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Tariff review may not revive steel companies – Stakeholders

By BusinessNews Staff on April 20, 2014

Stakeholders in the steel industry have said that the recent review of tariff on imported steel materials and products may not necessarily revive some of the steel companies that are in comatose.

The Federal Government had recently acceded to the request of steel manufacturers to drop the duty on raw materials.

The changes were contained in a circular from the Ministry of Finance, dated January 23rd and signed by the minister, Dr. Ngozi Okonjo-Iweala.

According to the circular, duty rates on raw materials that include aluminium waste and scrap will henceforth be imported at zero per cent while rates on finished products such as steel profiles have been reviewed upward to 35 per cent.

While the move has been applauded by many, some stakeholders say it may not make much impact in the industry as most of the Federal Government-owned steel companies producing in large quantity have remained dormant, leaving the industry to a few private companies owned by non-Nigerians.

The Head, Interim Management, Delta Steel Company, Mr. Chilaka Uwakwe, said as much as the tax relief was timely and commendable, it would not solve the problem of steel production in the country.

Investigations by The PUNCH revealed that Delta Steel Company currently has an installed capacity of one million tonnes, expandable to about 2.3 million tonnes per annum, while Ajaokuta has about 1.3 million, expandable to 5.2 million tonnes per annum.

According to Uwakwe, rather than help to boost production in these government-owned steel companies, the tariff review will create an avenue for capital flight.

He added that this would be so because the companies had been commercialised and now run by foreign investors.

He said, “Just like what happened during privatisation, the people who will benefit more are the foreigners because most of the steel manufacturers we have in the country now are owned by them. So, more or less it might create an avenue of capital flight; it is not as if the money will be well circulated within Nigeria.

“The DSC, for instance, didn’t go down because we could not produce; we were producing. It went down because the Indian company that acquired it borrowed N32bn from the bank and was unable to pay back and when you add the total money they owed, we are talking about over N82bn. We did produce and export but the proceeds were not returned to the country; it was used as an avenue for capital flight.”

But the President of the Lagos Chamber of Commerce and Industry, Alhaji Remi Bello, stated that from a general perspective, the manufacturing sector would benefit from the review as it would determine the cost of production.

Although Bello did not agree with the issue of capital flight, he said it would expose the already challenged government-owned companies to unhealthy competition.

“It should be good news for companies such as Ajaokuta Steel Company and others but it also won’t help them much. This is not the first time we will have a duty-free regime but it has not made them better.

“If the companies in comatose, for instance, are allowed to bring in raw materials at zero per cent duty like other privately owned steel companies, how does it help their production? They will only be exposed to unhealthy competition.”

Uwakwe added that what the sector needed was not just a review of import duty but the right mindset to manage the system.

He said, “The problem is the mindset and the way we manage our system; now power has been privatised to individuals, and they are already looking for profit when they have not done anything even upgrading; they have not invested anything either before asking the citizens to pay for their services.

“How many of the steel companies in Nigeria are producing enough for consumption, let alone exporting? The policy is fine but I don’t think it is going to change anything until the main plants start functioning.”

Despite the shortcomings that stakeholders saw in the policy, the Chief Executive Officer, Nigerian Aluminium Extrusions Limited, Mr. Ishola Iyiola, said the new tariff would address the imbalance in the industry, and described it as a welcome development.

He, however, said that adequate provision must be made to protect the tariff so as to sustain existing investment and attract more foreign direct investment into the country.

[Punch]

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