Nigerian producers have not scratched the surface in terms of meeting the demands of Nigerian consumers, alluded to Chuka Mordi, CEO of Ellah Lakes Plc.
In an exclusive interview with Nairametrics, Mr. Mordi shared his vision for his rice production business and some of the challenges affecting the agribusiness sector of the Nigerian economy. Excerpts:
You recently signed a pact with the Enugu State government via a joint venture for the development of the Ada Rice Company and Plantation. Can you share the details with us?
We are transforming Ada Rice Plantation into a Staple Crop Processing Zone (SCPZ) in Enugu State. We will produce and process rice with the participation of hundreds of indigenous farmers under the local outgrower program. We also plan to develop an animal feed plant and an ethanol processing plant at the Adani site, which should create thousands of jobs over the next two months.
In the rice production sector, the challenges are the inputs that have to be imported, including pesticides and fertilizers and when you have an unfavorable exchange rate, these inputs are more expensive to import. Which means, in terms of competitiveness, you are competing with importers who have lower production costs.
What is your opinion of the largest FG rice pyramid that was recently unveiled in Abuja and how important is it to the rice industry and the average Nigerian?
I’m not sure what that says to the average Nigerian. The rice pyramids are indications of rice pyramids and that’s it! I’m sure when you grow rice you would want to increase production. I don’t know if that says anything specific to the average Nigerian other than that we are trying to increase rice production in Nigeria.
What I would say is if it encourages people to get into farming, if it encourages people to understand that if done right, farming can be very productive and profitable, then yes, it ‘is a good thing.
You seem to be doing a lot of expansion – Edo, Ondo and of course Enugu states. What is the driving force behind this?
Even though 2021 was difficult due to the covid pandemic which spread from 2020, we emerged from its challenges and closed on a high note as strategically we achieved our target for the year, by adding 50,000 hectares in Ondo State to our balance sheet during the Ada Rice transaction which was very helpful, also helping to transform the business. We look forward to significant growth from the company and all the sectors in which we participate; also adding a significant number of employees to boost employment in the states in which we are expanding. All in all, I look forward to a very enjoyable 2022.
There is no doubt that maintaining a business in Nigeria can be very difficult. What challenges and obstacles are entrepreneurs likely to encounter when venturing into businesses like yours?
I don’t know if I would call them roadblocks. There are challenges that companies want to overcome regardless of their environment. Western Europe, North America, Africa, Latin America, everywhere have their own challenges. Nigeria has its challenges too, but I think after a year and a half of understanding the particular challenges here, we are dealing with them adequately. We raise more debt, more equity; the capital market is not what we would have liked it to be, so we had to be innovative with the structures we use to raise funding. But I think by the end of the second quarter of this year, we would have closed most of the financings that we want to do.
We are engaged with a number of DFIs and multilateral institutions, so I believe that by the second quarter we will have completed raising all the financing we need for our growth. The rest is operational. You must learn the peculiarities of each area. For example, if you grow rice in Zamfara and rice in Enugu, you will have to adapt to different local conditions and different working conditions, with smart people who understand how to adapt to different circumstances.
Given your expansion into the previously mentioned states, what are the employment projections?
From a smallholder perspective, the number of hectares we operate, we think we could easily employ 10,000 people in our operations space – on a casual basis, on a contractor basis, etc. We also envision a significant number of full-time, part-time jobs in administration, operations and ancillary services.
Okomu Oil and Presco Plc have shown what is possible in the oil palm space in Nigeria. Despite these two giants, Nigeria remains a net importer of palm oil and its derivatives. What are you doing to explore more opportunities?
I think the opportunities are pretty obvious. Nigerian consumption is growing at a rate unmatched by Nigerian production. The population growth has been significant and we have simply not increased the production that we have. So if Okomu and Presco double their production tomorrow, we would still need to import palm oil because of this big gap between supply and demand. We just don’t have enough supply. It’s an obvious place for players to grow, and I think the size of the market means there’s room for everyone to grow. When you have a large space, it just means that all players can help each other to improve the quality of their offerings in the market.
We have learned that there are plans to list Ellah Lakes on the London Stock Exchange. Is it true ?
We have received permission from our financial holders to do so. So any further developments we will announce through the Nigerian Stock Exchange. Hopefully in the very short to medium term.
How would you rate the performance of the Nigerian stock market over the past year?
I think you have to understand the context of the different listed companies, the stock market and the different sectors. That way it would be understood why certain sectors were depressed because of the nature of what they do. It is not an indication of the whole economy because some sectors have also performed very well.
If you were in an industry where you had to raise your prices significantly because of inflation, things were pretty tough. If you’re in the consumer goods business, like making beer, for example, you’re in a good position because people still drink beer. But many service-sector businesses have been depressed because their revenue is based on serving people who come to their establishments.
It’s a complex analysis and there are a number of variables involved in analyzing this. But I think overall there is room for improvement. The main thing is to try to increase the depth of the stock exchange in terms of investors. Additionally, we need to involve more retail investors in buying stocks and shares on the stock exchange. What they need is to be sure that there are enough shares to buy and that there is liquidity in the market. It’s not as good as it used to be in the days of the stock market, but I think we’re totally going back to it.
Surprisingly, in the GDP growth figures recently released by the NBS, the agricultural sector did not do as well as in the previous quarter. What do you think could have been responsible for this?
Very simple. Covid. Yes, it was 2020, but it fueled 2021. There was also less consumption. People weren’t going out and eating and drinking as much as usual. Basically, it’s reduced consumption. Also, because of the restriction of 2020 and the start of 2021, a lot of people were not going to their farms, so there was also a reduction in production. I think it was inevitable that it would end up fueling the economy. Also, not to mention the insecurity in some parts of the country.
It was understandable and expected. I think we can expect growth now that circumstances have changed, which is good.
What are the main things the government can do to help agribusinesses in Nigeria?
I think they are already part of it. The extension of CBN credit at a single digit rate to try to provide some kind of credit subsidy to the sector is a very important way to boost the sector. The complementary aspect of this is how start-up companies find equity instead of just going into debt, because at a double-digit interest rate you have to grow significantly to grow your business. And then you also have interest payments that you’re trying to meet while trying to grow a business. So, instead of reinvesting, you pay off your debts.
Nevertheless, the CBN is doing its part so perhaps the rest is tax breaks on investments in agricultural space, which would encourage people to invest in the sector. I think equity is the most important thing if you’re trying to grow an industry and if you want to grow significantly.
What is your aggressive growth target for Ellah Lakes in 2022?
We have started to industrialize all of our processes and it is very important to achieve economic scale as quickly as possible and ultimately use it as a stepping stone to becoming one of the biggest companies in Nigeria. We are pursuing aggressive growth and consolidating the businesses we currently have in our portfolio.