Mirchandani: There Must Be Deliberate Policies to Cut Cost of Borrowing for Manufacturers

Mr. Arjan Mirchandani is Chairman of Sona Group of Industries, one of Nigeriaâ€™s biggest manufacturing chains. Mirchandani says the Nigerian government must take deliberate steps to support growth in the manufacturing sector if the country is to develop, stressing that Africa can be self-sufficient if investment is encouraged with sound policies. He also speaks on his companyâ€™s multi-billion naira expansion projects in Nigeria, in this interview conducted recently after a facility tour. Abimbola Akosile was there. Excerpts:

What is your greatest attraction to the Nigerian economy and what is the cumulative net worth of your investment?

Talking about net worth, everything belongs to God. Nothing belongs to me; I am only a trustee. We didnâ€™t bring anything into this life and we are not going to take anything with us when we die. Whatever I have is from God. The question should be, how banks and government policies can help? Government must make policies to help manufacturing. In my opinion, such policies are lacking. The banks charge 22 to 24 per cent. How do they want manufacturers to survive with such interest rates? Banks are not even giving money without 100 per cent bank guarantee. With these kinds of conditions manufacturers cannot survive. Today, we work with India. India gives three per cent on loans. Manufacturing is easier that way because the cost will be cheaper and weâ€™ll be able to export more. So I think government policies are important to help.

Â It is instructive that a bank is involved in this facility tour. What inspired their participation? Â

Of course, they are looking for customers. You could see that they are impressed by what we have done, but they are not lending. But we are still talking to them. They are saying they canâ€™t give loans for less than 21-22 per cent because government lends them money at 17-18 per cent and, as such, they canâ€™t lend for cheaper. So, itâ€™s a policy issue that the government must look at to reduce the cost of borrowing.

Â As a major manufacturer, what would you say governments in Nigeria are doing right or otherwise in terms of policies?

I still think that government can give more concession to industries that are doing the right things and are using local raw materials. They should help them to grow more. Charity begins at home. If government can encourage such industries, Nigeria will be self-sufficient. And Africa will be self-sufficient, because if we have goods here we can supply neighbouring countries and they will depend less on foreign imports.

Nigeria has exited recession and experts say this is good news for manufacturers like you. Do you feel any sense of increase in the purchasing power of consumers, which should drive demand?

I think purchasing power is reducing because salaries have remained the same. Obviously, the poor people only buy necessities and that is normal.

If the consumer is spending less, which means demand is not improving, how come you are expanding your investment rapidly?

We are investing more because we feel that Nigeria requires these jobs and population is always growing; and, again, we have now embarked on export and when you export you need excess capital. It is necessary for us to export. Nigeria is a big market, but we have other markets around us. In those other markets we have people who also need our products for survival.

Going by the huge investment you are making in a struggling economy, is there a research pattern by which you study the market to understand what the market wants?

I think some businesses are struggling because they are not producing quality goods. Manufacturers who donâ€™t produce quality goods will definitely not survive. Nigerians are very clever and they are people of taste. They understand the value of goods. If you introduce a good quality product, the packaging is good, and presentation is good, Nigerians will buy. Now, there is restriction on import and when you have such people turn to local alternatives, and we are providing those alternatives, that helps us to understand people and what they demand and when the demand increases you naturally have to expand to see that you satisfy the consumers. Again, imported items are disappearing from the shelves and the sellers are running to us. For instance, many people used to import biscuits from India, but they no longer import because of forex problems. They come to us and demand that we produce biscuits for them. You can go to some of the Indian shops and youâ€™ll find our goods. So, the demand is there.

Â Can you tell us about the installed capacities of your various businesses, in terms of actual capacity utilisation and demand?

We are looking into export. We started this year and we can see that export is growing. We see everyday growth. We started in Ghana but we now export to Burkina Faso, Cameroun, Senegal, and Cote dâ€™Ivoire. I can see that there is a demand and that is why they are coming to us. It is very important for Africans to buy from Africans. Africa should get out of the mentality that only foreign goods are great.

But how do you tackle the challenge of cross-border transportation, which is a major impediment to trade in the continent?

I must admit that borders are difficult. If the borders become easier to cross, I am sure we can export more and the cost will come down. But, again, every business has its own challenges. Challenges will always come; they are nothing new. Every good thing has its own challenges.

During the facility tour of your business you mentioned the fact that the market is huge. How huge is the market?

The market is huge and we can expand to twice as much, as we are doing now. That is not a problem because the imports have been restricted. People used to bring in goods from Taiwan, China and other countries; but today they are not able to import due to forex problems.

Â Are you also making investments in new technology and human capacity development to meet the rising demand?

Today, if you donâ€™t have a plant that is fully automated people will not buy your goods. You cannot produce goods anyhow and expect people to buy.Â

People are very clever. In any case, somebody is paying the money and he has to see what he is paying for and he has a choice because there are other manufacturers. That is why we have to invest in technology to produce quality, and to mass produce in a way that the cost of production will reduce.

Â There has been a massive growth in the biscuits market lately. What is driving that growth? Is it just taste?

It is not just taste. We are very careful. We used all local raw materials. We make cashew, ginger biscuits. Ginger is local, it comes from Kano. Again, the malt extract that we use for biscuits is produced by our sister company and that replaces sugar. So we donâ€™t have to import sugar. It is much healthier.

Most of your raw materials are agro-based, are you therefore also thinking of venturing into agriculture/farming?

We are encouraging local farmers because they also want to survive. We want them to have that understanding that we are buyers. We believe that we should encourage the farmers by paying them for their produce and give them an opportunity to grow. We are looking at ways by which we can help them to increase their yields by teaching them what kind of seeds to plant. We have the IITA in Ibadan and we work with them to help the local farmers. We believe that is the way it should be.

You are building what is said to be the largest ethanol plant in Africa, what is driving that investment?

You have so many other industries that require ethanol and they are all importing; if we can produce ethanol here locally we can supply better, cheaper and quicker. Then, they donâ€™t have to wait for 100 days for their goods to arrive and they donâ€™t have to go through foreign exchange problems. Everybody will like to get locally products that they should have normally imported. That will help the economy of the country. We are doing exactly the same things in so many other areas. For example, we are producing malt extract here and so many other biscuit companies are buying from us and using it in the place of sugar, which is imported. We have huge orders, we cannot meet demand.

Â From the look of things, you emphasise global standard quality production in your businesses, how are you able to achieve that despite the difficulties of the operating environment?

I think difficulties are within us; we can solve them. It is not a problem. I believe if you are manufacturing goods and you are not giving quality, people will reject them. Number two, you must comply with international regulation for you to be accepted in the export market. You have to put in efforts to comply. People who want to buy want to come over to the factory to see what our practice is, whether it is normal practice or international practice; is it going to jeopardise the interest of the public? So, we need to be updated because the world is a global village. Manufacturers need to do something to ensure that they are in compliance with global quality; otherwise, export will be very difficult. Multinationals like PZ, Guinness, Nigerian Breweries and others keep placing big demands because we meet their quality specifications. If we donâ€™t, they wonâ€™t come. We work to gain the confidence of these companies.

When is the ethanol plant going to be operational?

We are looking at about two monthsâ€™ time. Right now, they are putting finishing touches to it. We will be able to supply a lot of companies like pharmaceutical, food and drinks. And, I will like to see that they each get a good price.

Â Your rice mill is in Ghana, is there a chance that you will replicate what you are doing there in Nigeria?

The future nobody knows. But we are doing what we consider best in every market. I love the people of Ghana. Africa, to me, is great. God created all as one but the fact is that what we are doing here is not in Ghana. We always look at the opportunities in each market to make investment decisions.