Engr. Abdullahi Sule is the Acting Group Managing Director, Dangote Sugar Refinery Plc. In this interview, he spoke on the many challenges, prospects and opportunities which backward integration in the sugar industry presents to the economy. Excerpts:
Against the targets of the Sugar Master Plan, what are the prospects and the challenges so far from investors' perspective?
Well, land acquisitions had been at the forefront. To acquire massive land to produce sugar in commercial quantity is a major challenge. I would give you examples of states where we have gone and spent two to three years just to acquire land. When you are talking of acquiring 20-30, 000 hectares of land, you will see that you are encroaching into several communities and what one community likes doesn't agree with what other communities like.
So, we go through consultation, sensitization meetings and a lot of discussions with the government and sometimes, we end up abandoning the entire projects. So, land acquisition comes at the forefront; as you know, Nigerian is a sugar consuming country and the skills needed for this kind of industry is a challenge, and that is why often times, we have to go outside the country to hire people to come and manage the projects, and then, the equipment needed have to be imported, and challenges of access to foreign exchange to import raw materials is also another challenge.
Also, sugar project is capital intensive and the gestation period is much longer than other investments. That is why some people prefer to put their mony in other investments where the return on investment is faster.
How is the Nigerian sugar industry responding to positive numbers in the macroeconomic environment especially the steady reversal from the recessionary situation into positive growth in the second quarter, 2017, has demand, market size and volume of sales increased?
I will answer the question in two folds. There is sugar we sell to corporate customers; those are people that buy our sugar as raw materials to produce other products. There are beverage, confectioneries, biscuits and the rest of other companies that buy our sugar. So, these are some of the biggest consumers of our sugar and then of course, the bakeries.
When it comes to the sugar industry, we try to see how those companies fared; a lot of them really shut down their lines as a result of the recession that you mentioned, so they shut down their production lines and some of them are just beginning to reopen the lines. Recession is one thing but what has hit the corporate world in Nigeria the most is actually insufficient Foreign Exchange, forex, because most of the companies are still import most of their own inputs , so when forex is not available, a lot of them end up shutting down production.
So, the companies were hit from high costs of materials, and lack of forex. We are beginning to see a little bit of relaxation as some of the companies have started re opening their lines and some of their productions are beginning to improve. So, we are seeing possibility of better affair than what we experienced in the recession.
The second aspect of it is what we sell to general consumers. For the general consumers, we look at how far they can go when it comes to their priority. Certain people would say, "Can we do without sugar, can we buy honey ", this depends on the cost of sugar. Our sugar price is also beginning to go down.
So, more people are going to patronize the consumption of sugar because historically, the lower the price of sugar, the higher the consumption, and the demand for our products. So, we are going down on our prices, and we are hoping that consumption will be higher and we will have a better second half of the year than what we had in the begging of the year.
What are your current capacity utilization and output volume?
We have two major operations, and our biggest operation is here in Apapa, Lagos, where we import raw sugar from Brazil, refine and sell. The capacity of the refinery here in Lagos is 1.4 million metric tonnes per annum, however, the whole sugar importation is usually designed by the federal government to redistribute inform of a quota because of the concessionary tariff that is being given to encourage backward integration in the sector.
So, as a result of that, our capacity utilization is limited to how much import quota we are allocated, for instance, this year, we were only allocated 750,000 metric tonnes of raw sugar; so our capacity utilization would be in that line which is a little above 50 per cent of the capacity of the refinery.
Our other operations are in the areas of our backward integration projects, where we go to the farm, development the land, planting of sugar canes, irrigating the sugar canes and producing sugar from there. In the process of doing that, we have two different factories at the moment: we have factory in Savannah Sugar Company Limited, Adamawa state, which is an existing factory that has been there for a very long time.
The second is the one we are just developing in Taraba state; we have other operations in places like Nasarawa, and an upcoming facility in Niger state, and we are discussing about land acquisition in Kwara state. So, these are the activities that we have across the country. The only site that is producing sugar is actually Savannah Sugar Company.
The current capacity of the factory is 50,000 metric tonnes per annum. So, this year; we are only going to produce a little above 20,000 metric tonnes which is about 40 percent of capacity utilization there. This is a factory we just took over and rehabilitating.
Why are you not producing cube sugar; what is your plan on this?
The cube business in Nigeria is actually a small business segment. Even when St. Louis was allowed to bring its sugar into Nigeria, the maximum they were able to bring was about 200,000 metric tonnes out of the 1.5 million metric tonnes of sugar consumed in Nigeria. So, the total cube sugar market in Nigeria is not more than 250,000 metric tonnes because even when St. Louis was bringing, there are one or two local companies that were also making their own cubes.
So, if you look at the total of what is consumed as cube sugar in Nigeria, it is not more than 250, 000 metric tonnes maximum in the country. So, as Dangote Sugar, we are more interested in large volume business. That is why we are not in that market. However, we have partners in the cube business that buy granulated sugar from us and cube them. So, there are small companies that are doing that, and when you ask them, they will tell you clearly that it's not a big amount of money.
Could you put a date on when Nigeria will be self-sufficient in raw sugar production instead of continuous imports from Brazil?
Okay, there are two ways to approach that question. First, going by the federal government's desire which is to ensure that Nigeria become self-sufficient in sugar production by the year 2021. The reason is because in 2012, the Federal Government of Nigeria came up with the National Sugar Master Plan, NSMP.
The Sugar Master Plan is for us to be able to identify sites or size where we will be able to produce sugar locally and the Federal Government came up with various sites where it estimated that the country can produce about 1.7 million metric tonnes of sugar in ten years period, starting from 2012-2021. Unfortunately, that is not going to be realistic because of the amount of investments involved and the challenges in land acquisition and the challenges in manpower requirements, the equipment requirements and the rest of them.
That is why in Dangote, as a company, we developed our own sugar master plan, saying that we are going to produce 1.5 million metric tonnes by 2013, and we gave our self-ten year's period which end in 2023. However, in our effort to acquire lands, and manpower, we encounter a lot of challenges; so, we reviewed our position to 2016. In the new planning, from 2016, we plan five years to produce about one million tonnes of sugar. That will not give Nigeria self-sufficiency in sugar, but it will meet our production targets.
We hope that the other companies would produce the balance that Nigeria requires. Nigeria is a consumer of roughly 1.5 million metric tonnes of sugar per annum. So, if we produce 1 million and other companies produce the balance of 500,000 metric tonnes per annum, we are likely going to end up raw sugar importation in 2022 -2023, and Nigeria will be self-sufficient in sugar production.
The National Sugar Development Council, NSDC, recently released a new benchmark for sugar producers on domestic sugar production. What is your take on this?
Well, the benchmark they released was in line with the submissions by us- sugar producers. So, each of the three companies who are participating in the Sugar Master Plan (Dangote Sugar Refinery, Flour Mills of Nigeria and BUA Sugar Refinery) submitted their targets of what they want to achieve.
I just disclosed DSR own to you. What NSDC did is to release what we have purposes. If there is such a legislation that will be backed by laws, land acquisition will be faster and a certain period should be given to investors to go ahead and complete the process and all the parties involved will have guidelines on what they can do, where they can go in and where they cannot go in.