Nigerian agro-processing companies have reported a jump in sales and profits as a result of Nigeria’s closure of land borders.
Recall that the President Muhammadu Buhari-led administration had in October 2019 shut the country’s land borders to imported goods. The president had stated that the closure of the borders was due to the smuggling activities of food items, particularly, that of rice.
According to Nairametrics, the government’s move has had a positive impact on one of Nigeria’s largest Agro-processing companies, Okomu Oil.
The company is in the business of developing oil palm plantation, palm oil milling, palm kernel processing, and the development of rubber plantation. To generate revenue, it sells processed fresh fruit bunches into crude palm oil for resale locally and via exports. Most of its customers are manufacturers of consumer goods such as soaps and cosmetics. It also generates revenue by processing rubber lumps into rubber cake for exports.
In 2019, Okomu Oil reported that revenues were down 7% year on year while profits also fell 40% to N5 billion, its worst year since 2016, the year Nigeria fell into its last recession.
In the same year, N15.8 billion of its revenue was from local sales while the balance N2.9 billion (mostly Rubber) was from exports. Most of its local sales revenues came from Crude Oil Palm. Despite its dominance in this sector, it faced an existential threat which if not contained could further erode progress made over the years.
The company blamed smuggling or illegal imports as the major reason for the revenue drop experienced in 2019, Nairametrics reported. But things could have gotten worse were it not for what the company describes as the “timeous” intervention of the government in closing all land borders.
Since then, the company has seen its profits nearly doubled to N4 billion, 20% shy of profits for the whole of 2019. Revenues are also up by 5.8% to N13.5 billion in the first half of 2020 compared to the same period in 2019.
Likewise, Presco, another Nigerian company in the Agro-processing space has also seen its revenue and profits jump in 2020, a development attributed to the closure of land borders.
However, the border closure has contributed to the inflation rate, which jumped to 12.5% in July 2020 compared to 11.2% in September 2019. Food prices have driven Nigeria’s inflation rate in recent months, particularly staple foods like rice.
The border closure has also not favoured other manufacturers, particularly FMCGs, who rely on imported raw materials to produce. But some FMCGs have fared quite well in 2020. Nestle, Dangote Sugar, Nascon all saw their gross margins suffer a bit but the still managed to post profits in the first 6 months of this year.