Why Nigerian manufacturers are uncompetitive

 

Nigerian manufacturers are hard hit by a harsh operating environment, which makes production costs high and competitiveness low.

Key players who spoke to BusinessDay said unless there is a well-defined approach to resolving key constraints to reduce cost of local production, the country will continue to rely on imports for the most basic things with its products unable to compete globally.

According to Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, competitive manufacturing is about the quality of infrastructure a country possesses, which is currently in a poor state in Africa’s biggest economy.

“Competitive production is about the quality of infrastructure and if you look at the state of our infrastructure today, manufacturers cannot be competitive,” Yusuf said.

He noted that power is a key infrastructure that is critical to production and competitiveness.

He said high dependence on imported raw materials by manufacturers is another factor that has made local production’s competitiveness low as it exposes them to foreign exchange shocks.

He said countries like Vietnam, China and other Asian industrial economies provide huge support and waivers to manufacturers, allowing them to access finance and making them immune to the FX crunch faced by their Nigerian competitors.

Nigeria’s Purchasing Managers Index – an index to gauge the health of the country’s manufacturing survey conducted by Stanbic IBTC Bank in March 2023 — declined to 42.3 points, below the 50 points benchmark of a good performance.

Long-standing problems including FX scarcity, lack of inadequate funding, and high costs of raw materials were identified by chief executives of Nigerian firms as some of the challenges dragging the growth of the sector backwards and making local products uncompetitive.

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 2022, the manufacturing sector’s contribution to the GDP declined to 8.40 percent from 8.59 percent in the corresponding period of 2021, according to the National Bureau of Statistics (NBS).

The NBS data also showed that Nigeria’s total non-oil exports in 2022 were worth $4.8 billion (N2.2 trillion), which is just a fraction of Vietnam’s $53.2 billion earnings from only its agricultural export in the same period.

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Fatai Afolabi, former executive secretary of the Plantation Owners Forum of Nigeria, said in a recent interview with BusinessDay that the inability of manufacturers across various subsectors to compete has continued to hinder investments.

“We are not globally competitive and this is because of the harsh operating environment for manufacturers,” he said. “How can we compete when we are not efficient in production and still highly import-dependent for raw materials?”

He said driving industrialisation and diversifying the Nigerian economy away from oil will require paying more attention to making value-adding manufacturing export competitive.

According to him, importers are gaining more advantage than local manufacturers, as they sell cheaper than the former, whose production cost keeps rising on account of the high cost of doing business in the country.