The cocoa processors regretted that Nigerian banks were unwilling to finance long-term projects.

They complained that the cocoa sector in Nigeria was too deregulated; while major cocoa producing countries such as Cote d’Ivoire and Ghana gave priority to their processors, Nigeria threw the sector open for all comers.

“That is why multinational companies come into the sector as they like and even sometimes put a price on our cocoa. Also, there are infrastructural challenges such as power and the recent bad roads leading to the ports. Things get bad before they are shipped and the banks don’t care about the situation, their interest continues to count on a monthly basis.

“If you are supposed to ship a consignment in one month and it is taking you three months, the banks will not care; they will keep charging interest every month and bleeding the investors,” one of the processors said.

The Chief Executive Officer, Plantation Industries Limited, a cocoa processing factory in Akure, Ondo State, Mr Kunle Ayoade, told our correspondent that despite the fact that operators were not making profits, they had to contend with paying fees to a countless number of regulatory agencies.

He said, “There are too many regulatory agencies charging several fees for the same service. Apart from National Agency for Food and Drug Administration and Control, Standards Organisation of Nigeria, Ministry of Labour and Productivity, state and federal produce inspection services, there is the Weights and Measures Board whose service costs us N500,000 annually. Last week, we paid N413,000 for two weight bridges. If we don’t pay, they will lock our doors because they always come with police.

“In addition to the government agencies, the government also has private consultants from the Ministry of Finance that collect 0.5 per cent of whatever sale we make for a service they call Nigerian Export Supervision Scheme.”

Ayoade who gave his debt profile as N3bn told our correspondent that he was contemplating shutting down due to the challenge of getting his products out of the country.

Among cocoa producing nations, Nigeria, which historically made its earnings from cocoa in the 1970s, ranks fourth with a production of 220,000 tonnes as of 2016/2017.

Cote d’ivoire is number one with 1,980 million tonnes per annum; followed by Ghana with about 950,000 tonnes; Cameroon comes third with 240,000 tonnes.

Also in recent years, Nigeria’s production has been fluctuating between 195,000 and 220,000 tonnes.

There had been a lot of promotion of the importance of the agriculture sector by the government and cocoa was chosen as one of the strategic crops to focus on as part of its economic diversification project.

The Director-General, Lagos Chamber of Commerce, Mr Muda Yusuf, noted that since the government had been championing the campaign for local content and emphasising value addition for the country’s exports, there was a need to rescue the critical sectors like cocoa and others.

He said, “The government has been talking about indigenous participation in manufacturing.

“The government has also been talking about backward integration and this is a very good example of an industry that is fully into backward integration.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

Nigeria, Morocco sign MOUs on Hydrocarbons, Others

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The Federal Government and the Kingdom of Morocco have signed five strategic Memoranda of Understanding that will foster Nigerian-Morocco bilateral collaboration and promote the development of hydrocarbons, agriculture, and commerce in both countries.

The Minister of State for Petroleum Resources, Chief Timipre Sylva, led the Nigerian delegation to the agreement signing ceremony on Tuesday at Marrakech, Morocco, while the Chief Executive Officer of OCP Africa, Mr Anouar Jamali, signed for the Kingdom of Morocco, according to a statement by the Nigerian Content Development and Monitoring Board.

Under the agreement between OCP, NSIA and the Nigerian National Petroleum Corporation, Nigeria will import phosphate from the Kingdom of Morocco and use it to produce blended fertiliser for the local market and export.

The statement said Nigeria would also produce ammonia and export to Morocco.

“As part of the project, the Nigerian Government plans to establish an ammonia plant at Akwa Ibom State,” it said.

The Executive Secretary of NCDMB, Mr Simbi Wabote, and the Group Managing Director of NNPC, Mallam Mele Kyari, were part of the delegation and they confirmed that their organisations would take equity in the ammonia plant when the Final Investment Decision would be taken, the statement said.

Sylva said the project would broaden economic opportunities for the two nations and improve the wellbeing of the people.

He added that the project would also positively impact agriculture, stimulate the growth of gas-based industries and lead to massive job creation.

He said the President, Major General Muhammadu Buhari (retd.), had mandated the Ministry of Petroleum Resources and it agencies and other government agencies to give maximum support for the project.

“He mandated me to ensure that at least the first phase of this project is commissioned before the expiration of his second term in office in 2023,” he added.

According to the statement, the MOUs were for the support of the second phase of the Presidential Fertiliser Initiative; Shareholders Agreement for the creation of the joint venture company to develop the multipurpose industrial platform and MOU for equity investment by the NNPC in the joint venture and support of the gas.

Other agreements are term sheet for gas sales and aggregation agreement and MOU for land acquisition and administrative facilitation to the establishment of the multipurpose industrial platform for gas sales and aggregation agreement.

The NCDMB boss described the bilateral agreement as significant to the Nigerian economy as it would accelerate Nigeria’s gas monetisation programme through establishment of the ammonia plant in the country.

The agreement would also improve Nigeria’s per capita fertiliser application through importation of phosphate derivatives from Morocco, he added.

Wabote challenged the relevant parties to focus on accelerating the FID, assuring them that the NCDMB would take equity investment for long-term sustainability of the project.

He canvassed for the setting up of a project management oversight structure to ensure project requirements and timelines are met.

“There is also need to determine manpower needs for construction and operations phase of the project and develop training programmes that will create the workforce pool from Nigeria and Morocco and design collaboration framework between research centres in Nigeria and Morocco to develop technology solutions for maintaining the ISBL and OSBL units of the Ammonia complex,” he said.

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Economy

Dangote Fertiliser Plant to Commence Shipment of Urea in March 2021

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Dangote to Sells Petrol in Naira, Plans to Commence Urea Shipment in March 2021

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, has said Dangote Fertiliser Plant will commence shipment of Urea in March 2021.

The CBN governor disclosed this during an inspection tour of the sites of Dangote Refinery, Petrochemicals Complex Fertiliser Plant and Subsea Gas Pipeline at Ibeju Lekki, Lagos on Saturday.

Emefiele further stated that Dangote Refinery would sell refined petroleum products in Naira when it starts production.

This he said would save the country from spending 41 percent of the nation’s foreign exchange on importation of petroleum products yearly.

Based on agreement and discussions with the Nigerian National Petroleum Corporation and the oil companies, the Dangote Refinery can buy its crude in naira, refine it, and produce it for Nigerians’ use in naira,” Mr Emefiele said.

That is the element where foreign exchange is saved for the country becomes very clear. We are also very optimistic that by refining this product here in Nigeria, all those costs associated with either demurrage from import, costs associated with freight will be totally eliminated.

Emefiele explained that this will make the price of Nigeria’s petroleum products affordable and cheaper in naira.

If we are lucky that what the refinery produces is more than we need locally you will see Nigerian businessmen buying small vessels to take them to our West African neighbours to sell to them in naira.

“This will increase our volume in naira and help to push it into the Economic Community of West African States as a currency,” Mr Emefiele said.

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Economy

UK Budget 2021: Will Sunak’s Budget Run Into Unintended Consequences?

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Rishi Sunak’s Budget will encourage higher earners to consider their “international financial options” and will drive businesses away from the UK, warns the CEO of one of the world’s largest independent financial advisory and fintech organizations.

The warning from Nigel Green, chief executive and founder of deVere Group, comes as the Chancellor delivered his 2021 Budget in the House of Commons, his second since he took on the role.

Mr Green says: “The Chancellor has got an extraordinarily difficult hand to play as he tries to stem the economic damage caused by the pandemic, support jobs and businesses and, crucially, rebuild the public finances.

“Whilst Mr Sunak is being hailed a hero for the continued and unprecedented levels of support, it should also be remembered that he is – in a stealth move – dragging more people firmly into the tax net.

“He is raising taxes under the radar.

“Yes, there is no income tax rise. However, he is freezing personal tax thresholds, meaning as incomes rise and thresholds don’t, he is able to raise money by fiscal drag.”

Earlier this week, the deVere CEO noted: “Those most impacted by this stealth move will be looking at the financial planning options available to them, including international options, in order to grow and protect their wealth.”

Rishi Sunak also confirmed that corporation tax will increase to 25% from 2023, up from the current level of 19%.

Of this tax hike, Mr Green goes on to say: “Lower corporation tax helps job and wealth-creating business to survive and thrive. It also helps attract business to move and invest in the country.

“Instead of increasing taxes, Mr Sunak should have relentlessly focussed on growth and stimulus policies for businesses.  This would have been of greater help to firms, the economy, jobs and, ultimately, the Treasury’s coffers.”

He adds: “Again, this corporation tax hike is likely to serve as a prompt for businesses to consider their overseas financial options.”

The deVere CEO concludes: “The Chancellor had to perform a tough juggling act.  But stealthily dragging more people into the tax net and raising corporation tax might have negative, unintended consequences for the Treasury’s bottom line.”

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