High cost of doing business detrimental to West Africa’s growth – Eunisell Ghana CEO
Iain Fraser, CEO of Eunisell Ghana, was one of the facilitators at a recent one-day technical training and seminar for Eunisell Limited’s lubricant additives customers. Eunisell is an industrial company that accounts for a large supply of additives, specialty fluids and key chemicals in Nigeria and some African countries. The technical training, themed ‘Advances and Trends in Automotive, Transmission and Industrial Fluids’, was held in collaboration with Eunisell’s South Africa partner, Lubrizol, and was part of efforts to raise the participants’ technical awareness of the lubricant market. Fraser spoke with CHUKS OLUIGBO about the oil and gas industry as well as the prospects and constraints of doing business in West Africa.
Here in Nigeria, Eunisell is heavy on lubricant additives, chemicals, and engineering services. What is it like in Ghana, is it the same business as well?
It’s a little bit more restricted because it’s a much smaller market and we have a smaller offer in Ghana. The industrial base in Ghana is very small, and the oil industry is very small. They have a big mining industry but we’re not specific in the mining industry. A simple comparison is the lubricant industry: Ghana has one blending plant, Nigeria has over 25 plants.
There are a lot more opportunities in Nigeria. Unfortunately, there is no real harmonization between the countries; it’s difficult to move products or equipment between West African countries. Generally, the authorities have policies in place that are, in my opinion, designed to discourage cross-border businesses. They don’t look at the potential of providing products and services from a base here in Nigeria to a wider market or in Ghana to a wider market. So it’s still a long way to go. It is no surprise that inter-West Africa businesses are 1 percent of total trade compared to other regions, where 60 percent or more of trade is done within regions. It’s something Africa hasn’t worked out yet. There has been some progress in East Africa, but all in all, the continent could do a lot better.
If you were to speak to these problems in terms of recommendations, what do you think could be done to make things better?
I think one thing ECOWAS could do is open the borders, make cross-border trade easier, where with a minimum of paperwork and no duties, goods could flow across borders more easily. This might encourage more investment in manufacturing in certain countries: in Nigeria where the market is biggest, but also in Ghana where security is not a major problem and power readily available, or Ivory Coast. You could get clusters of industries setting up in certain regions because if you were to include the entire West African market, rather than one country, investors would be more willing to put up the capital.
There’s no reason why Africa should be so far behind the rest of the world. Take countries like Malaysia, for example. Most of the West African countries at the time of independence – the late 50s and early 60s – were very similar to the economic position of Malaysia in terms of the sort of things that they did, and it’s a tropical country. And yet countries like Malaysia have developed significantly over the period, but countries in West Africa have not. It is difficult to find excuses.
There’s an incredible energy in this part of the world and it’s almost as if you feel like people succeed here despite everything, rather than with the help from the system. I guess it’s about putting the right policies in place. But again, you do see some areas where there’s been an incredible change. When I first came out here, communicating with the rest of the world was near impossible. I remember leaving faxes in the morning at the business centres and coming back at night to see if it had gone or not. Television? Unless you had one of these massive satellite dishes, like the sort of thing you see on these sci-fi movies, you weren’t getting any television apart from the local television, which at the time was controlled by the government. Now you’ve got mobile phones, there is TV everywhere, people are accessing the internet from all over the country on the go. It’s had a huge impact on the government. It’s really good to see and one would hope that can be repeated in all other sectors because there are a lot of things that need to be greatly improved, like the infrastructure of the country. It’s not great at all. You should be able to drive from Lagos to Port Harcourt in four to five hours. It’s simple! Leave in the morning, drive down and get there by lunchtime. Why can’t that be done? And looking further, Accra to Lagos can be done in six hours (including the border crossing).
There’s begun a certain drive to make things in Nigeria, which is good. This should have been happening for years, but unfortunately, people got distracted by the oil. At the same time, if you want to make things in Nigeria, you still have to import stuff because there is no manufacturing industry in this country; there are no raw materials, no equipment manufacturers, so you have to import a lot even if you are a manufacturer. (Maybe in 20 years if a deep manufacturing industry was to emerge, this would stop).
There needs to be a better understanding that these raw materials coming in need to be coming in and the system shouldn’t be so detrimental to people who want to import raw materials. There is absolutely no reason why we can’t take our container off a boat and send it through the port gate within 48 hours. Lots of other countries do it – maybe a 72-hour stretch. If lots of countries in the developing world can do it, why can’t you do it? I think they’re not really looking at the bigger picture about how to take the region from where we are today to get to a point where there is more manufacturing and more support of Nigeria being the major exporter. It is the major economy in West Africa and the ideal situation is that there should be good ease of doing business across the region that will benefit the entire region. But it’s so difficult to move stuff from here to anywhere else.
Part of that problem lies with other countries. But quite a bit of it is this country making it difficult to export. Why? This country needs dollars. Its main flow of dollars is from the oil industries and we’ve seen, in the last three years, how risky that can be because it’s a commodity and it can go up and down. Why would you want to make it difficult for people to do business in Cameroon, Benin, Togo, and in neighbouring countries? It should be an open border. The current situation is too clumsy, an exercise in bureaucracy, and all the other stuff that goes with it that really puts you off. I think there is shortsightedness in the policies and some of the things they’re trying to do here.
Looking at the size of Nigeria and the opportunities here, and looking at Ghana that you just highlighted and then how small it is compared to Nigeria, what actually informed the siting of Eunisell business in Ghana?
At the time, Ghana was opening up. They just discovered oil. It was a neighbouring country. We always want to expand our business to other West African countries. They spoke English, so it was an easy transition to move from Nigeria to Ghana. I guess it was just sort of what we felt was a logical step. Unfortunately, the oil industry hasn’t progressed as they had hoped and as we had hoped, and the local content laws have changed which benefit Ghanaian ownership. I believe that there has to be a local content policy, but it should be focusing on creating jobs locally first, not creating opportunities for well-off and well-connected people.
The cost of entering these other West African markets is about five times the cost of trying to do it in Europe. The cost of renting a warehouse, the cost of renting an apartment, the cost of everything is really high. West Africa is not a cheap place to do business and that is detrimental to its growth. Compared to Asia, you will find cheap places to do business in Asia. Productivity and labour costs are low, but here they aren’t. It’s one of the reasons there’s been a lack of foreign investments. It’s too expensive.
With the benefit of hindsight, and if there was a more favourable cross-border system, we should have tackled Ghana from Nigeria initially, thus we could have built the business while avoiding the high cost of setting up. Then when we had a critical mass, we could have then set up the local structure. We are having to rethink the business in Ghana, doing things differently and avoiding some of the high costs, and also thinking about if it’s possible to expand into other West African countries without needing the expensive infrastructure in the country.
Does Eunisell, therefore, have footprints in the West African market?
We’ve done business in other countries, but it’s minimal and they came to us. It’s something that we’re thinking about – how to address these issues, and how do we deal with these markets because of the extremely high cost of doing business, warehouse to store your products, an office to work from and all the other stuff. Transportation is really expensive in West Africa. So you need a lot of business to justify the high costs. We’re looking at how we can address the business in these areas without committing to the high cost for a startup to allow us to enter the market.
The ECOWAS system doesn’t encourage you to do business from one country to another, so you can’t work off a base from one country to the other countries that easily. But I’m looking at this from a business side. They haven’t really done anything. The trade barriers across the ECOWAS States are enormous.
You talked about the oil and gas industry and all of the constraints it has had in the last couple of years. As a player in that industry, how has Eunisell managed the challenges?
If you look at the business in the oil and gas sector, the business we have on the production side is still reasonable. We’ve been pressurized on costs from our customers as oil prices came down. But the exploration side of our business – about 10 percent – it’s evaporated, the contracts ended and the rigs just left as there was no work for them. That had a big effect because the business just went. They don’t drill, we don’t have anything to do, and that was a big hit.
We had to rethink a few things, try out some new ideas, be more efficient, and we have also diversified more into other industries. This isn’t easy, and these industries are already being serviced, so we had to come in and dislodge the entrenched suppliers (which, of course, is impossible to do at all customers), but it helps Eunisell for the future.
I think the oil industry in Nigeria has found a new equilibrium and if oil stays in the US$50-70 range, the industry will have a good run for at least 20 years (with normal ups and downs) until alternative energy starts to have a significant impact on the industry. And of course, in Nigeria’s case, the oil price had a major effect on the entire economy because of the reliance on forex and government revenue from the oil industry. I’m from Scotland. If you take a look at Scotland, the downturn in oil price had a big effect on Aberdeen, the oil city. Some of the surrounding areas like Northern Scotland, which also feed into Aberdeen, took a little bit of that hit. But Scotland as a whole benefitted from the oil prices coming down because fuel price came down and subsequently the gas price came down.
Here in Nigeria, the fall in the oil price had a massive effect on the economy. Only a year ago foreign currency was scarce, but I think investment is returning to the oil sector. The government is making good noises about investment in infrastructure, but they do need to make things easier for businesses: they already provide their own power, security, water, etc. (some even build roads that the government should have built). So how about having only one exchange rate, making importation and exportation easier, etc? The local generation of power using gas engines is an excellent idea, gets electricity to where it is needed and makes it easier to collect payment, and possibly is saying something: that the solution to a lot of problems in Nigeria/West Africa is to localize it rather than have large central projects.
One of the things that are putting people off investment is dual exchange rates. One exchange rate and the market sets it, not the Central Bank. If you have a black market for your currency, that’s the true value of your currency, that’s what the world thinks your currency is worth. All the other stuff is made up. If I were investing some money in Nigeria, I’m thinking, ‘Hold on a second, what are my gains? Am I going to have to buy mine now at $303 or $370?’ So what is it? If it’s $303 I’m not investing; if it’s $370, I’ll think about it. So, people are stuck with this. That is why people are saying the policies are confusing.
Big Read |