Why Textile Industry Remains Dormant Despite FG’s ₦100bn Bailout

United Nigerian Textiles PLC - derelict and non-operational

The Nigerian Cotton Textile and Garment (CTG) Industry used to be a major contributor to the nation’s Gross Domestic Product (GDP). But like many sectors of the Nigerian economy, the industry lost its glory in the mid-80s with many of the mills closing down and its workforce sent home.

Daily Trust report continues:

The effect was so drastic that the industry lost more than 500,000 of its workforce.

The Cotton Textile and Garment (CTG) Industry has remained dormant nine years after the federal government initiated a ₦100 billion revival fund. Before suspending the disbursement of the funds recently, our correspondents gathered that over ₦60 billion of the fund had been paid to some textiles manufacturers. Checks by Daily Trust on Sunday revealed that the federal government suspended the disbursement of the ₦100 billion fund, when it realized that it would require more than funds to revitalize the textiles industry. The Federal Government had in 2009 introduced the fund under the management of the Bank of Industry (BoI) to provide credit facility to financially-challenged firms operating in the CTG industry at six per cent interest rate for a seven-year tenure.

Investigation revealed that the fund, which was originally raised by the Debt Management Office (DMO) from the domestic market in form of loan, had been suspended even as the CTG industry continued to struggle for survival.
The spokesperson of the BoI, Hadiza Olaosebikan, told Daily Trust on Sunday that the fund was converted to equity “having realized that the challenges facing the sector is more than finance.”

Data analysed by our reporter showed that in 2009, ₦7.20 billion was disbursed from the ₦100 billion to three firms.

The Acting Director General of BoI, Mr. Waheed Olagunju, had revealed that the bank disbursed ₦60 billion from the fund before it was later converted to the Ministry of Finance Incorporated’s (MOFI) share in the Bank of Industry.

The spokesperson of the development finance institution, Olaosebikan said that the intervention Fund “was converted to equity but Federal Government has set up a committee to revive it.”

The intervention according to experts, followed a request to the BOI by the Chief Economic Adviser to the President on the 25th November, 2008, which enabled the bank, to submit a proposal for the establishment and management of a ₦100 billion Nigeria Cotton Textile and Garment Development Scheme, to resuscitate and upgrade the entire cotton, textiles and garment sector value chain.

“Subsequently, the FGN, on 10th June 2009 approved and authorized the DMO to issue a long-term low coupon rate of ₦100 billion Bond to fund the BOI proposal” General Secretary of the Textile Workers Union of Nigeria, Comrade Isa Aremu confirmed..
 Chairman of UNTL, Senator Walid Jibrin, explained to our correspondents that it was initially a ₦70 billion fund initiated by the Obasanjo administration and was for retooling the machinery in the industry in Nigeria, so that it could not only recommence production but ensure a quality that could compete globally.

Our correspondents learnt that the loan was first routed through Nexim Bank, but was later handed over to the Bank of Industry and was augmented to the tune of  N100 billion for disbursement under very low interest rate of about six percent.

Aremu explained that the proceeds were to be released to BOI in tranches for on-lending to businesses under the Cotton, Textile and Garment (CTG) value-chain and was subsidized by the federal government at a fixed rate of five percent to BOI, and BOI would lend to beneficiaries at six percent.

Jibrin confirmed that some of them were able to utilize the loan to revive their plants but noted that the loan did not go round as some of their members were not able to access the facility due to their inability to meet the conditions of the bank.
A Kaduna-based Coalition of Closed Unpaid Textiles Workers, said since the endowment of the fund in 2009, none of the shut factories has been brought back to full operation.

Speaking through its chairman, Comrade Wordom Simdik, at their quarterly meeting in Kaduna, the coalition said it is surprising that for several years now, since the bailout fund was provided, no tangible result has been achieved.

He said companies that desperately needed the money to inject life into their factories and commence operations never got the money except one or two textiles that are still partly operating.

“A situation where an intervention fund for the revival of the collapsed textile mills was instituted by the government and the conditions for accessing the money are unfavourable to the same factories for which the money was provided; is pure contradiction,” the coalition said.

National President of the Nigerian Chambers of Commerce and Industry, Mines and Agriculture (NACCIMA), Alhaji Mohammed Abubakar, also condemned the handling of the bailout fund for the textile sector.

He said it seems the fund was either misapplied or misappropriated by the beneficiaries.  “If this is found to be so, it will be a very embarrassing and disheartening development that calls for thorough investigation.”

The president of the Kaduna Chamber of Commerce, Industry, Mines and Agriculture (KADCCIMA), Dr. Abdul Alimi Bello, blamed the downturn in the textile industry on high operating cost, stiff competition and obsolete machines.

Bello said in addition to funding intervention, the Federal Government must identify what went wrong in the industry that reversed its fortunes over the years.

“It is not just to talk and say you want to bring back the textile industries. What actually brought about the collapse of textile industries in Kaduna? One, there is this issue of stiff competition against imported textile materials.

“How do we reduce the cost of production of our own materials? We are members of WTO (World Trade Organization). We are a signatory to it. Here you are, you produce your own textile material at ₦10,000 and somebody is bringing it to your shore at ₦2,000, ₦3,000 legally,” he said.

When contacted on the development, the Director General of the Kaduna Chamber of Commerce, Industry, Mines and Agriculture (KADCCIMA), Usman Saulawa said in Kaduna State; Zaria Industries Limited, United Textile (UNTL) and Chellco Industry benefited from the textile revival funds. While confirming that Zaria Industries was given ₦900 million from the funds, he noted that he does not exactly know how much was given to the other two companies.

He said “we seem to be much more concerned about textile industries and not giving emphasis to cotton production. If you observe, the cotton production has drastically gone down, a number of cotton farmers are either trying to survive or have directed their efforts towards doing other things. The cotton belt from Gusau in Zamfara State to Funtua in Katsina State, part of Kano, Bauchi, Gombe up to Maidiguri in Borno State is now a thing of the past.”

Walid Jibrin said things were made difficult by the continuous smuggling of finished products, adding that the development accounted for closure of most of the companies.

The chairman confirmed that only about 50 percent of those in the business benefited from the loans.

He said even big firms like Arewa Textile and Kaduna Textile were unable to benefit from the loan.

Expert opinion on that however differs. Aremu said major findings of the economic impact of the fund on the performance of beneficiary firms using key indicators like capacity utilization rate, annual turnover, profit after tax, and company tax show that the fund led to an improved performance, when compared to the period before its initiation.
He said 60 percent of the firms that were operating at low capacity increased their capacity utilization while over 50 percent of those making losses started reporting profits.
Similarly, the findings on the outcome of the fund on jobs saved, job creation and increased level of investment is quite dramatic as the fund had an immediate positive effect in arresting job losses, while new jobs were created as capacity utilizations increased.
“Specifically, a total of about 8,070 jobs have been saved, of which 7,618 and 452 jobs are for male and female workers respectively”.

The effect of the fund is more pronounced in the area of staff welfare, as majority of the staff of different beneficiary companies interviewed reported significant improvement in the payment of their salaries/allowances and better cordial labour relationships after the intervention.

Based on the testimonies of both the workers and management, the CTG intervention fund injected into the industry has assisted the beneficiary firms to improve the working environment, which has direct effect on their employee welfare.

Aremu said the fund would have achieved better results if 76.2 per cent of the beneficiaries were given lower interest rate of three per cent in order to reduce their production cost.

“In the same vein, the BoI is requesting downward review of the current DMO’s coupon rate of five per cent to at least three per cent as the bank is currently managing the fund at a loss under the current interest rate of six per cent (i.e. 1 per cent spread) to the beneficiaries. BoI has posited that the spread is already absorbed by the one per cent mandatory provisioning by the CBN and hence, administrative and other ancillary costs are from outside the Fund and at the expense of BoI,” he said.

He said with respect to the extension of loan duration, about 71 per cent of the firms required a loan tenure beyond seven years to 15 -20 years to enable the industry stabilize and grow.

The Committee set up by the federal government to revive the fund may not be unconnected with the recent revelation by the Minister of State for Industry, Trade and Investment, Hajiya Aisha Abubakar, when she received a delegation from the Corporate Council on Africa in Abuja, that the Federal Government would revive the manufacturing of textiles in Kaduna this year.

At its peak between the 70s and mid-80s, the textile industry used to be one of the most important sectors of the Nigerian economy. Aremu said at the peak of its investment performance in the early 1980s, the industry had 175 mills which employed between 600,000 and 700,000 workers, ‘thus making the industry the second largest employer of labour after the civil service.’ By 2008, only some 24 mills were still in production at very low capacity utilization rate, indicating a decline of over 90 percent in the number of mills in production in a short span of seven years.