Nigeria Machine Tools Limited, Oshogbo (NMTL)

BACKGROUND AND CORPORATE STATUS OF NMTL

The Nigeria Machine Tools Limited, Oshogbo (“NMTL”; “the company”) was conceived in the Nation’s 4^th National Development Plan (1976 – 1980) which supported the establishment of industries for the production of capital and engineering goods of intermediate technology content. Incorporated on February 18,1980 (RC 31778) as a limited liability company, the company started as a joint venture signed between the Federal Government of Nigeria (FGN) and the Hindustan Machine Tools (International) Limited (“HMT”) of India on June 29, 1979. HMT is an Indian Government-owned Machine Tools Company.

The Federal Government’s objectives in setting up the project were to:

• Establish a self-reliant machine tools complex in Nigeria for the local manufacture and marketing of machine tools, spares and accessories
• Support and influence the country’s drive towards industrialization and self-reliance in the manufacture of engineering goods
• Train Nigerian Engineers and technicians in the art of machine tools production
• Conserve valuable foreign exchange for the country by meeting substantial part of the demand for machine tools through local manufacture.
• Aid, establish and develop ancillary units and assist down-stream user industries.
• Assist entrepreneurs and user industries by offering total project engineering/turnkey consultancy services for the Nigerian and ECOWAS sub-regional market and provide effective after-sales service for the products.

NMTL: A POTENTIAL MONOPOLY

The NMTL was established with the full potential of a giant monopoly with Nigerian industrial engineering sector as the captive market and the African regional market as the expansive frontier.  The concept of the NMTL envisaged that entire engineering and capital goods industries in Nigeria require machine tools that would produce heterogeneous parts or components into final machines that could transform basic materials like metal, wood and plastic into finished products. These components and parts could be produced for several captive areas of economic life like the mechanized agriculture, automobile and allied industries, manufacturing industry, health sector and security/military hardware. Hence, Nigeria’s Vision 2010 report projected that the composite engineering sector in Nigeria will contribute 24% GDP by 2005 from 6.4% in 1996. The multiplier effect on domestic equipment and machinery needs was projected to be very high.

MAIN PRODUCTS

The NMTL project essentially seeks to indigenise the manufacture of machine tools in Nigeria. Therefore it envisaged the manufacture of the following eight (8) basic metal cutting machines:

• Lathe machines (2 Types) for turning operations
• Drilling machines (3 Types) for drilling operations
• Horizontal & vertical milling machines for milling operations
• Hacksaw machines for sawing operations
• Grinding machines (2 Types) for grinding operations
• Honing machines for honing operations
• Gear cutting machines
• Shaping and planning machines

Also, the project on the long-term, is to add the manufacture of metal- forming machines, sharing machines, pressure die- casting machines, fogging machines, numerically controlled machines for products requiring precision technology, robots and transfer lines and also provide after -sales services.

SHAREHOLDING STRUCTURE

The Company, which is located on 102.3 hectares of land in Oshogbo, was incorporated with a share capital in the sum of N20million and the share holding structure at inception was as follows:

Federal Government of Nigeria (FGN)                                                    85%

Hindustan Machine Tools (International) Limited of India                      15%

Currently the company is 100% owned by the Federal Government of Nigeria.

PRIVATISATION STRATEGY

The Federal Government of Nigeria intends to privatise 100% of the enterprise to a core investor, foreign or domestic that would be able to turn around the enterprise.

THE MARKET FOR NMT’S PRODUCTS

The company’s quasi-production business basically started with the assembly and sale of semi-knocked down and completely knocked down parts all of which were imported prior to the conception of NMTL. Consequently, these and other fabrications are sold to meet diverse customer requests.  Besides these varying needs, the NMTL market is presently made up of the Nigerian defence establishment, which require varying spares and mould-copies, Universities, Technical colleges, Small machine shops and Training institutions and numerous customers from the organized private sector.

From a (sub)/ regional perspective, NMTL is the dominant machine tools firm in West Africa, even in its current condition and its closest counterparts are located in Eastern and Southern Africa. Thus, a fully funded and capitalised NMTL will achieve dominance across West Africa very easily. NMTL has about 20 major customers spread all over the country

COMPETITION

In what is a semblance of a competition, the Nigerian Machine Tools’ playing field is fragmented with several small players and a few medium sized players. There are no observed dominant players as parts fabricated are not branded but just fashioned to fit specific requirements.

TECHNOLOGY

Machinery at the company are primarily of the HMT brand having been built and supplied by Hindustan Machine Tools (International) Limited, the joint equity partners of the NMTL project, as the facility still remains a project for all practical purposes. The technology is contemporary and can compete with those in similar plants across the emerging markets. Moreover, similarly branded machines have been brought into the company facility as part of the Government of India’s US$5million grant to reactivate the NMTL plant

PERFORMANCE DATA

Profit & Loss Account: 1997-2001

	1997	1998	1999	2000	2001
Turnover (N000)	9800	6845	10,240	54,585	9,477
Profit/(Loss)	(93,436)	(246,566)	(473,057)	(529,764)	(542,365)
Taxation	61	57	63	120	60
Profit/(Loss) after taxation	(93,497)	(246,623)	(473,120)	(529,884)	(542,425)

PROSPECTS

As a springboard for industrial development, the role of the Nigeria Machine Tools Limited, Oshogbo in the Nation’s economy cannot be over- emphasised. The fundamental objective of the Federal Government of Nigeria is to attract investors who would be able to turn around the fortunes of the company by not only providing the domestic needs of the country but that of other African Nations. This is to be achieved through the current privatisation programme by attracting competent technical and foreign partners.

The location of the company is very advantageous because it is a major power site where power lines from different parts of the country converge. Hence, the company enjoys 100% NEPA power supply. Oshogbo has the benefit of lying on a rail route with a renowned railway station. Therefore, most of the heavy equipment needed in the factory could be railed down from Lagos port. The town is also linked with the northern part of the country through Ikirun road. Hence, accessibility to other parts of the country is guaranteed

The enterprise utilizes about 20% of its capacity. There is a huge production expansion horizon for the company. The company is at the heart of the nation’s industrialization. In 1996, Nigeria imported N131.6 billion worth of machinery and equipment. This grew to N202.9 billion in 1997, N204 billion in 1999 and to N232 billion in 2000. The import figures are an indicator of the yearly domestic demand for heavy machinery and equipments. At full capacity, the NMTL has the potential to harvest the large economies of scale.

PROJECTED PROFIT & LOSS ACCOUNT FOR 2003 THROUGH 2007

                  2003              2004               2005              2006              2007

       (N’000)         (N’000)             (N’000)         (N’000)            (N’000)

Turnover                     707,700        825,650         943,600       1,061,550       1,179,500

Cost of Sales                   247,216          296,659         355,991          427,189         512,627

Gross Profit                    460,484          528,991         587,609           634,361          666,873

Admin. expenses           365,769          402,346         442,580          486,838          535,522

Other income                2,771              3,048             3,353              3,689              4,058

Profit/(loss)                  97,487           129,694         148,382          151,221          135,408

Taxation                       31,196             41,502          47,482            48,388            43,331      

Retained profit/(loss)66,196        88,192          47,482            48,388           43,331

This projected economy of scale will amount to a fundamental deterrence to prospective competitors. This is because the capacity that is required by new firms in terms of plant size, proprietary experience and the concomitant cost disadvantages will impose a deterrence to entry. As a result, there will be a potential for protection to NMTL. The protective potential can grow from a possible turn-around programme that will beef up output and convert years of experience to cost advantage. The integrated nature of the plant creates the potential for forward integration into the downstream markets for small industrial machine parts in addition to the captive markets of the ‘mother-machines’ in Nigeria and the West African sub-region.

Perhaps the brightest aspect of the Company’s prospects relate to the domestic supply of metal sheets as a consequence of the integration between the tools industry and the steel rolling plants in Nigeria, which are also being privatised.