Business owners to Tinubu: Despite reforms, we can’t breathe
Manufacturers, Micro, Small, and Medium Enterprises (MSMEs) operators, business leaders, and economic groups, yesterday, sent a save-our-soul to President Bola Ahmed Tinubu on the need to cushion the harsh effects of the new administration’s economic policies on businesses, lives, and livelihoods.
Despite the four Executive Orders (EOs) on tax signed by the President during the week, they spoke in unison that more needs to be done urgently for their businesses to be saved from failing.
Tinubu had signed four Executive Orders, suspending the five per cent excise tax on telecommunication services and the excise duties escalation on locally manufactured goods, among others.
The Special Adviser to the President on Special Duties, Communications, and Strategy, Dele Alake, announced the development while briefing State House correspondents, at the Presidential Villa, Abuja on Thursday.
However, aside from the challenges of multiple taxation that may have been addressed to an extent, they stressed the need to alleviate economic hardship quickly to make lives better holistically.
For instance, a good number of manufacturers and MSMEs operators have lamented the huge amount of funds, unplanned for, but which they have had to deploy to stay afloat since the removal of fuel subsidy. They noted that rising inflation and the high cost of energy to run their plants had tripled the cost of operations.
They also called on the government to quickly address the regulatory environment, which they observed is a factor that could derail the progress being made with economic policies being introduced.
SMEs, which are critical to Nigeria’s economic development, have contributed over 48 per cent – on average – to the national Gross Domestic Product (GDP) in the last seven years, according to the National Bureau of Statistics (NBS).
However, despite the significant contribution of SMEs to the economy, challenges persist that hinder the growth and development of the sector. Some of the manufacturers listed some of these to include lack of skilled manpower, multiplicity of taxes, and high cost of doing business, among others.
A 2020 survey report by PwC estimated the financing gap for Nigerian MSMEs to be about N617.3 billion yearly.
It listed obtaining finance, finding customers, and infrastructure deficit as the top challenges of Nigerian MSMEs, adding that the SME credit market, however, is notoriously characterised by market failures and imperfections.
Despite the numerous policies and measures that have been articulated by successive governments, the manufacturing sector’s contribution to the GDP has remained less than 10 per cent over the last five years.
The sector has remained largely import dependent, which has made it extremely vulnerable to external shocks. Productivity is also weak because of structural issues. These features create competitiveness challenges for the sector.
Many manufacturing firms have low local value addition, weak backward integration, inadequate forward integration, and low job creation potentials. All of these have consistently weakened the impact of the sector on the economy and the development process.
SINCE the beginning of the year alone, many manufacturers and businesses have suffered losses, vis-a-vis the naira scarcity and the uncertainty that surrounded the general elections, which they alleged led to a serious dip in sales for most manufacturing firms.
The Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, had hinted that the protracted scarcity of naira notes led to a 25 per cent dip in sales of manufactured goods.
Similarly, the National Vice President of the Nigerian Association of Small-Scale Industrialists (NASSI), Segun Kuti-George, also said the scarcity threatened the existence of MSMEs since most of their operations were cash-based.
With the removal of fuel subsidy and with the reforms in the foreign exchange sector, small business owners have also reported losses and setbacks in their operations.
The President of the Association of Small Business Owners of Nigeria (ASBON), Dr. Femi Egbesola, said the consequent hike in the pump price of fuel has led to a sharp drop in sales, resulting in a decrease in liquidity.
He lamented that many small businesses were no longer running at profit level, stating that sales have dropped sharply and turnover is on the downside.
According to him: “This has inadvertently resulted to drop in production/sales capacity, job losses, decrease in cash availability and ultimately a handful of businesses had gone moribund or experienced total closure. It is indeed a sorry case,” he said.
According to him, the resultant effect of government’s many actions is already manifesting in increases in the prices of goods and commodities.
He said it was unfortunate that there were no palliatives put in place to cushion the negative effects of subsidy removal, particularly on poor households and small businesses before its eventual implementation.
This, Egbesola said, has added to the myriads of challenges besetting MSMEs at this time.
However, he recommended ways that small business owners could navigate the situation to ensure survival of their operations by downsising to the capacity of their current income.
He stressed that businesses should begin to look at other innovative ways to expand their market beyond the present, adding that online media was a veritable tool to achieve that.
For manufacturers, he advised them to begin considering sourcing alternative raw materials locally, while production should no longer be capacity-driven but solely demand-driven.
He added that diversification of businesses should be embraced at all costs, while value addition and creative packaging/branding should be considered in improving the sales of products/services.
Similarly, Partner & West Africa Tax Leader, Deloitte, Yomi Olugbenro, at a forum, gave statistics that SMEs account for 90 per cent of industrial businesses, 63 per cent of trade or agricultural companies and employ 86.3 per cent of the national workforce, while micro businesses alone account for 99.8 per cent of total SMEs in the country.
Olugbenro called for partnerships with business consultants to provide SMEs with technical support and create access to the market, as well as infrastructure-based policies that encompass efficient power distribution to developing industrial clusters.
The President of, the Lagos Chamber of Commerce and Industry (LCCI), Dr. Michael Olawale-Cole, also said SMEs were the engine room of growth of every economy globally and a major contributor to Gross Domestic Product (GDP). He called on policymakers to eliminate barriers and ensure physical and monetary policies, as well as interventions to promote small businesses.
The Director-General of the Nigeria Employers’ Consultative Association (NECA), Adewale-Smatt Oyerinde, on his part, noted that for businesses to stay afloat amid high energy costs, the government should quickly address the regulatory environment, which he identifies as a factor that could derail the progress that is being made.
He called on government agencies to align their activities for the achievement of the overall goal of the administration, which is to make the business environment more hospitable.
He added that it was also important for the government to take immediate steps to harmonise all taxes through a structured and growth-oriented reform process.
While the piecemeal reform approach is commendable, he explained that a holistic approach would serve the nation’s long-term purpose and benefit.
To further cushion the effect of the subsidy on businesses, the Chief Executive Officer of the Centre for Promotion of Private Enterprise, (CPPE), Dr. Muda Yusuf, said that the government needed to urgently engage with manufacturers so that details of the desired interventions could be discussed.
He said as soon as a minister is appointed, stakeholders’ engagement should come up immediately with manufacturers so that they could deal with the issues more comprehensively and sustainably.
On issues of high import duty on raw materials, he said it would make it difficult for them because manufacturers are contending with high import duty, single-digit depreciation, high-interest rate, port charges, and competition from Asian products, which is creating problems for them in the markets.
The only way out, Yusuf said, was to ensure that there are intermediate products whose prices are reduced and ways the government could intervene was to reduce the import duty on intermediate products that are not available locally.
Yusuf stressed the need for government to intervene on how to bring down energy costs by putting the cost of gas businesses use at a more reasonable value and for government to review the cost of gas being charged in dollars.
He also stressed the need to further recapitalise the Bank of Industry (BoI) and Bank of Agriculture, through development finance for the real sector, so that they could have more muscle to give credit at a more affordable rate and much longer tenure.
“If there is the need to peg it and subsidise the cost of gas for manufacturers, it would be a welcome development, because these things are easily traceable; they are not things you can easily export. Some subsidies are more manageable than others. Reducing energy costs for them is reasonable.
“Also, there is a need for patronage of what is made in Nigeria. We have the policy but there is no enforcement. Let government institutions ensure that they patronise what is made in Nigeria. These are things government can do to address the challenges of manufacturers and import duty on their types of machinery to be removed completely. Challenges of manufacturing equipment, electricity generation, the import duty, and Value Added Tax (VAT) should be removed so that businesses can generate electricity at much more affordable rates,” he said.
For MSMEs, the CPPE boss canvassed the establishment of industrial clusters supported by the government with some infrastructure.
On concessionary financing, he said the government should make it possible in a situation where they should focus on resource-based industrialisation, driven by available resources so that “we don’t have a manufacturing sector where 90 per cent of inputs are imported.
“What the government has done is a step in the right direction and is a response to complaints that people are not hearing anything. But this is not enough and the issue of stakeholders engagement is key to have a comprehensive measure that will be agreeable to both sides,” he said.
Dr. Yusuf who observed that Nigeria is not short of good policy documents to provide direction for the economy, many of which have very robust sections for industrialisation strategy, however, regretted that most of the laudable policies have not translated into concrete actions or sustainable industrial growth. “Despite the many lofty visions and objectives, not much has happened to translate them to reality as the sector is still largely stagnated, with capacity utilisation at 40 per cent threshold.
“We have been talking about the many problems why this sector remains stagnant and what the government can do, especially during these difficult times. Asides from the weak infrastructural base of power, transportation, Apapa traffic issues, railway system, and congested ports, there is also the high cost of funds, absence of long-term funds, challenges of access to credit by SMEs as well as other firms in the sector, because of the perception that manufacturing is very risky in the economy. Except for intervention funds, especially from the Bank of Industry (BoI), the cost of funds in the Nigerian economy has been well over 20 percent for industrialists. It is difficult to achieve a competitive manufacturing investment with this kind of fund.
“The tenure of the fund is also very short, most times a maximum of one year. It is difficult to do any serious manufacturing investment with a tenure of fund of just one year or less. Small Businesses account for over 50 per cent of the GDP but have access to only 1 per cent of the bank credit to the private sector. This demonstrates the enormity of the funding challenges that are faced by small businesses. This sector also suffers from weak institutions. This makes regulation ineffective as well as faking and counterfeiting, smuggling, under-invoicing and so on,” Yusuf said.
To begin the journey of reviving the manufacturing sector and economy, Yusuf said the systemic issues of infrastructure must be addressed as a matter of utmost priority. “Unless we have these two critical infrastructures in place, it will be difficult to ensure a competitive industrial sector and to make possible the transformation of the sector. Government must ensure adequate investment in core industries such as iron and steel and petrochemicals. We should take full advantage of the large Nigerian market to scale up our industrial capacity utilisation and focus on the competitive strength of the economy in our industrialisation strategy. Resource-based industrialisation strategy must be prioritised.
“It is great that the government has reversed the excise duty imposed on the manufacturing sector in the twilight of the last administration, but that is just a small relief in the long list of ills and a multitude of taxes that besiege this sector. The President should as a matter of urgency, strengthen programmes that provide long-term funds at the single digits to manufacturers and give import duty concessions on intermediate products not available locally to reduce production costs and enhance the competitiveness of the sector. Also, the policy on patronage of made-in-Nigeria products by government agencies should be better enforced.”
For the National President of the Food, Beverage, and Tobacco Senior Staff Association (FOBTOB), Jimoh Oyibo, the government must grant the sector tax holiday so that what befell the textile sector will not affect them. He said this would enable the sector to gather more strength with which to keep the companies afloat.
Speaking on the Executive Orders, he proposed that government should only regularise it to Company Income Taxes (CIT). While noting that most companies’ materials are import-based, he said the import duty should be looked at, particularly on wheat and sorghum, among others to run their plants.
He lamented that the high cost of raw materials and energy has taken a huge toll on their profits margin.
General Secretary, of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Lumumba Okugbawa, agreed that it was good that the government removed the fuel subsidy. But he stressed that there is a need to properly appropriate the savings to cushion the effects of the removal.
Director-General, of Lagos Chamber of Commerce and Industry (LCCI), Dr. Chinyere Almona, said it has become imperative more than ever to focus on the manufacturing sector to ameliorate the sufferings citizens are passing through.
She advised the federal government to put in place policies that can unlock value within the sector. “We want to move from where we are presently, which is importing, to a place where we are exporting more and so, it is imperative we get the manufacturing sector up and running, support those still alive and encourage new players to come in. Not only are manufacturers huge employers of labour, but they also hold the key to improving our export quota wherein we can earn foreign exchange. The pressure on FX will reduce drastically. The government needs to pay attention to what will help this sector thrive.”
Ajayi-Kadir identified some low-hanging fruits the President could utilise to drive the economy and manufacturing sector, including prevailing on the CBN to take effective action to give priority to the allocations of FX to the productive sector, particularly to manufacturers to import raw materials, spares, and machinery not locally available.
He urged the Nigerian Electricity Regulatory Commission (NERC) to quickly admit all qualified applicant companies into the Eligible Customer Scheme (ECS) to allow them access to power as stipulated in the Electric Power Sector Reform Act 2005. He regretted that power was still a major problem and the cost of alternative energy is exorbitant, forcing many companies in the last few years, to fold up or scale back on production.
He also called on President Tinubu to announce a special policy initiative to address the revival of closed and distressed industries, particularly in the North East where over 60 per cent of companies have closed. “Furthermore, all ministries, departments, and agencies of government must unfailingly comply with Executive Order 003 on the patronage of made-in-Nigeria products. In this regard, there should be strict application of the margin of preference, effective monitoring and periodic evaluation of compliance, and appropriate sanctions meted out to MDAs acting in breach of the executive order,” he said.
