Nigeria’s manufacturing sector has been described as one of six sectors that have the potential to create jobs and reduce poverty. Actual investments in manufacturing are realised when there is an intersection of market opportunities and government support. While foreign exchange challenges prevailed in 2021, operators are seeking government’s intervention in policies that will revamp the sector. FEMI ADEKOYA writes.
Due to the impact of the Covid-19 pandemic and the devastating floods across Europe and China, as well as spiking energy prices that hit power-hungry industries hard, many manufacturing industries have had to reshape their supply chain and production agenda.
Shortages of critical components and raw materials have forced supply chain sovereignty and self-sufficiency back onto the agenda for governments and boardrooms around the world.
For Nigerian manufacturers, a disruption in the supply chain alongside currency and logistics challenges meant that many operators have to look inwards and equally adjust production preferences to suit market needs and weakened demands.
While merely coping isn’t enough, to thrive and grow, companies must do more than cope. Their investors, employees, partners, and suppliers expect more — so, far more importantly, do their customers.
Indeed, the Organised Private Sector believes that the current situation of the country requires urgent intervention by the government to develop the industrial sector. The cost of not implementing crucial reforms to reposition the sector for competitiveness are evident in the weak state of the sector and in Nigeria’s high unemployment and poverty rates.
The argument of the OPS is that a business-friendly environment is the only way the manufacturing sector can improve on its about 10 per cent contribution to the nation’s Gross Domestic Product (GDP) and also support the current administration’s poverty reduction/alleviation and job creation aspirations.
According to the OPS, the continued efforts by the government to reposition critical sectors such as manufacturing on the path of growth have proved supportive, albeit slow.
Despite economic recovery, the base effects have continued to impact household incomes, forcing manufacturers to adjust offerings and preferences to the available market. With the exception of essential items, demand for manufactured goods has been slow.
A Senior Partner, Deloitte Nigeria, Bernard Orji, stated that the bulk of the Nigerian populace live under the poverty line as they could barely afford to meet their needs.
According to him, manufacturers must study the market by focusing on the needs of consumers with quality and affordable products to remain competitive.
The Lagos Chamber of Commerce and Industry (LCCI) in its GDP comments noted that the performance of the manufacturing sector shows resilience amid the major challenges in the sector such as limited access to credit and financial services, poor infrastructure and unreliable power supply that forces businesses to rely on generators, thus increasing their input costs and reducing their overall competitiveness and profitability.
Too many bottlenecks seeking solutions
Chairman, MAN Apapa Branch, Frank Ike Onyebu, said the manufacturing sector which has the potential of contributing more than 25 per cent to Nigeria’s GDP, is currently doing less than 10 per cent.
He added that the slow growth of the sector as a whole is attributable to a myriad of factors including infrastructural deficiency, insecurity, global and domestic supply chain disruptions, foreign exchange liquidity, weak consumer spending and high operating costs.
Indeed, members of the OPS have advised the federal government to make deliberate efforts to remove impediments to the conduct of business in the country in 2022, especially as it relates to infrastructure and logistics.
The OPS advised the federal government to direct efforts toward accelerated industrialisation for the Nigerian economy in 2022.
The leaders of the real sector noted that removing hindrances to the activities of manufacturers and other key players in the country’s real sector would enhance productivity, especially as Africa prepares to fully implement the African Continental Free Trade Area (AfCFTA).
Some of the major constraints they asked the government to address included low FX supply and poor electricity to the real sector, challenges at the country’s seaports, and low patronage of made in Nigeria goods.
The Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, advised the CBN to expedite the process of unifying exchange rates in the various forex windows in the country. Ajayi-Kadir said stakeholders from the private sector should be nominated to monitor the disbursement of forex by commercial banks to ensure transparent and timeous allocation to bona fide manufacturers.
He also highlighted the need for the government to take steps to relieve manufacturers of the burden of spending over N73 billion yearly to provide alternative energy.
Ajayi-Kadir said, “So the immediate step to take in 2022 is for the Nigerian Electricity Regulatory Commission (NERC) to remove all the bottlenecks inhibiting manufacturers’ access to the 2,000 megawatts of stranded electricity, as envisaged under the Eligible Customer Scheme.
“Other measures would include up-scaling efforts at further development of electricity value-chain.”He added, “Ministries, Departments, and Agencies (MDAs) of government should compulsorily and strictly prioritise the patronage of made in Nigeria items in all their purchases and contracts. For instance, local manufacturers of LPG gas cylinders are specifically designated as priority providers of the 10 million cooking gas cylinders to be procured by the federal government for 12 states in the federation.”
He also warned that the looming increases in excise and tax rates, especially for carbonated non-alcoholic drinks, dairy products, should be ignored, arguing that the manufacturing sector would not be able to accommodate any form of increase.
The MAN director general added, “As we approach the actual commencement of trading under the AfCFTA, the government should intentionally support manufacturing by creating the enabling environment, providing trade information through the commercial desks of Nigerian embassies in African countries, and up-scaling the involvement of the private sector in negotiations and implementation processes.”
Also, the Centre for the Promotion of Private Enterprise (CPPE), warned that the “monetary and foreign exchange policy rigidities” of the Federal Government may disrupt the economic growth of the nation in 2022.
According to the organisation, there is no indication that the nation will shift from its current monetary and foreign exchange policy and this may hamper economic growth in 2022.
The centre said, “Monetary and foreign exchange policy rigidities may also pose a risk to the growth outlook as there are no indications of any significant shift in monetary and foreign exchange policy stance in the near term.
“Consequently, the distortions inherent in the foreign exchange market will persist in 2022. The constraining effect of the high Cash Reserve Requirement on financial intermediation would also persist in 2022 with a dampening effect on growth outlook.”
The CEO of CPPE, Dr. Muda Yusuf, urged the government to untangle the cargo clearing processes at ports by reducing the number of agencies involved. Yusuf also canvassed the deployment of technology to aid the customs clearing process.
He said: “The use of the scanner is particularly very important. It is a sad commentary that the largest economy in Africa has been examining cargoes and containers physically and manually for the past few years. The effect of this on the cost of imports has been humongous.
“The interest payment on the import, demurrage charges arising from delays, the extra charges by shipping companies, the additional charges by the truck drivers, all of these have put a lot of burden on cost on investors and citizens.”
According to the private sector body, while the economic outlook for the Nigerian economy in 2022 is largely positive with Gross Domestic Product growth to remain at a fragile three per cent, the problem of insecurity will impact significantly on the economy.
It added that the agricultural sector in particular would be affected, as perception of Nigeria as an investment destination continues to diminish.
According to the CPPE, because the service sector is less vulnerable to the structural constraints of the economy, especially the real sector of the economy, it will continue to outpace the real sector in 2022.
It said, “The service sector of the Nigerian economy will continue to outpace the real sector in 2022. In the third quarter of 2021, service sector contribution to GDP was 50 per cent and the growth of the sector was 8.41 per cent.
“Oil sector contribution to GDP was 7.5 per cent; while the non-oil sector contribution was 92.5 per cent. while the industrial sector growth contracted by 1.63 per cent, agriculture grew by 1.2 per cent.”
The Director General of the Nigerian Association of Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), Ambassador Ayo Olukanni, said: “The effective implementation of the 2022 Appropriation Act for inclusive economic growth and development should be a top priority. The real challenge is to see how the budget, which has been tagged ‘Budget of Growth and Sustainability,’ will positively impact the lives of the people and various sectors of the economy.
“We must ensure that budget 2022 makes a significant impact on the energy sector if it is to be meaningful and be a budget of growth and sustainability.”
