BAT Nigeria Brochure

BATNIGERIAwww.batnigeria.com

CORPORATE BROCHURE

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O N L I N E

Although the news is often filled with images of violence in Nigeria, global tobacco giant British American Tobacco has found it an excellent place to do business. Alistair Hide talks to Gay Sutton about building a strong and socially responsible tobacco company

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Blessed with considerable oil resources and a government determined to attract direct foreign investment and stimulate diversification, the republic of Nigeria is one of the world’s fastest growing economies and a country of stunning contrasts. The increasing ethnic and religious violence often hits the

international headlines; yet the country’s track record over the past 10 years has been such that in 2005 the investment bank Goldman Sachs ranked it as one of the ‘Next Eleven’ economies—all of whom have the potential to become one of the world’s largest economies in the 21st century.

One company that is thriving in Nigeria and playing a significant role both in boosting its economy and socio-economic reform is global tobacco giant British American Tobacco (BAT).

BAT has been present in Nigeria since 1912, both in its own right and, from 1951, as a 60 per cent shareholder in the Nigerian Tobacco Company (NTC). However, the accession of a new civilian administration in 1999 marked an end to years of political and economic uncertainty and the beginning of an era of economic reform. Recognising the benefits of operating in Nigeria, BAT was quick to take up the invitation to invest in the country. In 2000 the company acquired the remaining 40 per cent share in NTC and BAT Nigeria (BATN) emerged as the country’s major tobacco manufacturer.

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and creating jobs; to develop exports; to support the government in regularising the sector; and to establish an independent charitable foundation.

Recognising that this could only be achieved with a world class manufacturing infrastructure, the company began with a phase of investment. Construction began straight away on a new $150 million state-of-the-art production facility at Ibadan, Oyo State, to replace an older and less efficient one. Designed to meet the highest standards of quality and efficiency and to provide the necessary capacity for growth, the plant was commissioned in June 2003 and has been consistently increasing production ever since. Meanwhile, significant upgrades and improvements were made to the existing facility at Zaria, Kaduna State, in northern Nigeria.

To support the new plant in Ibadan and provide the quality of packaging it required, the South African packaging company NamPak invested $34 million in a state-of-the-art print facility alongside it.

Over the past nine years BATN has worked to bring


“Today, we have approximately 80 per cent of the measurable market in Nigeria,” says Alistair Hide, head of Corporate and Regulatory Affairs for BAT West Africa. The company directly employs 835 people across its factories in Ibadan and Zaria; its offices in Lagos and Abuja; and through the BAT Foundation and agricultural activities. However, the economic benefits of its presence are much more widely spread. Estimates indicate that it indirectly employs over 14,000 people through its tobacco farms, suppliers and distributors.

From early on, BATN’s aim was to become one of the top 10 contributors to the BAT Group, and a big part of its strategy for achieving this is closely linked to the terms for operating in the country. With advice and active support from the Nigerian Investment Promotion Commission (NIPC) the company signed a memorandum of understanding (MOU) with the Nigerian government in September 2001 agreeing to invest in tobacco production in Nigeria; to bring production of all the popular brands into the country thus reducing the reliance on imports

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the production of all of its brands to these two plants. “Because of the history in Nigeria, the British brand Benson & Hedges has a very strong following and is our biggest by a long way. We also have Pall Mall, Rothmans and Dunhill, as well as another brand, St Moritz by Dunhill which is popular in the south,” Hide says. “We do have one product which is manufactured in South Africa, but it’s a relatively small part of our portfolio.”

From the export perspective, the company has developed markets in 14 countries in West Africa, and these now contribute around £60 million to the economy through export revenue. Creating and managing an export business in a region of the world where exporting had not previously been easy has been something of a challenge, and this hard-won knowledge and experience is now being put to good use. “Because of the regular nature of our exports, we have been able to compare various ways of building our supply chains across West Africa and when we can, we are in a position to support the development of trade,” Hide explains. “The good thing is that any improvements are not specific to tobacco, but can apply to many categories of exports.”

It has been in the fight against the illegal tobacco trade, however, that BATN has developed the strongest relationships with the Nigerian government. When BATN was formed in 2000 the overwhelming majority of cigarette and tobacco sales in Nigeria were in smuggled and counterfeit products. As part of the MOU, the company agreed to work closely with the government agencies on this, and has been actively cooperating in a number of ways, from identifying counterfeit and genuine products that have been smuggled into the country, to supporting the formulation of ways to eradicate this trade.

At the same time, the company has been improving distribution of its portfolio and therefore extending the

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reach of the legal, regulated trade. The success of this two-pronged attack has been significant. “In 2000, as much as 90 per cent of the market was in illicit trade, and today it’s the other way round,” Hide says. “At a guess, probably 80 per cent of the total market is in fully tax-paid, regulated products. This has led not only to more smokers moving to our brands in preference to unreliable smuggled products, but has also boosted the government’s tax revenue by around 40 times.”

Production at the factories has therefore increased year-on-year to meet the growing demand caused by this market switch to legally produced cigarettes; the transfer of production of all popular brands to Nigeria; and the rising levels of exports. “We’re now operating near to capacity,” Hide says. “And to ensure that we can continue meeting that demand we have been doing a lot to maximise the productivity of our equipment.” Recently, investment has gone into increasing warehousing space, and improvement trainers have been brought in regularly from group level to standardise best practice across the company. All aspects of health and safety, product quality and process efficiency are strictly audited and conform to stringent group and international standards.

Of a workforce of 835, fewer than 15 are ex-pats. “If you go to the factory today you’ll see the entire shop floor is managed by Nigerians. The success we have had has been very encouraging for the future,” says Hide.

For a number of years the company has been operating a management training programme which not only provides a clear career structure for promising young Nigerian graduates, but also forms an essential part of succession planning. Each year nine graduates with degrees ranging from management and marketing through to the more specialised disciplines such as law or engineering are selected and taken through a structured two-year management programme which includes leadership development, project work and exposure to all the elements of the business.

As you would expect, competition for the places is tough and the company is rigorous in its selection process. “This year we received 4,500 applications for these nine posts, which set us something of a selection challenge,” Hide says. The success rate is high, though, and on average, seven of the nine trainees continue on to take up management positions in the company.

This year, the company has launched a new technical trainee programme to strengthen its pipeline of well qualified and experienced technicians. The scheme aims to select between 10 and 20 young people each year from the best technical schools, put them through nine


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year, and our plan is to double that in the next few years.”The majority of the leaf procured in Nigeria is sourced

from 850 farmers in Oyo State with whom BATN has developed a long-term relationship. “We have an agreement with them that if they can produce a given quantity of tobacco at the right quality, we will buy the entire crop from them at a guaranteed price.” This provides an element of stability for the farmers along with an incentive to work hard to produce the necessary quality and quantity.

The farmers also sign up to the BAT Group’s Socially

Responsible Tobacco Production initiative, which defines the standards by which they must operate. This is a comprehensive document, and ranges from prohibiting the exploitation of child labour, through to defining the stringent international standards for quality, health and safety, and environmental performance.

“The key to managing this successfully is that the farmers are not left to achieve all this on their own,” Hide explains. “We have a team of 11 agronomy experts based in the farmers’ locations who work with them to help improve yield and quality, and to ensure they’re equipped

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months of training and then absorb them into full time employment in the factories.

While manufacturing lies at the heart of BATN’s operations, its farming interests are also of critical importance. As much tobacco leaf as possible is procured within Nigeria. “The conditions in Nigeria do not lend themselves to growing all the flavour grades we need to create our blends, though. At the moment, Nigerian tobacco accounts for over 30 per cent of our leaf requirement,” Hide says. “However, production on our farms is currently in the region of 2.5 million kilograms a

they stand to gain the most. “The group operates on the principle of mutual benefit. In other words, we believe that we should put something back to the benefit of the local stakeholders,” Hide explains. To manage this in Nigeria, the company has created an independent charity, the BATN Foundation, tasked with promoting rural and urban socio-economic development. Funded by a defined contribution from BATN profits each year, the foundation has a permanent staff of four but employs many more

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to adhere to the standards required by their contracts.” The agronomy unit, which operates as BAT Iseyin Agronomy Ltd, has for example been helping the farmers increase the quality of the tobacco crop by encouraging them to rotate their tobacco with food crops. “And this has been very successful.”

The company also supports its farmers at the economic level by making micro finance available to them, in the form of interest-free loans for various purposes. “Another thing we’ve done is make sure they all have bank accounts. Now that may seem a simple thing, but it’s important for the overall efficiency of the operations and it encourages a different level of business activity.”

In all of these initiatives, the people of Nigeria have been significant beneficiaries; however, it is within the realms of BAT Group’s corporate social responsibility that

to enable local people to acquire useful skills. To date, vocational training centres have been constructed at Zaria and Jere in Kaduna State, and a third will be opened later this year near Ibadan.

“One of the things that is different about the BAT approach is that we’re less obsessed with the publicity side and more with the sustainability of the projects,” Hide says. “So we’re putting a great deal of effort into looking at how the projects have performed over time, and learning from instances when things have gone wrong.”

Many improvement initiatives in the past years have been focused on reducing the impact on the environment. ISO 14001 compliant, the company enforces all international standard practices such as the safe disposal of pesticide and fertiliser containers to prevent seepage of chemicals into the ground water. However, the tobacco curing process includes wood burning—an activity that unchecked could have a very detrimental effect on Nigerian forests. The company has introduced

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on its projects. “Since the foundation was incorporated in 2002 it has completed about 80 projects, and these include at least one in each of the 36 states of Nigeria and in the federal capital territory,” he continues.

The main areas of focus tackle four serious social issues. Firstly, the lack of clean and safe drinking water is a significant problem, so the foundation has commissioned many new boreholes around the country, each typically equipped with a 20,000 litre water tank, solar panels, water management buildings and accessories. Secondly, the foundation is supporting and promoting agricultural development through programmes that enable traditional subsistence farmers to adopt modern farming techniques, as well as constructing cottage industries to process cassava and palm oil and improve animal husbandry. The foundation works to improve the local environment through tree planting campaigns, and in the north of the country has supported the national effort to combat desert encroachment. Finally, the foundation is working

of oil waste and this has been achieved by partnering with a local company that uses the waste to fire its kilns.

One of the big challenges that faces all companies operating in Nigeria is the unreliability of the power supply, and BATN has overcome this by installing a power plant at each of its factories. These, however, are expensive to run. “The power plants run 24 hours a day, and we spend something like £3 a minute on diesel fuel every day of the year,” Hide says. So the current challenge is to find ways of reducing that cost. “At the moment we’re looking at options such as alternative fuels like natural gas, and the feasibility of sharing the plant with a third party. Meanwhile we have plans in place to reduce our fuel consumption by seven per cent in 2010.”

Looking to the future, there is still considerable room for growth as the illegal tobacco trade is eradicated and customers switch to the legal brands. There is also market share to be gained from the competition, particularly in the rural areas. With production at the factories near to capacity, further growth could mean that a new production line is on the cards for the Ibadan factory—“and that’s a decision we will have to make fairly soon,” Hide says.

As far as operating in Nigeria is concerned: “It is certainly a challenge to do business in Nigeria, but it can be incredibly rewarding,” Hide concludes. “Companies can do very well here if they have the right level of commitment, if they have the right working practices and if they are prepared to stick to their principles.” – Editorial research by Paul Radbourne

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the use of alternative fuels such as palm kernel shells, and these are now used where possible. Meanwhile, 710 hectares of teak and gamelina trees have been planted in the Iseyin region, to provide a sustainably managed renewable source of wood.

Waste is also being tackled at the factories, and in 2009 alone the company increased its recycling of factory waste from 39 per cent to 52 per cent. This effort has been recognised by the BAT Group globally and BATN Nigeria has been awarded the EHS Excellence Award in the innovation category. Another example is the safe disposal

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BATNIGERIAwww.batnigeria.com

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BAT Nigeria Brochure