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The textiles industry of Nigeria is the third largest in Africa after Egypt and South Africa.5 The industry, which currently accounts for about 25 per cent of manufacturing value added, has passed through various phases of growth. IS policies induced steady growth in the 1960s, which gave way to rapid growth, averaging 12.5 per cent, in the 1970s when the economy was booming. The recession of the early to mid-1980s took its toll: the cumulative textile production index (1972 = 100) declined from 427.1 in 1982 to 171.1 in 1984. The industry recovered in the late 1980s, achieving an annual growth of about 67 per cent between 1985 and 1991, with synthetic textiles alone accounting for about 80 per cent of the recorded growth.

The industry is the largest employer of labour in the manufacturing sector. It currently accounts for about 25 per cent of total manufacturing employment. Capacity utilization improved between 1986 and 1991. And, with the backward integration programme instituted by many firms in the industry following the strict government directive on the issue in the mid-1980s, the level of domestic sourcing of raw materials was put at about 64 per cent in 1991, a steady improvement from 52 per cent in 1987 and 57 per cent in 1988.

The industry is mainly controlled by large private-sector firms, often with substantial foreign participation. Nigerian law has limited this to 60 per cent of the total equity of textile sector firms hut the drive for more capital inflow under the present management philosophy lead to an upward revision of the ceiling. The major foreign investors within the industry are from Hong Kong' India, the UK, Liechtenstein, the Netherlands, the US, Japan and Columbia.

Current information on installed machinery is not available but, as at 1987, the 37 textile firms in the country were operating 716 000 spindles and 17 541 looms. However the output of the sector has never exceeded 55 per cent of annual domestic consumption, allowing for a thriving trade in imported (mostly smuggled) textiles.

Technological gaps in the industry are illustrated by the fact that 12 mills, representing 61 per cent of the total capacity, spin only cotton. Although nearly 25 per cent of existing mills are integrated mills, modernization of spinning capacity is generally lagging behind technological improvements in the weaving mills. Labour productivity in spinning operations is not high because of low capacity utilization and inadequate provision for on-the-job training.

Low productivity levels limit export possibilities. Nevertheless, the substantially liberated economic environment and the opportunity Nigeria offers to avoid quota restrictions under the Multi Fibre Agreement (MFA) - which is not applicable to Nigeria - have induced some foreign entrepreneurs, mostly from Asian countries, to establish export-oriented plants.

History of firms in the sample

Origin ownership and structure

The two firms covered by the survey show similarities in ownership structure and, to some extent, achievements but they differ considerably in age, scope of operation and export experience. Aflon Nigeria PLC (ANPLC) was incorporated in 1985 but commenced operation in April 1988. It is a wholly owned subsidiary of Afprint Nigeria PLC, a textile company which in turn is part of the worldwide Kewalram/Chanrai group, which has business interests and social commitments in North America, the UK, West Africa and South and East Asia.

Spintex Mills (Nigeria) Limited (SMNL) was established in 1980 and began commercial operation in June 1982. It is a 100 per cent subsidiary of Sunflag (Nigeria) Limited, a textile company which manufactures knitted fabrics and ready-made garments, with substantial interests in Kenya, Tanzania, Cameroon, India and the UK.

Both ANPLC and SMNL were conceived of as the means of meeting the yarn requirements of their parent companies. SMNL's establishment was influenced by the announced intention of the Nigerian government in 1979 of not only discouraging the importation of yarn but also imposing a blanket ban on it. Both firms have achieved such tremendous expansion that they now export yarn as well as selling on the local market. Both companies have at different times been accorded pioneer status, which entitles them to a 5-year tax holiday under the provisions of the Industrial Development (Income Tax Relief) Decree (1971). Since they were both set up in compliance with the provisions of the Nigeria Enterprises Promotions Decree of 1977 there is a considerable Nigerianization of manpower in both organizations.

Each of the companies is run by a policy board and a professional management team. The ANPLC policy board comprises four members, of whom three are expatriates. Two of the five board members in SMNL are Nigerians. The professional management team of ANPLC consists of the mill manager, the chief engineer, the development manager and the spinning technologist, along with the personnel manager, the accountant and 13 other senior staff in the areas of production, engineering and administration. In the case of SMNL, the management team comprises the managing director, financial director, chief technological executor, export manager, finance controller, two mill managers, personnel manager, chief accountant, chief of shipping, chief of banking and marketing officers.

Performance and development

Since its inception, ANPLC has focused exclusively on the production of cotton yarn, dividing its yarn output simply between finer and coarser counts. Its success story is reflected in the statistics provided in Table 9.6, which reflects astronomic growth in the asset base and modest but respectable growth in sales turnover, operating profit and the number of employees.

Cotton lint remains the only raw material. The company is able to obtain sufficient virgin cotton of the required quality locally to meet 25-35 per cent of its requirement for exports and all of its requirement for domestic sales. The balance of its export requirement comes from imports, on which the company enjoys a Duty Draw Back benefit.

The SMNL appears to be at least a step ahead of ANPLC, having successfully diversified its output. It now produces spun cotton, synthetic yarns, polyester filament yarn and sewing thread for domestic and industrial purposes. The plant for the manufacture of polyester filament yarn was commissioned in 1985 and that for sewing thread in 1988. Because of its diversified output, more types of input are used in the production process. The main types are polifis cotton, polyester chips, polyester fibre, viscose fibre, coning oil and spin finish oil. Apart from cotton, polyester fibre and viscose fibre, which were used in the production process between 1981 and 1986, the others were later additions, used in polyester filament yarn and sewing thread. Of all the raw materials, only polifis cotton is supplied by both the local and import markets. All the other raw materials are imported.

Table 9.7 illustrates the growth of the company, which has achieved even more resounding success than ANPLC as turnover, asset level and employees have all grown tremendously.

Table 9.6 Performance indicators for ANPLC

  1989 1990 1991 1992
Turnover 49.0 63.3 60.9 101.5
Operating profit (N m) n.a. 0.8 0.12 2.25
Total assets (N m) 9.0 6.1 39.3 92.9
Employees 137 139 152 166

Source: Company records

Table 9.7 Performance indicators of SMNL

  1983 1985 1990 1992
Turnover (N m) 8.7 59.5 349.0 716.0
Total assets (N m) 16.0 11.0 174.6 304.3
Employees 250 480 909 1 834

Source: Company records

Export history and performance

ANPLC's export activities began in 1991 with export sales of US$1.6 million or N16 million. This rose to $4 million or N51 million in 1992. Cotton yarn is the company's sole export item. The market channels used by the company are agents which are its associate companies and which bear all risks relating to credit. The target market is the developed countries of Europe and North America, with France, Belgium, Germany, Italy, the UK and the US constituting the major focus.

SMNL entered the export market for the first time in 1987 with cotton yarn and polyester filament yarn. Sewing thread joined the list in 1988. The export sales in 1987 amounted to US$784 464. This rose and fell sharply in succeeding years, with as little as $25 912 in 1988 and as much as $4.3 million in 1992. In the years in which there was a drastic fall in export value, i.e. 1988 and 1989, the company was actually withdrawing from the export market. Company sources explain this move in terms of the relatively lower profitability of export business vis--vis the domestic market, which was experiencing a chronic shortage of yarn in the period. The export arm of the company was reactivated in 1990 following the massive depreciation of the Naira, which significantly improved the profitability of the export sector. The company also saw the development of its export business as a way of widening the market segment of its products and as a long-term development strategy.

The company employs two market channels for its export business. The first is the use of export agents in connection with export sales to the UK. These agents often assist in distributing to other European countries. The second channel is direct sales to buyers in Cameroon. Italy and Belgium. In this case, the company establishes the link with customers through embassies and chambers of commerce.

External factors affecting export growth


The problem here is one not of access but rather of affordability. Companies cannot afford high-level exposure in the conventional loan market because of the unusually high lending rates, which have not fallen below 45 per cent for over a year now. Assistance with finance usually takes the form of a soft loan from the parent company and a special export financing scheme such as the African Development Bank's sponsored Export Stimulation Loan (ADB/ESL), which is administered in Nigeria by NEXIM. However, occasional long application processing times at NEXIM often reduce the attractiveness and benefits of loans under such special financing schemes.

Raw materials

Domestic cotton-seed production in the country has continued to be inadequate for domestic demand. The domestic cotton output fell from 82 000 tonnes in 1976/77 to 19 900 metric tons in 1982/83. The present level is an estimated one-tenth of that achieved during the mid-1970s. Given the continuous expansion of the activities of existing firms and the growing list of new entries into the industry (the country now has over 46 large textile firms, as opposed to fewer than 35 in 1980), there is obviously price pressure. This implies increasing costs of production as imports are very expensive under the present exchange rate regime.

ANPLC used to meet a substantial proportion of its local cotton requirement from its sister company, Afcolt Nigeria Limited, which engaged in cotton-seed contract farming. However, the Afcolt experiment was halted some time ago due to accumulated losses. In essence, ANPLC, like SMNL, now procures its cotton from the open market and through importation. SMNL is in a more exposed position, as virtually all of its major production inputs, including over 50 per cent of its cotton requirements, are imported.


The country's current inflation is unprecedented in its 33 years of independence. Available statistics put the current price inflation at about 50 per cent. Almost every aspect of the operations of the firms - labour, raw materials, utilities, equipment and rents - is affected, with the consequences eventually expressed in the cost of production.

Infrastructural bottlenecks

The infrastructural amenities in the country are in a sorry state and are grossly unreliable. As a result, both companies have had continuously to make arrangements for treated water, compressed air, standby power generation and storage and warehousing facilities.

All of these divert funds from actual operation and ultimately increase the cost of production.

Bureaucratic and policy obstacles

The primary effect of bureaucratic delays on the export activities of the two companies is to reduce the value and effectiveness of export incentives. Take, for example, the Duty Draw Back Scheme. The aim of the scheme is to reduce the overall cost of production of manufactured exports by providing for a refund of duties on raw materials, including packing materials used in the production process. In reality, it would take a very lucky firm one year after applying to get the refund. Given the volatile nature of the economy under the present management philosophy, the refund when it is eventually received is of considerably lesser value in view of the constantly rising cost of capital and continuously falling exchange rate. This has prompted SMNL to suggest that the Duty Draw Back rates should be revised in line with the change in exchange rates between the time imports are paid for and the time the refund is paid out.

Another disincentive identified by the two firms has to do with the customs officials at the point of shipment. They change the official stamps and recognized signatures used on export documents, which have been internationally approved, without informing the international bodies involved. This often leads to the rejection of a document or a considerable delay.

Technology, marketing, investment, productivity and human resources

Characteristics of demand in the target market and managerial response

Firms operating in the export market for textile products appear to be price takers, the price being determined by demand and supply factors in international markets. In the opinion of SMNL, the demand for its products will always outstrip the supply. This guarantees an increasing or at least constant market share over time. However, the ANPLC revealed that in the last two years its export selling price fell from an average of US$2.80 per kilogram to US$2.58 per kilogram, which suggests that the market could sometimes be over-supplied and the price may need to fall for the market to clear. Furthermore, an over-supplied market enables buyers to compare quality and choose from a wide range of product types. This clearly suggests the need for some elements of marketing.

The two firms have different market penetration strategies. For the ANPLC, this contains:

• credit facilities of 45-60 days.

• discounts of 3-5 per cent.

• door delivery.

• replacement of yarn where there are quality problems.

• prompt settlement of claims.

In contrast, the SMNL practices niche marketing, which entails searching for a small market that is not already penetrated by another firm, where it can operate in a seller's market. Hence it does not give any incentives other than normal quantity discounts to customers. It has no door delivery policy, leaving customers to arrange their own transportation.

Investment strategy and capability

The ANPLC's major investments have been for new plant. Decisions are usually taken on the basis of IRR (internal rate of return) and payback period selection techniques. It has adequate in-house capabilities to carry these out. The sources of finance are soft loans from the parent company, special financing facilities e.g. ADB/ESL, tax exemptions under the Pioneer status provision of Income Tax Relief and, to a lesser extent, bank credit (see pp. 262-3). It has recently been experiencing some difficulties in obtaining foreign exchange from conventional sources because of hoarding and rationing by banks. It has therefore resorted to using its export proceeds. The balance at any time is covered forward. In addition, it is considering changing its sales strategy so that only 50 per cent of export production will be sold forward and the balance will be on a spot basis.

With SMNL, investment decisions transcend new plant acquisition and include lease finance, trade (import) finance, cash management, asset management and portfolio management. Whereas asset management principally relates to the financing of the factory and equipment, portfolio management basically reflects the multinational aspect of the business whereby funds could be transferred internationally to maximize returns. Obviously, such decisions are governed by the economic climate in different countries. Like ANPLC, the SMNL has adequate in-house capability to handle the various investment issues. Its sources of funds are generally similar to ANPLC's.

Technology and productivity

Both ANPLC and SMNL have adopted modern process technology. For cotton yarn production they both use open-end spinning, otherwise known as Autocoro. This technology has several advantages when compared with conventional ring-spinning technology. First, higher production rates are made possible in this case by the use of higher rotor speeds. Second, conversion to yarn from fibre takes place in a single stage instead of the two-stage process in ring-spinning. Third, the size of the finished package is such that it can be used directly by end users without rewinding. Fourth, there is a uniform, unvarying quality. In addition, the spinning machines are fully automated from the placement of empty starter packages to the doffing of fully wound packages. Broken ends are rare and when they do occur they are detected, pieced together and restored to production by an electronically controlled robot which patrols each machine. Finally, production data is logged in a dedicated computer which produces process control reports on demand.

The preparatory capacity in the ANPLC's plant is of the order of 12 tonnes per day. With SMNL it is 16 tonnes, although the company only produces around 11 tonnes per day.

Apart from its open-end spinning process, SMNL also uses a ring-spinning process which, though it is also automated, consists of more processing stages. In addition, it uses a different process technology for the production of polyester filament textured yarn. Most of the technology used comes from Europe, with Germany and Switzerland being the main suppliers of machinery and equipment.

The measure of productivity employed by ANPLC is output per unit of marginal cost of technical production. The productivity of the firm is quite high in terms of both the local and international markets. This is primarily because its plant is fully automated.

Although the use of modern production technology by SMNL has tremendously improved its productivity in the local market, it is yet to achieve a competitive productivity level abroad. The problem lies in the increasing cost of production. In the opinion of the company:

manufacturing product of highest quality will necessitate further increases in the cost of production which may not be absorbed by the local market, which accounts for about 85 per cent of company's total produce. The local economy is not particularly quality conscious, hence there could be a backlash in demand from any attempt to pass quality-induced increases in the cost of production on to customers.

Production linkages and subcontracting

Both the ANPLC and SMNL produce their own supplies and do not subcontract production to other firms or process for other producers. Their interaction with competitors stops at the level of lobbying government on issues perceived to be crucial to the growth of the industry. Usually, such cooperation comes under the umbrella of the textile and manufacturers' group or the spinners' forum of MAN.

Both companies have binding agreements with their local raw material suppliers. In fact ANPLC distributes improved varieties of cotton seedlings to farmers to ensure a supply of appropriate quality raw materials, an arrangement that can be described as pseudo-contract farming.

Both companies have binding agreements with their equipment suppliers because of the specialized nature of the equipment, which means that spare parts can only be obtained from the suppliers.

Human resources and manpower development

The composition of manpower at ANPLC is shown in Table 9.8, which shows a pronounced jump in labour growth between 1990 and 1992, which was the most successful operating period for the company. The human development policy of the company has basically remained unchanged since its inception. It comprises a 4-week induction course for new recruits to middle or upper management, during which the employee learns to work the system. They then enjoy regular further training. General categories of staff are trained on the job, though those studying for professional examinations in their vocation are encouraged with an off-duty 'time allowance' and generous funding in the form of the refund of examination fees and books purchased. At least two technical staff are sent overseas each year for training by the manufacturer of the company's equipment. Recruitment of new employees is usually effected through a standard merit procedure involving advertisements and interviews, with outside consultants assisting.

Workers' remuneration takes the form of salaries and an end-of-year bonus. Salary increment and promotion are often tied to productivity. The general conditions of service in the organization appear reasonable, going by the practice in the industry. Workers get a free lunch, free medical attention and treatment, fairly generous housing and transport allowances and retirement benefits.

The statistics for SMNL presented in Table 9.9 suggest a more consistent growth trend in manpower. The human resources and manpower development policy of the company comprises both local and overseas training. The overseas training is usually reserved for technicians who attend the equipment supplier's training centre once every two or three years. The local training is usually meant for the office, administrative and professional workers, and consists of short and long diploma courses once every two or three years, either in-house or in organized centres such as the Kaduna Polytechnic.

Most senior management staff are from India and are usually recruited there by the company. Senior staff from the local economy are recruited by interview. In most cases, junior workers are recruited through contacts.

Table 9.8 Manpower statistics for ANPLC

  1986 1990 1992
Unskilled labour 3 5 10
Skilled labour/staff 116 116 131
Middle management 13 13 19
Upper management 5 5 6
Total 137 139 166

Source: Company records

Table 9.9 Manpower statistics for SMNL

  1985 1990 1991 1992
Unskilled labour 400 800 1250 1400
Skilled labour 30 35 200 350
Management 50 68 84 84
Total 480 903 1534 1 834

Source: Company records

The remuneration system is similar to that of ANPLC, i.e. usually in the form of a salary and end-of-year-bonus. Salary increments and promotion are often tied to productivity. The general conditions of service match those of ANPLC.

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