Feeding growth: The large agricultural sector provides much potential

Given the state’s sizable agricultural output, agro-industrial processing is a large part of Oyo’s industrial activity, with a number of facilities focused on segments like fruit juice production or flour milling – although several other manufacturers are present in the area as well, such as pharmaceuticals. As elsewhere in Nigeria, secondary production is fairly limited, hampered by infrastructural constraints, most notably an intermittent electricity supply that requires independent power sources – generally diesel generators – which can add up to one-third more in operating costs. However, Oyo’s industrialists are pushing ahead and the state’s comparative advantages, which include accessible land and proximity to transport links, have helped capture a growing amount of inbound investment.

MANUFACTURING PROFILE: Indeed, the description of Oyo State as an industrial powerhouse would be somewhat erroneous, given that it presently accounts for less than 1% of total manufacturing in the country; in 2011 it contributed N4.2bn ($26.5m) to the national manufacturing output, ranking it third in the south-western region, but still behind Lagos. According to the south-west office of the Manufacturers Association of Nigeria (MAN), problems with the power supply, multiple taxation levels and a scarcity of potable water have, as elsewhere in the country, been common challenges. Indeed, many private firms have relocated due to logistical challenges in Oyo. Even today, manufacturing industries are operating at less than 20% capacity, according to the Oyo State government. However, over the past 10 years, there has been a trend of increasing investment, with several large manufacturers both domestic and foreign, ranging from Nigerian Breweries and Fan Milk to British American Tobacco Nigeria (BATN) and Procter & Gamble, having set up operations in the state. Many of these firms are focusing on agro-industry and food processing, seeking to tap into the opportune space between Oyo’s substantial agricultural production and the vast consumer market both within and without the state’s borders.

“People make the market, people attract investors, and this makes Ibadan and Oyo State a very attractive destination to do business,” Adebayo Jimoh, group managing director of Odu’a Investment Company, which is the combined investment arm of five south-western states, excluding Lagos, told OBG. An example of this can be seen in cassava production, a sector that is highlighted as a priority under the federal government’s Agricultural Transformation Agenda. One tonne of raw cassava is currently priced at N20,000 ($126), for example, while starch fetches N150,000-170,000 ($ 945-1071) per tonne – an equation that has attracted firms like Nigerian agro-processer Psaltry International to establish a plant to supply clients, including Nestlé and Unilever, which in turn target the large markets in Lagos and Ibadan. Speaking to OBG, Oluyemisi Iranloye, the CEO of Psaltry International, balanced positive projections with words of caution, saying, “The project is profitable, however, agribusinesses must invest heavily in support infrastructure such as roads and water, which slows the rate of take-off for new companies.”

COMPETITIVE ADVANTAGE: BATN was among the first multinational manufacturing firms in recent decades to set up shop in Oyo in 2003. It originally planned to open a factory in Lagos, but struggled to find an adequate site due to limited land availability. The only suitable site was waterlogged, and construction costs were too high, not to mention the logistical challenges involved. That was a decade ago and now the problem is significantly more acute, and a number of companies that initially looked at Lagos are dissuaded by the current cost of land.

Julius Ishola, the managing director of Bentos Pharmaceuticals, told OBG that that land values in Ibadan are 20% of those in Lagos. Solomon Ogundele, the projects and community relations manager at BATN and vice-chairman of MAN’s south-west office, told OBG, “The key competitive advantages that Oyo State offers to businesses are peace and stability, ease of communications and logistics, as well as land availability.”

Labour costs in Oyo State are also lower than in Lagos. Ishola estimated that unskilled workers in Ibadan earn up to $5 per day. However, with an unemployment rate of around 8%, retention can be problematic.

Bakare Abiola, the CEO of recycling company RAB Trading, told OBG, “Our unskilled workers are remunerated with a monthly salary, but we always have a high staff turnover because these workers desire daily wages or income, and thus opt for jobs such as commercial motorcycle riding.”

CHALLENGES: Attracting skilled labour can be an issue, particularly for higher-value-added industries. Ishola said, “There is an abundance of unskilled labour, as certain technical expertise is lacking because professional experts tend to be drawn to opportunities in Lagos.” Increasingly skilled workers are being lured to work in Ibadan, however, as the cost of living is lower compared to Lagos and the quality of life is improving dramatically, owing to urban renewal programmes and investment in the retail and tourism sectors.

Moreover, the state government is pumping money into health and education, which will have implications for quality of life and the skills of the labour force. Vocational training, in particular, is receiving much focus, leading to an increase in the supply of semi-skilled and technical workers in the state. In May 2013 the Oyo State House of Assembly approved a bill to establish two independent polytechnics in Ibarapa and Oke-Ogun. Furthermore, Abiola Ajimobi, the governor of Oyo State, signed a memorandum of understanding with Texas State University for a partnership with the Technical University in Ibadan that will entail a two-year exchange and training programme.

In terms of land access, while land may be cheap, plots are rarely turnkey-ready and extensive development may be required to make land suitable for industrial production. After purchasing land in a remote area of Iseyin, Psaltry International had to invest in developing a graded road that could support car and truck transport, as well as an industrial borehole that cost N18m-20m ($113,400-126,000) to install. There is no electricity supply either, and factories must rely purely on generators.

The complications of agricultural distribution that impact producers in Nigeria also have an effect in Oyo. “Farm settlements are inaccessible and have an epileptic electricity supply at best, causing many farming businesses to fold,” Peter Odetomi, the former commissioner of the Oyo State Ministry of Agriculture, told OBG. “Works are under way to improve electricity supply and rural infrastructure, with road grading and bridge construction helping to improve year-round access to farm zones, but a lot still needs to be done.”

GOVERNMENT POLICY: Given the role manufacturing can play in job creation and revenue generation, the government is working to improve the overall attractiveness of the business environment for industrialists through specific incentives. “The new place we want to focus on now is industrialisation,” Zaccheaus Adelabu, former commissioner for state finances, told press.

One key pillar of this is the establishment of an industrial park on the Lagos-Ibadan expressway. Developers have already begun building on plots, although the project is still being developed under the aegis of the Oyo State Ministry of Trade, Investment, and Cooperatives. “A committee on industrial development is still conceptualising the project, which will be state owned and private sector driven. The industrial park occupies land previously set aside for the Oluyole Free Trade Zone, which has now been abandoned,” Soji Eniade, the Oyo State government’s permanent secretary, told OBG. “Some investors are already developing on the site, including Karma Foods, which received a land allocation from the state government.”

The Ajimobi administration has outlined plans to develop free trade zones in Oyo to incubate small manufacturing firms closely associated with semi-processing of raw materials such as shea butter. Shea butter trees are indigenous to the area and often grow wild, with current production dominated by individuals.

Shea butter has strong commercial potential for use in cosmetics, pharmaceuticals and edible products, and has a high export value in European and North American markets. For this reason, it has been identified for development and promotion by the Nigerian Export Promotion Council (NEPC) and the World Trade Organisation, including the establishment of a new shea processing plant.

As in other sectors, the state government is also looking at public-private partnership options for manufacturers and agro-processing in egg-processing, paper production and cashew nuts.

LONG TERM: As the government steps up public sector spending, the state is investing in the processing sector and major projects are under way. However, to date the manufacturing sector is dominated by a few large operatives, a thin layer of struggling small businesses and a plethora of underperforming cottage industries with vast potential for commercialisation. While Oyo State is helping smaller players with the financing shortage, more support is needed in all segments, from marketing to infrastructure provision.