When will Nigeria fix age-old problems hurting industrial prosperity?
It is a crying shame that some of the issues hurting Nigeria’s industrial prosperity in 1980s and 1990s are still the same problems discussed today in every forum. Industries complained about poor infrastructure in the 1980s and are still crying over it more than 30 years after. The “up NEPA” situation is still not over as irregular energy supply and high cost of alternative sources are still issues bedeviling the manufacturing sector today—as they were in 1980s and 1990s. A change from NEPA to DisCos has not changed that. Discussions around import bans are not new. In 1978, 26 items were broadly restricted from being imported into the country. The number kept increasing till 1990. In 1980s, 95-96 percent of textiles were restricted from being imported into the country just as 50 percent of food, beverages and tobacco were not allowed in, according to Ademola Oyejide, A. Ogunkola and A. Bankole in their work entitled ‘Import Prohibition as a Trade Policy Instrument: The Nigerian Experience.’ These are still issues being discussed by manufacturers in 2020. The method of restrictions may have slightly changed as there are now more monetary policy restrictions in terms of not allowing certain items to have access to foreign exchange than the earlier fiscal measure of placing items on import prohibition list. But the policies are the same. Between 2000 and 2009, 820 manufacturing firms shut down, according to Bashir Borodo, the then president of the Manufacturers Association of Nigeria (MAN). Companies are still shutting down today. In 2016 and 2017, 54 manufacturers went under, according to MAN. Many are still closing down. In 2018, America’s biggest non-oil investment in Nigeria, Procter & Gamble at Agbara, Ogun State, shut down its operations. The difference now could be that the sector is keeping less data on shutdowns; otherwise data could have disclosed shocking number of shutdowns in the manufacturing sector.
The challenge before Nigeria is to fix those age-old problems that have continued to make its industrial sector uncompetitive.
The Nigerian manufacturing sector experienced 8.78 percent drop in growth in the second quarter of 2020 due obviously to COVID-19 , according to data from the National Bureau of Statistics (NBS). It had 0.13 percent drop in growth in the Q2 of 2019 and 3.36 percent slump in Q2 of 2016. The only Q2 periods it recorded growth since 2016 were in 2017 and 2018, where it registered 0.64 percent and 0.68 percent growth respectively.
The simple reason for the woes in the sector is that age-old problems die hard and only little effort is being invested into solving them.
First is that the country’s infrastructure is getting worse. Clearly, rains are increasingly exposing the poor state of roads in the country. From Agbara industrial cluster in Ogun to Apapa in Lagos, roads are bad or inaccessible. Access road to Apapa and Tin Can ports has continued to be nightmares for manufacturers and exporters. Between October 2019 and March 2020, cost of moving goods in a 40-foot container from Apapa to Ikeja (ordinarily 40-minute drive) rose from N350,000 to N650,000 to N700,000. Similarly, goods stay for weeks on bridges before being exported. Perishable goods get spoilt, in addition to frustrations by the port authorities due to lack of functional scanners. It is worse today with workers and businesspeople spending hours on Apapa bridges just to gain access to the port city.
In the first quarter of 2020, MAN undertook a CEO survey to determine what constituted challenges for them. At the end of the survey, 94 percent of the CEOs interviewed agreed that congestion at the ports significantly affected their productivity negatively.
“Most worrisome are the issues of deliberate delay in cargo clearing time, raising of technical barriers, rejection of relevant documents by officers of the agency that approved import documents, multiple agencies with duplicated functions and other rent-seeking activities of vested interests at the port that excessively fleece operators,” the CEOs said.
It is impossible to talk about infrastructure without discussing power. Though the cost of alternative sources of energy by manufacturers dropped from N82.6 billion in 2018 to N67.38 billion in 2019, signifying an 18.4 percent decrease over the period, the cost of energy is still high. Most manufacturers have long ditched DisCos because of irregular supply of power, which raises their production costs significantly and forecloses their chances of competing with international peers. Local products are often more expensive than imported Chinese products because production costs in the country are significantly higher than China’s, especially when key issues such as taxes and regulations are factored in.
Apart from infrastructure, regulation is a major issue hurting the sector. In Nigeria, Africa’s most populous country, agencies of the government work at cross-purposes. For instance, the Standards Organisation of Nigeria (SON) does not accept tests done by the National Agency for Food and Drug Administration and Control (NAFDAC) and vice versa. Worse still, their responsibilities overlap. Similarly, local or state governments do not accept agreements by the Federal Government, particularly when it has to do with money or taxes.
In the CEO survey mentioned earlier, 94 percent agreed that multiple/over-regulation by agencies of government hurt productivity in the manufacturing sector.
“Quite often, agencies of the federal, state and local authorities regulate the same manufacturing process resulting in man-hour loses, supervisory duplication using similar checklist and multiple regulatory charges which ultimately translates to increased cost of production for manufacturers,” MAN said.
Another critical issue bedeviling the industrial sector is funding. Nigeria is cash-strapped due to falling oil prices. This is hurting the country’s capacity to fund projects and critical sectors. However, pool of funds from the CBN and development finance institutions is stashed in banks which are sometimes unwilling to lend to businesses due to what they call ‘high-risk level’ of lending to businesses in Nigeria. Consequently, several manufacturers have complained that they are unable to access most funds advertised by the government.
Manufacturing needs funding, especially long-term, single-digit funds, to compete. In 2019, China set up a $21 billion fund to further develop its advanced manufacturing sector. India has billions of dollars for funding start-up manufacturing firms. In the face of foreign exchange scarcity, which is stalling manufacturers’ capacity to import inputs, firms are pumping billions to source raw materials locally and beat the FX crunch. The projects require funding and friendly environment to continue.
While some manufacturers have accessed funding from the CBN, Bank of Industry and others, the feeling in the sector is that funds are not easily accessible by all players.
Next to this is policy inconsistency. There is no guarantee that some of the current CBN policies- as protectionist as they are- may survive in the next dispensation. Farmers of maize are complaining of CBN’s sudden U-turn where it gave four companies licenses to import 262,000 metric tons of maize despite pronouncing total FX restrictions earlier. Though the policy itself is seen as detrimental to poultry farmers and manufacturers, it represents policy inconsistency to do a U-turn two months after pronouncing it. Some investors may have invested money into the industry and it could hurt their investments, especially if the companies exploit a loophole and exceed the quotas given them. This has been a common event in the last 10 years.
Take the Export Expansion Grant (EEG) as another example. It was targeted at raising the competitiveness of Nigerian products at the global market. But by 2009, it had been suspended five times. In 2013, it was suspended again, putting a lot of firms who borrowed from banks in jeopardy. Firms had borrowed from banks to process their exports with the hope that the government would, as promised, give them incentives. But the government in 2013 suddenly suspended it. Up till now, it is yet to fully re-start, though a lot of processes have been undergone by exporters, including approval by both houses of the National Assembly. Perhaps, Nigeria can learn one or two things from Bangladesh. At independence in 1971, the South-East Asian country had 82 percent of its citizens below the poverty line. But by early to mid-2000s, it had lifted 33 million citizens (23-26 percent of the population then) out of poverty. Two of the reasons adduced by analysts for this miraculous jump out of poverty pit were industrial policies and market reforms.
Bangladesh’s garment industry is partly responsible for rising prosperity witnessed in the country, according to Brookings Institute.
“Bangladesh offered a better environment for manufacturing firms to achieve economies of scale and create a large number of jobs,” Kaushik Basu, an economic analyst, said.
The country offered low and organised tax system, cheap funding, and empowered its manpower, skilling its youths to fit into the new industrial vision.
“ And though Bangladesh still needs much stronger regulation to protect workers from occupational hazards, the absence of a law that explicitly curtails labor-market flexibility has been a boon for job creation and manufacturing success.”
Bangladesh earned $33 billion from exporting garments in 2018—10 times what Nigeria earned from exporting 25 products the same year. Nigeria today is world’s poverty capital with nearly half of its population in extreme poverty.