While agriculture accounts for about 40 per cent of its national GDP, Nigeria currently produces only a small portion of the fertiliser consumed by its farmers
However, a radical change is in sight, with the recent announcement that two new fertiliser production facilities will come on-line within the next few years.
On July 8, the Dangote Group, the Nigeria-based manufacturing conglomerate, announced that it had signed an agreement with Saipem, the Italian oil and gas industry contractor, to build Africa’s largest fertiliser plant.
The facility, which is expected to be operational by 2014, will have the capacity to produce around 7700 metric tonnes per day (MTPD) of granulated urea and 2200 MTPD of ammonia. The plant, to be located in Edo State, will provide work for at least 7000 skilled and unskilled labourers, plus thousands of indirect jobs in other businesses.
Gas Reserves
According to some estimates, Nigeria imports 95 per cent of its fertiliser needs, despite the fact that it has substantial reserves of natural gas, an input used in the production of ammonia and urea fertilisers. Aliko Dangote, the president of the Dangote Group, says the country should not import products for which it locally has both raw materials and the ability to produce. “There is no reason why Nigeria should be importing fertiliser,” he said following the signing ceremony for the new plant.
Dangote’s comment echoed a remark by President Goodluck Jonathan, who told a meeting of businesspeople in Lagos on May 23 he intended to halt imports of certain staple goods, including rice, sugar and fertiliser, by 2015. “By the end of four years, I believe that Nigeria has no business importing rice. Nobody will come to me with a briefcase and say to me he wants to import fertiliser. We have vast land, and yet, we import all these essential goods,” he said.
Fertiliser and methanol plants
The president’s declaration followed an announcement earlier in May that the government had approved the building of two fertiliser and methanol plants by the Indorama Corporation, an Indonesian company that is the “core investor” in Eleme Petrochemicals Corporation (EPCL), a former state-owned enterprise. According to a statement by Prakash Lohia, the chairman of Indorama, the fertiliser facility will be capable of producing one million tonnes of ammonia and urea fertilisers per year. The plants are expected to begin operations in 2014 or 2015.
The new facilities, valued at $1.8bn, would be located at the existing EPCL complex in Port Harcourt in Rivers State, which currently produces polymer resins such as polyethylene and polypropylene. Since investing $400mn in 2006 to acquire a 75 per cent stake in EPCL, Indorama has revived the company, which was previously managed by the Nigeria National Petroleum Corporation. Whereas Nigeria used to import 90 per cent of its propylene needs, the level is now only 3 per cent.
With Dangote and Indorama both investing in major fertiliser production facilities, it seems that there is a very real prospect that Nigeria could in the near future generate enough fertiliser to meet domestic demand. However, one issue remains to be addressed: delivering the output to farmers in a timely fashion, and at an affordable price.
Public sector monopoly
Nigeria has for many years struggled with how best to distribute fertilisers to farmers, according to the International Food Policy Research Institute (IFPRI). Between 1976 and 1997, the fertiliser market essentially operated as a public sector monopoly, with the federal government acting as the sole supplier. The government procured fertiliser (either domestically or via imports), which was then sold to the states at heavily subsidised prices.
Since 1997, the market has been partially privatised. The government continues to distribute fertiliser to the states but on a smaller scale and at lower discounts. However, the co-existence of free market and subsidised goods has created a problem, namely the opportunity for arbitrage. That is, fertiliser earmarked for delivery to farmers at subsidised prices can be diverted and sold at market prices. As Onajite Okoloko, the managing director of Notore, a domestic manufacturer of urea fertiliser, told OBG, “Over 70 per cent of the subsidised fertilisers get recycled back into commercial channels by middlemen, so the actual farmers never really receive the benefit of the programme.”
Voucher scheme
Recent efforts to address this issue include a voucher scheme, which has been implemented on a pilot basis in several states. As part of this programme, farmers are given vouchers to purchase specific products at a lower price from authorised dealers. The seller can then redeem the voucher from the government to make up the difference between the market and discounted prices.
This scheme has generally been positively received. According to an October 2010 study by the IFPRI, participation in the programme increased both the likelihood of receiving fertilisers and the quantities that were received. Prices were higher than under some other subsidy programmes but they were generally lower than the market price. However, the report noted that participating farmers still often received their fertiliser too late in the season to be of use.
The new Dangote and EPCL production facilities will certainly go a long way towards easing supply problems. If nothing else, distributors will no longer be dependent on imports. However, the issue of transporting product from the factory to the farm remains an outstanding one.