Nigeria sets ambitious target for manufacturing sector but analysts are cautious

Nigeria has an ambitious target of raising the share of manufacturing to a whooping 20% of GDP according to Niyi Adebayo, the federal minister for industry, trade and investment.

He told a virtual event on 30 March that the sector’s size should reach 20% share in GDP by 2023.

In this report analysts at FBN Quest say this would mark an impressive step up from the 12.8% attained at current prices in 2020.

Adebayo also told the event, co-chaired by the Nigerian Economic Summit Group (NESG), that his ministry will work out strategic plans for three segments (clothing and textiles, oil palm and auto assembly) in place by end-year.

Alongside the strategy, the government offers selective incentives (such as those offered by the special economic zones) and funding (including its NGN75bn package of support for MSMEs to counter the COVID-19 virus).

Recall that the Central bank approved a more substantial NGN1trn programme of credit interventions for the sector for the same purpose, of which NGN800bn had been disbursed by mid-March.

· The minister highlighted a number of areas where manufacturing needed to raise its game: these included marketing, brand strength, research and development. Others would add training and quality control.

· Manufacturing in Nigeria, as elsewhere, had a very difficult 2020, contracting by -8.8% y/y in Q2 due to the lockdown and by -2.8% over the full year.

· Performance did improve in H2. The CBN’s index of manufacturing production rose by 1.5% q/q in Q4 to 181.1 (2010=100). The national accounts show more rapid growth of 5.6% for the sector in the same quarter, led by 18.6% for textiles, apparel and footwear.

· Import substitution and backward integration are core elements of manufacturing policy. Ministerial data cited in the local media, however, point to large annual supply deficits for maize, wheat, rice, sweet potato and even cassava (of almost 12 million metric tonnes). This evidence is inconclusive, not least because of the virus, but the National Bureau of Statistics has reported a 65% y/y increase in food imports to NGN1.2trn in January-September 2020.

· Officials like to talk up the potential offered by the African Continental Free Trade Area (AfCFTA), which became operational on 01 January.

At least in West Africa, Nigeria could, indeed should benefit since its manufacturing is easily the most developed in the sub-region. That said, it appears that many players in the sector are poorly informed about the area. We also get the impression sometimes that public officials and the Manufacturers’ Association of Nigeria channel more energy into highlighting the threat from dumping than into helping the sector seize the opportunities in the AfCFTA.

· It is fair to assume that the FGN’s thinking is guided by the role of the sector in transforming Asian economies, notably when it works with local raw materials. We learnt, for example, during the NESG event that garments and leather employed four million workers in Bangladesh in 2017, and earned USD37bn from exports and accounted for 11.8 per cent of GDP in 2018.

· However, analysts have some reservations with the official focus on automotive assembly. The event showcased the Moroccan case study. It has been transformative but we wonder whether the many global auto manufacturers would have established themselves without the kingdom’s association agreement with the EU.

· Eme Essien Lore, the country director for the World Bank Group’s International Finance Corporation, told the event that she did not believe in wasting a good crisis. She noted that both Indonesia and Malaysia had been able to turn around their manufacturing following a domestic crisis, and suggested that the virus presented Nigeria with such an opportunity.