Nigerian manufacturers are battling with various challenges which ultimately affect their productivity, capacity utilisation and especially competitiveness.
The Manufacturers CEOs Confidence Index (MCCI) survey conducted by the Manufacturers Association of Nigeria (MAN) in the first quarter of 2019 showed various issues hurting Nigeria’s productive sector.
According to the MCCI, CEOs confidence stood at 51.3 points in the first quarter of the year, slightly above the 50 points benchmark of a good performance. Issues around foreign exchange, bank lending rate, government capital implementation, multiple taxes, overregulation and raw materials were identified by chief executives of Nigerian firms as some of the challenges dragging the growth of the sector backwards.
The effect of these recurrent challenges can be felt in the sector’s level of production, global and local performance as well as its contribution to the country’s real gross domestic product (GDP).
In the fourth quarter of 2018, the manufacturing sector’s contribution to the country’s GDP remained stagnant at its 2017 level of 8.86 percent, according to the National Bureau of Statistics (NBS) figures.
The NBS data also showed that Nigeria’s total non-oil export in 2018 were worth $3.3 billion (N1.19 trillion), which is just a fraction of Bangladesh’s $33 billion earnings from ready-made garment (RMG) sector in 2018.
Access to funds
Data from MAN show that lending rate to the manufacturing sector averaged 22.21 percent in 2018 and 22.84 percent in 2017.
However, the current repo rate (central bank lending rate to commercial banks) in South Africa is 6.75 percent while the prime lending rate (lending rate to customers) is 10 percent.
Similarly, Kenya Central Bank’s monetary policy committee cut the determining bank rate in late July 2018 to 9 percent, from 9.5 percent.
Zambia’s benchmark lending rate is 9.75 percent as of February 2018, while Ethiopia’s is 7 percent.
Nigeria’s monetary policy rate, which is the benchmark interest rate, is 13.5 percent and banks lend at 20 to 30 percent.
With this, local manufacturers’ products are often too expensive in the local and global markets compared with those of Asian countries borrowing at single-digit rates.
Smuggling
The country’s porous borders are also a contributory factor to manufacturers’ woes as products flood into the country illegally from Benin Republic and Togo, among others. A case study is palm oil from Malaysia smuggled into Nigeria every day, hurting local investors that have pumped in billions to develop the industry.
Apapa gridlock
Exporters lose thousands of dollars annually to delays at Apapa and Tin Can ports that provide over N5 billion each day to Nigeria. Imported raw materials take ample time to reach factories, slowing down the production process.
During a recent conference, the Ogun State chapter of Manufacturers Association of Nigerian (MAN) concluded that the gridlock in Apapa had raised production cost, as members often paid unnecessary demurrages due to delays of getting containers out and in of Apapa.
“If Nigeria does not want to collapse its economy, then the Apapa gridlock has to be solved urgently,” the association said.
According to Raymond Amah, chief executive of Amah Company Limited, an Owerri, Imo State-based businessman who imports from China, the cost of transporting goods from Lagos ports to Owerri is far higher than the cost of bringing such from China to Lagos.
Electricity supply to manufacturers
Manufacturers rely on gas, diesel and other alternative sources as power distribution companies’ failures mount.
According to a survey conducted by MAN, expenditure on alternative energy sources totalled N93.1 billion in 2018.
In fact, manufacturers have set up a power company with a view to seeking ways of getting steady energy supply at reasonable costs.
What should be done
Funding
One manufacturing company has the capacity to create the equal number of jobs of all the banks.
Hence Nigerian manufacturers need single digit lending funds to survive in a harsh environment. The Bank of Industry (BOI) has done so well in funding a number of firms, but analysts say it should be recapitalised to make more funding available for the productive sector. Same with the Bank of Agriculture, which has now been overshadowed by the Central Bank of Nigeria that funds the Anchor Borrowers Scheme.
Level of local patronage
One of the things India has successfully accomplished was to sensitise its citizens to always buy locally produced products. This can happen in Nigeria. But first, government and its agencies must patronise local products and implement executive orders to this effect.
“If government should start patronising Innoson Vehicles, buy military and paramilitary clothes from textile companies, do you know what it means for our economy?,” Babatunde Ruwase, president of the Lagos Chamber of Commerce and Industry (LCCI) asked passionately.
Tax issues
Nigeria ranked 146 among 190 economies in World Bank Doing Business survey.
One of the factors responsible for this downfall is multiple and illegal taxes manufactures would have to pay different agencies for doing business in Nigeria. There is a need to harmonise all the taxes and digitise tax collection to remove touts in the system. The fact is that states and local governments are now revenue drivers and see manufacturers as oil pipelines. This is one major reason why decent direct investors take their time before putting money into the Nigerian economy. In many other parts of the world, there is certainty of taxes to be paid and firms comply without being prodded. Why must things—all things— be different in Nigeria?
Technology
Across the world, manufacturing is changing. Robotics, artificial intelligence and other forms of advanced manufacturing techniques are already used. These are expensive to deploy, but they achieve efficiency in production and reduce costs. Nigerian manufacturers must begin to think of changing their processes and embracing technologies that will achieve speed and efficiency.
JOSEPH MAURICE OGU & GBEMI FAMINU
