With its annual turnover in excess of $83bn, Procter & Gamble is the world’s top producer of consumer goods. However, its manufacturing footprint on the African continent is limited to the north and west, with plants in Egypt, Nigeria and Morocco. The behemoth says it has a long-term view of Africa, especially Nigeria. Mr. Stanislav Vecera, managing director/CEO for West Africa, said the company would retain its investment in Nigeria in order to continue in serving its customers in the country due to the faith it has in Nigeria. He spoke in Lagos recently to Ray Echebiri, Nik Ogbulie and Chris Uba. Excerpts:

 

It does appear you are quite optimistic about what you want to do in Nigeria. Where is this optimism coming from

First of all let me start by saying P&G is not shielded from the global economic crisis. Nigeria is not shielded as well. Like other companies P&G is affected by credit crunch and other effects of the recession.  We are facing a number of challenges: record high commodity & energy costs; the effect of the credit crisis on retailer and distributor inventory; currency exchange rate volatility and the impact of the recession on consumers around the world. These are serious issues but they don’t affect our determination - we remain confident.  So, all these have effects on our operations.  However, we have taken long-term view of Nigeria. But beside that we are looking at the potentials of Nigeria and the potentials of the region. I mean the African region.  We are looking at the long-term development of the African region particularly Nigeria. Because it has the population, a lot of resources, it is stable politically and economically. The country has long-term economic prospects. So we don’t think we should stop doing business in the region. We are here for generations to come notwithstanding the challenges which we think are short-term.

 

We were wondering initially why it took you a long time to come to Nigeria, a huge market like that. Now, you are here. How have you fared

We have been in this market for about 16 years.  Then we started to increase our capacity. We started to accelerate our production in 2001. We have always been positive about Nigeria. I think the reforms that have been put in place in the last eight - nine years encouraged us and we started to focus on how we can accelerate production by increasing capacity. So, if you look at our product portfolio, we have the key brands in the country.  However, we believe that we still have a long way to go compared to our operations outside Nigeria. But we have always seen Nigeria as a country with huge potentials. The reforms in the country and acceptability in the market, particularly from our own point of view is positive for Nigeria.

 

Alright, yesterday, you talked about the issue of VAT regime in the country and then the issue of power. The thinking is that even here in Nigeria our VAT rate is not as high as what obtains in some other West African countries.  So, why do you still think it is a disincentive

I think that the underlying issue for us the manufacturers in Nigeria is the high cost of doing business here. If you compare Nigeria as the production hub for West Africa, to other facilities we have in North Africa or anywhere in the world, Nigeria is one of the most expensive ones. And coming from the fact that for power you pay 10 times more than in other countries. We are getting to pay high (20 per cent) duty rate on raw materials that is meant for production while finished products are attracting lower duty (10 per cent).

So, there is a clear extortion in terms of import duty regime. We believe that the import duty regime is not favourable to the manufacturers and needs to be corrected. Of course we are not talking of the infrastructure, the ports, freight processes and all of that are adding up to high costs.

As far as the Vat is concerned it increases cost. This is responsible for the high pricing of the products in the markets. The product are for every one else. And we will be delighted to take the prices down if the costs come down because that is the only way we can stimulate the economy. If prices go down as a result of reduction in cost of production there will be more consumption and growth in the economy.

 

Talking about the place of doing business, how does Nigeria compare with other West African countries? Do you produce in those countries

No, we don’t. We look at Nigeria as the manufacturing hub of the sub-region. That is the manufacturing hub and as distribution and sales hub in West Africa. So, we have offices in Lagos, our manufacturing services in Ibadan, we have an office in Senegal for the francophone countries. We have opened business couple of years back already in Ghana. Then we have supply for all the francophone countries as well. So, Nigeria for us, is the hub and cannot be compared with other countries in the region.

 

What about the ports congestion? Is it affecting Procter &Gamble

Yes, I think it is the topic of the moment in the country.  It was discussed yesterday. And again it has effect on the cost. All of them have effects on the cost. Like the demurrage you have to pay, the high import duty you have to pay in terms of cash and so and so forth, all result in high cost. The biggest issue is on the predictability of the situation.   So, sometimes you know we set the days. It might have an effect on planning or planning of the operations because you just need raw materials to come into the country for your operation.

 

Have you thought of shipping your raw materials through the ports of some other West African Countries

Yes, it comes with costs. All of them are related to that.

 

Can you give us the picture of your expansion programme in Nigeria? What form will it take

I will look at it in two ways. Firstly, we are to continue with the modernisation of our Ibadan plant. Just a few months back we installed new production lines. So, we are going to modernise and put new technology in Ibadan. Secondly, we are looking for further expansion in Nigeria. But the overall objective is to supply Nigeria but we are also looking at more opportunities to export out of Nigeria to other West African countries. So, we have a plan of over five - seven years. It is quite an ambitious plan for Nigeria.

 

Nigerians are getting absorbed using a lot of your products. Is there anything you can do to douse their fears that these products they have here, may one day not be in the markets? Or do you have a way of telling them that these products will be here for ever based on the developments here right now

Let me just make one comment about P& G as a company. It is an international company and one of the biggest in the world. It has existed for more than 180 years. As a company, we experienced so many crises either in countries or globally in 180 years. In short, we know how to manage. We know that we can get cost, we can get cash, but what is more important to us is providing more innovation and focused on value creation for countries. So, we are confident about the plans that we have. And I am assuring you that for sure for a long-time; the products will be available for Nigerians and affordable if the cost allows us. So, in a way we have always taken a long-term view of issues in Nigeria.

We are also a company in the good times and in more difficult and challenging times we get information for our life plan. We look at what people want. We also look at the cost and cash. Our company is doing that maybe in good times more than in the bad times. As a company we are relatively in a good position to go through situations. So, I think we are in a strong position to focus on the fundamentals, delivering what the consumers want whenever we are in hard times. This is very important. You know we listen to them - the consumers - and go to their homes. I have been to the homes of the consumers in many parts of Nigeria trying to talk to them on how they are affected by the crisis. They cannot afford to buy low quality product in bad times.

 

Now that we are having difficulties, going by the trends in the foreign exchange market and considering that you have a lot of materials to bring into the country, can you explain how the developments in the last one month have affected the total package of what you have in your plan this year 

I think what is important for us is monitoring the exchange rate. Of course, nobody can predict it. But for manufacturing, I think it is critical to monitor and to potentially adjust to guide your cost structure. We monitor the development. We need to be agile about the situation so that we can guide our cost structure.

 

Against the backdrop of the current economic situation, would you in anyway be forced to adjust the price of your products

The prices need to be adjusted. You know if you have costs that are just coming in there is the need to adjust the price. There are two ways of doing this to moderate the situation. One way is to credit the cost. If you look at the situation in Nigeria prices are on the rise now. It depends on the makes of the local raw material that is available. It is really a very big challenge. You need to understand the models. At the same time we continue to win the consumer value equation every day as they deal with their own economic pressures. We help them to be certain they are making smart choices when every naira counts by providing the best value.

 

When you entered this market, may be the time you were setting up your factory in Ibadan, there were reported cases of adulteration of your products. How did you deal with the issue

On this issue I will say one thing. I think Nafdac is doing an excellent job as regards the issue of adulterated products. We have seen what they are doing on the issue of the registration of products. We have seen a very positive impact on what they are doing in making sure that products that are not registered with Nafdac cannot be registered in Nigeria.

 

Why did you choose to locate your factory in Ibadan instead of Lagos? Or what economic factors informed your choice of Ibadan

Ibadan?  Yea, we entered the country by acquisition in 1991.  And we formed a joint venture at a time with a company that was already operating in Ibadan. So, the company had a site in Ibadan and expands our operation there. As I said before, we are open to the future to develop in Nigeria.

 

Some years back, it was alleged that you were recycling products that had something to do with HIV/AIDS. How did you resolve the issue

We have put the memory of that unfortunate incident behind us. The only think again I can say is that Nafdac has been very helpful by making sure that all adulterated   products do not enter the market. All our products are in Nafdac registration.

 

You mentioned some of the constraints your are facing as a result of low power generation .At what capacity are you producing now

We are constantly increasing our capacity, and so, which suggests that we are quite happy in terms of the production we have today. We don’t have constraints in terms of capacity utilisation.  We are increasing our capacity.

 

 You must be generating you own power supply. How much does it cost you to service your power plants in a month

As I said in my presentation it costs us 10 times more than any other sector in the world.

 It is very high on our cost structure and I hope that with the programmes the government has put in place it would be resolved soon. But for the time being we have to produce by providing our energy.

 

You are doing that with diesel right? Do you have any plans to move to alternative energy

We would like to move to gas but unfortunately it is not available.

 

In how many countries are you currently operating? How would you rank Nigeria among other countries where you are operating in terms of revenue, profitability and volume of business

I think we can look at Nigeria as one of the fastest growing markets in terms of the level of business activities. However if you look at Nigeria today, comparing the volume and profitability it is not the fastest we have in the world but it is not the most difficult.   Cost is part of it, and again we balance this with the profit.

 

As an international company do you at times bring some of the products produced in your plants in other countries to Nigeria

Yes, we do. Say tooth brush. We don’t manufacture that in Nigeria.