Okomu Oil Palm Company Plc recorded a stellar performance in 2023 despite the challenges faced by the Nigerian economy that affected businesses operating in the country. To find out how the company is able to keep its head above water despite a tough operating environment, a team of The Nigerian Observer Editors spoke with the Managing Director of Okomu Oil Palm Company Plc, Dr. Graham D. Hefer, in Benin City, and he touched on a number of other issues, including waivers granted to importers in the sector, some policies of the Edo State Government that have had positive impact on businesses, among others. Excerpts:
Okomu is about 50 years old. If you look back at these five decades, a lot of companies came up in Nigeria and they folded up. Today we can’t even remember some of them. What do you think is standing you out in this tough business environment?
We always have this philosophy to look after the people, the planet and our profitability. If you get that drive generally, you will love to see the next phase. So, we try to look after the people we have working for us, and not just the people working for us but also, we look after our stakeholders, both the internal and the external – our communities, the government, the shareholders, among others. So, if we work together well with all the people who make up the different areas of concern to the company, then we are already one-third of the way there.
The second thing is the planet. For Okomu, our soil, our water and our environment are critical for our sustainability. If we do not look after them, we will not see the next decade. If we lose our soil to the water and do not have water for our plants, we are in trouble. So, that is the other one that we need to look after and that is what we do.
The third one obviously is to make sure that we are profitable. Even if there are tough times, we need to see how in those tough times we are able to survive. I mean, we look to make sure that our costs are under control. So, these are important things and basically, we put all three of those together and I think that is what makes the company a sustainable company and amounts to the years you have stated.
In 2023, the Federal Government came up with a number of policies that have affected businesses in one way or the other. Could you quickly just do a review of some of those policies and how they affect businesses in the agriculture sector like Okomu?
I think you are talking mainly about the removal of the fuel subsidy and naira devaluation. If you look at the removal of the fuel subsidy, it obviously has a knock-on effect throughout the country and irrespective of the company that is involved, it is either you are using PMS or AGO or both. And for us, yes, it increased our cost which we had to take into account and unfortunately, it has had a negative effect. It has to a degree contributed to the inflation that we see because there is no other way we can do it other than to try and pass on, if not all, at least some of those costs to our customers. But we are also aware that our customers have a very restricted disposable income; disposable income for people is very limited because everybody is under inflationary pressure. So, yes, that has a negative knock-on effect.
If you look at the devaluation of the naira, absolutely as well it has affected every company in the country. Why? Because with the devaluation, it just makes it more expensive for us to import parts and machinery that we may need, so it may be difficult for one to operate in an environment like that.
Luckily for Okomu, we have rubber which we export so we are able to bring back the forex to utilize so that it protects us and buffers us to a degree. It still doesn’t mean we do not have issues because you know it is not just the devaluation, it is actually finding the money.
To find the forex is very difficult in an environment where there is such a limited amount of it going around and that does affect the company as well but luckily, we have been buffered to a greater or lesser extent by our rubber exports. I will say this is a good time to export because you do have these kinds of things and I think if a company is able to export a product, it does make it an advantage for the company. In general, inflation is a major issue not just for Okomu but for everybody. I think the policy being implemented by the government is having inflationary effects right now, one hopes that it will start to show positive results in the declining rate of inflation. Hopefully, forex will be more accessible. Also, I am hoping that once inflation dampens, the prices of fuel will also dampen. Also is the domino effect.
Stakeholders in your sector have complained against waivers given to importers and the argument has always been that we are not meeting local demand, that is why we have to import. I am aware that some stakeholders are saying these indiscriminate waivers should stop. What’s your take?
Waivers are a thing that we in Okomu do not favour at all because, first, we embrace the law and if you look at it, what does the law say? It says that for crude palm oil (CPO) which we at Okomu manufacture, there is no ban on it so anybody can import it at any time. However, if you imported from an ECOWAS country, you have to pay the ETLS which is around 5-10 per cent depending on where you get it from. If you do not, then you will pay a 25 per cent levy and 10 per cent duty, 35 per cent in total. You are not banned from importing it, so why will anyone want to get a waiver then? Let the company carry on and import it and pay the duties as required. In terms of olein which is processed and refined, there is a total ban on that, so it depends on what you are talking about in terms of waivers. Is it waiver on the importation of CPO or olein?
Now, crude palm olein is not crude; it has had some refining and based on this, it should be on the banned list. Unfortunately, Customs does not check. So, we are urging Customs to be far more diligent. When an importation comes in first of all and it’s waivered, why is it waivered? Who gave the waiver? Secondly, if it isn’t waivered and it’s coming under crude palm olein, then it should be banned. It should not be using the crude palm oil HS Code.
There are ways of testing it, so we are asking the Customs to test it. In that regard, not only that but the quality of the product that is coming in should also be checked. This is a food product and we fear that these sometimes are not edible for people because coming in it wasn’t checked diligently enough. So, that is where the problem lies.
Some practitioners are also calling for the establishment of Palm Oil Development Council of Nigeria. What do you think about that will do for the industry?
One of the reasons for forming this council for the oil palm industry is so that everybody has input. We as the upstream producers of CPO understand that there is not enough CPO for local consumption. We have no problem with that. We feel that the Oil Palm Council, when we sit together, can formulate the system whereby the local consumers and end users can pick up all of the products locally and then through the council, the council says, ‘Okay, you Mr A who is an end user have taken up what you stated that you wanted to take up locally, you are now permitted to bring in whatever quantity that remains for your complete needs’. It will make things a lot more transparent. I think it will create some kind of serenity within the system. Then we will not be looking at people going to government and asking for waivers because they will do it through the Oil Palm Council. And then, we can say this is the law that we the Oil Palm Council have articulated and put in place, so let us see where we go. I think that will hopefully bring some stability and transparency to the sector.
Will it also help in reducing the rate of adulteration in the sector?
Exactly! Because that comes as part and parcel of it and NAFDAC will have to be included because they are very important in that regard.
Throughout last year, the benchmark interest rate, the Monetary Policy Rate, was high and is still high because, according to the CBN, that was its own response to the ravaging inflation in the country, and we understand that businesses will also need some facilities from the banks. How are you coping?
Most of the countries in a high inflation environment increased their interest rates to dampen the pressure. Now, it is a difficult environment, especially for agriculture companies because agriculture companies require a lot of input and sometimes the returns only come back much later, and that’s the same for us in this industry. If you look at the oil palm and rubber sector, you only start making or generating an income three years after you have planted your farm and maybe six or seven years after rubber has been planted. So, in that time you are not having any income and if you have taken a loan, you can imagine the interest in that regard. That’s why previously, the CBN had these initiatives of subsidized interest rates for those companies and agriculture institutions that wished to do agriculture. The CBN understood that high interest rate environment was not able to allow agriculture to function because you just can’t do it. Now, there are very few of those initiatives based on the fact that there has been a change in the philosophy of CBN.
What we do is that we try to keep debt as low as possible; we try to use only what we have, internally generated revenue, in terms of funds and if we can’t do it, we don’t do it; it’s as simple as that. To me, that is the only way one can win.
Don’t you think it will affect investment in the sector?
It does. If you look at the capital cost in beginning a farm, it is huge. You know you are looking at about $5,000 to $6,000 a hectare. We cannot even find $5,000 per hectare and then you can imagine the interest on that. It is crazy and that is why in most countries, agriculture is subsidized to get going because initially, to start is so high and it’s very difficult for anybody, even a company, to start it with what one faces in terms of getting an agriculture or agrarian economy working.
I think the government understands that. The the Edo State Government, for instance, realizes that agriculture will boost the economy and I think that the state government has done fairly well in putting together things such as the ESOPP which got everybody together and thinking in the same line. I think that you will see those who will start to take up a life of their own and that is where we should be aiming for. If you look at annual crops, you get a return back every year but if you talk about tree crops, it is very difficult because your return on investment only comes seven to 10 years later, and that is the fundamental crisis that we have in the industry.
You mentioned the state government and I would like to ask, what specific policy or policies of the state government in the last seven years have had the most positive impact on your business?
Talking in terms of our company per se, the structure that the government has brought into the agriculture sector has helped a lot; the manner in which government is doing business, we find a lot more readiness from the government institutions to work with the companies. The reports, the tools, the manner in which the government has put together various departments now are far more constructive. We are comfortable and happy. We have disagreements, of course, you know, we understand that and then we go ahead and discuss it, figure it out.
With the departments, when we ask for documentation, we get it. First, one of the best things that has happened is the EDOGIS. It has certainly helped our company and other companies in making sure that the boundaries are now within the government institutions so that if there are any disputes, it is easy: we just go to EDOGIS and say, ‘Please confirm who the proper owner is’, and that has made life a lot easier.
Investors need stability. I don’t want to wake up every day finding someone saying, ‘No, this is my property’, especially in the agriculture environment. So, if there is security, that is a very good stabilizing factor not just for us but for everybody in general, even the smallholders. If the smallholder now has his parcel of land, he has an asset. He can go to the bank if need be and say, ‘Give me money, here is my asset, you can take it as security’. So, that happens in an environment which is stable and not just only gives investors peace of mind but financially, the banks are going to say, ‘Now we have an asset we can hold as security’, and that builds even more confidence. Then you start seeing the third parties, the third line companies – realizing that the bank is now the key to finance. We, for instance, can offer advisory services and have a guarantee of the product, which we are doing anyway to a degree with our smallholder farmers. So, that starts to grow this whole agriculture base that we can work from and in that regard. We are very happy with the investment made by the government into the departments.
We have also started to see that when we pay our taxes, we see some good infrastructure projects in return. That is very important. We don’t want to pay our taxes and be asking, ‘What happened?’ We are always seeking for more, just like they are asking for more taxes. You know, when more people invest, you make more money, then you pay more taxes. I mean, our company at the end of the last financial year will be paying more than N12 billion in taxes.
In general, I think the government has done a very good job in organizing the ministries; people that are chosen have become very proactive, they talk with us, they ask us if there is any problem, they have a list so nothing gets lost anymore and generally, when we ask for something it comes back to us so that we can know where we can defend ourselves if need be or we can work with the government to increase our area and we are able to get things done.
In spite of the challenges faced by the country in 2023, Okomu Oil managed to record a stellar performance. What was the secret of last year’s performance and how do you intend to improve on that this year?
Partly, it was due to the fact that we had good yields. Secondly, we also have good management; my management and staff work very hard to keep cost down to make sure that what we did, we did right. And lastly, my board were very sensitive to the fact that things were not easy and they also made sure that the environment in which we work was conducive to have been able to get that kind of results.
Obviously, the prices were good. So, it was a perfect storm for us in that regard. We are very lucky due to hard work. Going forward, we hope that there is another perfect storm every year. Obviously, prices may not be moving along with disposable income as we have been seeing, so we may see that the margins may be slightly squeezed this year, but we are hoping that in general and, of course, our people carry on with the good work that they have been doing.
This is 2024. Looking back at the past year, what’s your outlook for this new year for the company, the agric sector and Nigeria?
As I just mentioned, if you look at where we are at the moment with the high inflationary environment, things are difficult, there is no doubt about that. I don’t think that people will be able to carry on paying for increased prices for products going forward. People’s earnings are not rising as fast as inflation is in general, so as a company, we are looking at making sure that we try and keep our cost as low as possible and and keep our mindset as the same, not to borrow money so that we have to pay debt off and basically want a better phase.
This year is a waiting year because hopefully, we are going to see the government moving forward with other initiatives that will help the environment when the inflation comes down, where devaluation is a thing of the past, where the official and unofficial rates are one, and then remain at a level where things are optimum for investors to invest in the country and also for investors to be able to obtain forex when they need it and how they need it. One of the major limitations facing investors coming from abroad is that they have a lot of difficulty repatriating their profit and that is critical. You might imagine somebody who will put billions of naira and can’t get his money back, then you know you have an issue.
Whilst our board and some of our shareholders are overseas, they are prepared to wait, they are not in a hurry and it is not a short term but in a lot of cases, shareholders are looking for returns because they need to invest it elsewhere. So, it depends on how the investor sees his investment. That is one of the major stumbling blocks going forward. I am hoping that the government will deal with that because the lack of forex is going to keep the difference between the unofficial and official rates very large. That is an essential item that is missing now. If you have liquidity of forex in the market, you will see that those two (official and parallel market rates) will collapse upon each other and we will not be having any issues going forward. That also means that you have to look at what you are importing and exporting; it is not an easy formula. So, I will call 2024 a waiting year.
