…as rising costs, declining revenue put 250,000 jobs at risk
By AYOOLA OLAOLUWA
Western Metal Products Company (WEMPCO), Nigeria’s sole manufacturer of enamelware, a key raw material for the production of iron sheets and similar metals, is currently struggling to stay alive, Business Hallmark can reveal.
Operating under a harsh economic environment and a huge debt burden, which is currently threatening its existence, the management of WEMPCO, in an effort to revive the dwindling fortunes of the firm, had put assets worth several millions of dollars’ in the market; hired fresh brains; closed plants and laid off thousands of employees.
Still, the firm’s fortune has failed to improve. To further exacerbate the firm’s woes, its debt profile which now stands at around N100billion, has continued to rise rapidly. This has lead many industry watchers to warn that unless urgent interventions are made, the business might soon collapse.
The company, established by its founders, Late Lewis Tung and his brother Robert Tung in 1979, had grown from its initial business of producing roofing sheets, galvanised pipes, wire nails, plywood, ceramic tiles and sanitary ware, and is currently involved in agricultural and hospitality sectors with 11 subsidiaries.
WEMPCO reached its peak in 2013 with the opening of its $1.5billion steel rolling mill, the largest in Africa, at Ibafo, Ogun State by former President Goodluck Jonathan. Also located in the steel complex are a ceramic tiles plant worth $500m and a nail production plant worth $200m, totalling a combined investment of $2.2bn.
The ambitious WEMPCO Steel mill was expected to boost Nigeria’s capacity in the production of ocean vessels, train bodies, agriculture steel equipment, earth moving vehicles, coils, flat sheet for round/hollow/square pipes, household electronics casings such as refrigerators, air-conditioners, fan-blade/stands, washing machines, and microwaves, among others.
To ensure adequate and uninterrupted power supply for the massive operations of the complex, $250m was invested in building a 50 megawatt gas power plant. The Ibafo plant, with a 700,000 tonnes-capacity, and Ogba plant had over 14,000 people, mostly Nigerians, in its employment.
At inception in 2013, the production capacity of the Ibafo steel mill represents 65 per cent of the 1.2 million of steel used annually in Nigeria, mostly imported.
According to a Nigerian privy to the deals that gave birth to the steel mill, the Federal Government gave WEMPCO the license to begin production of cold rolled (flat steel) with imported steel billets for raw materials until it could work out how to transport iron ore from Itakpe in Kogi State.
Speaking during the launch of the Ibafo facility in 2013, its founder, Lewis Tung, now deceased, had disclosed that the project was motivated by the need to conserve foreign exchange resources and the availability of the needed raw materials in the country.
“We realise that importing these products costs a lot of foreign exchange and we thought that since the raw materials are available locally, producing them locally will help conserve foreign exchange,” he had said.
BH gathered that based on the agreement between the company’s owners and the Federal Government that WEMPCO will later in the future source its raw materials from the Itakpe mine, the government gave WEMPCO the exclusive rights and waivers to help it manufacture the materials in the country.
With the contract, the 40-year-old firm thus became the authorized sole distributor of cold-rolled iron sheet, used in the manufacturing of roofing sheets and annealed iron sheets. Cheap dollars at subsidized rates were also provided by the Central Bank of Nigeria (CBN) as part of the deal.
However, the company, it was learnt, allegedly went on to abuse these rights.
“The firm has refused to end the importation of raw materials from abroad, instead of local production, even after the expiration of the deadline to source for it locally. Despite the default, government officials turned blind eye until the administration of President Muhammadu Buhari came to power in 2015”, said a top Customs official in the know.
Our correspondent gathered that trouble started for WEMPCO when the new government decided to cancel the waivers it gave the firm by throwing the door open to all stakeholders.
The government, it was leant, based its decision on the refusal of WEMPCO to source for its raw materials locally and the resultant loss of revenue to the government.
Companies in the metal business were all given licenses to bring in raw materials, as well as finished products from abroad, thus ending the total domination of WEMPCO in the production of enamelware and other related products.
Things got worse for the company in 2015 when the CBN in order to protect local manufacturers, included cold rolled iron sheet and anneal in the list of 42 banned items from access to official foreign exchange. By this development, WEMPCO could no longer access cheap foreign exchange for its materials
WEMPCO’s dilemma was further compounded by the order made by the Standards Organisation of Nigeria (SON) mandating manufactures and importers to keep the standard of roofing sheet at 0.015mm in thickness. Unfortunately, the firm could not compete with smuggled roofing sheets from neighbouring countries which were 0.013mm and 0.014mm. The smuggled versions were also said to be preferred by buyers because they were cheaper.
Faced with low patronage, WEMPCO and its stock of unsold products went bad from staying too long in storage. Profits dwindled and the firm’s account over time entered red. Owing to shortage of funds, the firm started reneging on its loan repayment obligations to financial institutions.
From that moment on, things started to get worse. While workers were daily asked to go, those that stayed are owed salaries and allowances. To cut cost, the company decided to close several of its plants scattered across the country. By 2018, the company had closed down almost all its plants as they were no longer producing.
Some of its workers at the Ibafo plant, who spoke to BH on the condition of anonymity because of the fear of victimization, also revealed that the firm was not consistent in fulfilling orders. “The drop in sales was the last straw. With revenue down, it became difficult to service debts and meet contracted obligations. The firm was not consistent in fulfilling orders. They either take too long in delivering the product or deliver items different from the specification. We started having problems with customers who paid money into WEMPCO account, but saw neither their money nor the goods they paid for.
“Creditors realised that the only way they could get back their funds is to seize our funds with them and our properties through court orders.
“The banks also held onto customers’ money because of WEMPCO’s indebtedness to them. The situation is quite bad”, one of the source confided in our correspondent.
The angry workers, had in September 2018, protested at the WEMPCO annex, Magboro, Ogun State, against the inability of the management of the company to pay their salaries for over three months. The protesters, who were in different departments of the company, said there would be no work at the company until the management responded to their demands.
BH also learnt that on November 24, 2017, top executives of WEMPCO were stranded as sheriff deputies seized their vehicles to enforce a court judgment gotten by a contractor who was not paid for raw materials supplied.
Sheriffs from the Chief Magistrate Court of Lagos State, at Court No 7, Ogba, had gone to the company’s plant at WEMPCO Road, Ogba, to enforce an order by Magistrate Y. J. Badejo-Okunsanya slamming a judgment fee of N11.663million naira against the Chinese company. Vehicles belonging to the directors were towed away in lieu of the judgment fee, which WEMPCO failed to pay since a year after judgment.
To pay back some of its debt, management of the troubled metal firm has also put up its flagship five-star Oriental Hotel on Lagos Island, for sale for ($250m) N94 billion.
A top Nigerian staff in the steel and metal company blamed its ordeal on poor corporate governance, over-dependence on powerful top government officials and harsh business environment.
He however, said that WEMPCO probably would not have been in the present mess if it had gotten a lifeline that it missed in 2012, when it missed out on buying the now Ikeja Distribution Company (IKDC). The company, he said, missed the July 17 deadline given to investors bidding for the nation’s six power generation companies under the privatisation programme.
Meanwhile, the crisis facing the company has led to the closure of no fewer than 19 enamelware firms, while 250,000 jobs along the steel and enamelware value chain are also about to end.
This means that all the firms that produce roofing sheets and enamelware in Nigeria may have to shut down in the event of WEMPCO’s exit, as there will no longer be legal means of getting their raw materials.
At the moment, all the firms manufacturing wheel barrows and shovels are said to have shut down while others are winding down gradually having run out of stock of raw materials.
Speaking on the development, a human resource expert, Dr. Deji Akinfolaju, warned that though, the aggressive protectionist policy of President Buhari is no doubt good for the economy, it needs to be done in manners that big companies will not exit the country to avert increasing unemployment woes in the country.
“Nigerians may be the worst hit as WEMPCO may eventually exit Nigeria. The implication is that all the firms that produce roofing sheets and enamelware in Nigeria may have to shut down.
“With this imminent closure, massive jobs loss will further worsen the unemployment rate in Nigeria which currently stands at 23.10 percent. This is definitely not a good sign for a fragile economy like Nigeria that is just gradually rising towards a sustainable economic growth path”, Akinfolaju said.
Meanwhile, the management of Western Metal Products Company has denied reports that it is planning to close its metal products business and exit Nigeria. WEMPCO indicated this in a statement made available to media houses in Lagos.
Referencing reports in the media about its proposed sale of the Lagos Oriental Hotel and exit from Nigeria, the firm said there had never been and there was no intention of the group exiting Nigeria.
“Our Group has been in Nigeria for several decades and has witnessed many cycles of the Nigerian economy. Although the Nigerian economy faces tough times, our firm belief in the resilience of the nation‘s economy remains unshaken and we will continue to develop alongside Nigeria for many decades to come.
“WEMPCO Group of Companies remains fully committed to contributing to the ongoing growth and development of Nigeria.”
On the proposed sale of the Lagos Oriental Hotel, WEMPCO explained that “although the recent spate of advertisement of the hotel was not initiated or authorised by our Group, to divest in the asset would simply be a commercial decision based on the merits of a reasonable transaction.”
Explaining further, it stated that the Lagos Oriental Hotel was a flagship in the Nigerian hospitality business but not a flagship of the WEMPCO Group.
“It is an investment made by the Group in 2008, but not part of our core manufacturing business,” it pointed out.