Why Nigeria’s industrial clusters are losing traction
The state of Nigeria’s clusters raises more questions than answers. Many of the clusters are hard hit by poor road networks while others are battling with lack of funding and poor access to market.
For starters, an industrial cluster harbours manufacturing firms or companies carrying out similar industrial-related activities. According to the United Nations Industrial Development Organisation (UNIDO), firms in a cluster produce similar or related goods or services and are supported by a range of dedicated institutions located in spatial proximity such as business associations and technical assistance providers.
In a working paper, the Bank of Industry (BOI) explained that industrial clusters would provide a platform for enterprises to share infrastructure, equipment and knowledge, leading to economic transformation. For the purpose of this piece, industrial clusters will be seen as a group of manufacturing firms localised in a particular industrial environment.
Typical examples of industrial clusters are Aba leather cluster (Abia), Aba fabrics cluster (Abia), Kano leather cluster (Kano), Nnewi cable and spare parts clusters (Anambra), Apapa cluster (Lagos), and Ikeja cluster (Lagos). Others are Amuwo-Odofin cluster (Lagos), Ogbaru cluster (Anambra), Kaduna leather cluster (Kaduna), and Agbara cluster (Ogun), among many others.
The challenges of each cluster are mostly similar, but sometimes different. Starting from Lagos, Nigeria’s industrial epicentre, Amuwo-Odofin cluster is unfortunate to be located close to Apapa and Tin Can ports, where entry and exit are nearly impossible. Company vehicles struggle to deliver raw materials to the factories or finished products to the customers. Like the Apapa cluster, workers and their managers park their vehicles far away and then negotiate to their factories with commercial vehicles or other means of transportation.
Amuwo-Odofin hosts big manufacturing companies such Nosak Distillery, Hongxing Steel Company, and Agary, among others.
“Overall, it is estimated that over N20 billion is lost annually by manufacturers within the Amuwo Odofin and Kirikiri industrial zones as a result of dilapidated infrastructure, and this is not good for a nation that wants to open up its economy to trade with others in the continent,” Frank Onyebu, chairman, MAN, Apapa branch, said last year.
Osaro Omogiade, managing director of Nosak Distilleries, told BusinessDay that the Amuwo-Odofin cluster had been taken over by trucks.
“They line up along the road and block everywhere. To access our factory is a very big challenge,” he said.
“It is not just us, but all companies in Amuwo-Odofin. At times, you park your vehicles somewhere and walk down to the factory. It is a huge challenge. The pains are enormous; the various players in Amuwo-Odofin know what they are going through,” he further said.
The pains of manufacturers in Apapa are much more. Tankers and containers sit on entry bridges for weeks, blocking entry and exit. Big firms such as Flour Mills of Nigeria, Dangote Sugar, Kneipe, and Honeywell, among others, incur huge logistics costs simply because the federal government and Lagos State government are clueless about what to do.
According to the Lagos Chamber of Commerce and Industry (LCCI), about 5,000 trucks seek access to Apapa and Tin Can ports in Lagos every day. The LCCI report said the ports were originally meant to accommodate only 1,500 trucks, but they now have over 5,000 each day.
“Government is trying to ensure it decongests the ports, but it is just the sheer volume that is the problem,” Paul Gbededo, CEO of Flour Mills of Nigeria, told BusinessDay recently.
“If we construct the roads, it makes orderly arrangements for trucks to enter, but it is still beyond the capacity. Technology needs to be employed and other infrastructures need to be deployed,” he suggested.
The Aba leather and fabrics clusters host over 100,000 entrepreneurs working hard every day to churn out products for the consumers. One million pairs of shoes are produced by the leather segment each week.
It has a lot of huge potential, with traders from West African neighbours storming it every week to buy different products and designs.
“We are already struggling to meet demands,” said Ken Anyanwu, secretary of the Association of Leather and Allied Industrialists of Nigeria (ALAN), who produced Nigerian armed forces shoes in 2016.
However, the cluster is operating in chaos, with poor road infrastructure, inadequate funding and lack of organisation hurting players.
Small businesses in the cluster are poorly structured, with many not registered at the Corporate Affairs Commission. Exports are made informally, making tracking and planning difficult.
Their machines are crude and much of their work is still done by human labour.
“This is where the problem lies. We in Aba have no good machines,” Anyanwu of ALAIN said.
“The Bank of Industry has done its best by giving some of us N300,000 each, but it takes $250,000 to N750,000 to set up a standard shoe factory. So, what can N300, 000 do when the industry is capital intensive?” he asked.
Many roads in Aba are bad. The Aba-Ikot Ekpene road which links Abia to Akwa Ibom, two states in the oil-rich South-East and South-South regions of Nigeria, is in a bad state. In the 1990s, Aba shoe and textile makers ferried their products to Akwa Ibom through the road, but the road now looks as forlorn as its passers-by. The Aba section is overrun by dirty water. The middle of the section bordering Umuokpo and Onicha Ngwa communities in Obingwa Local Government Area is covered by comfortably-sat green grass.
The Agbara cluster in Ogun State, from 2017 to 2019, had terribly bad roads. Vehicles were always frequently stuck in the mud. More so, the then state government levied heavy taxes on manufacturers within the cluster, but refused to rehabilitate the Agbara-Igbese road. At a point, the government suggested a 60/40 arrangement, where manufacturers would provide 40 percent of the funds for road rehabilitation while it would contribute the rest 60 percent. This does not augur well for a country determined to industrialise.
More so, the Kaduna and Kano textile clusters have emaciated because of absence of textile firms in Nigeria, which shut down on the back of a cacophony of wrong policies, smuggling and poor patronage/market access.
Experts say one of the simplest ways of rejuvenating industrial clusters is through the provision of good infrastructure, particularly energy.
“Ultimately, government needs to decide to give industrial clusters energy. There needs to be a decentralisation of energy. If you make it in small sets, it is easier to manage,” Paul Odunaiya, managing director and CEO of Wemy Industries, told BusinessDay.
Many clusters like Agbara have joint transformers or energy-generating instalments that reduce their production costs, but others do not have. But analysts urge manufacturers to jointly set up facilities to cut production costs.
Mansur Ahmed, president of the Manufacturers Association of Nigeria (MAN), believes it is the duty of the government to provide such facilities.
“Areas like Kano have Sharada, which is an industrial cluster, but everybody provides energy, water, warehousing and other things themselves. So, you can’t call that a cluster,” he said.
“Government can partner with the private sector to provide power, water and other utilities in the clusters. If you go to Ethiopia, you will see the way clusters are developed. Government does it alone or partners with the private sector. If you set up a common power facility, you can save half of the energy cost,” he further said.
“You can set up a water facility so that people can use it in common, rather than allow them to sink boreholes individually or provide water themselves. This is what makes industrial clusters efficient. If these things are not available, the clusters will not be efficient, and you can’t call them industrial clusters,” he said.
Next is the issue of transportation. Nigeria still has poor road network.
A manufacturer in Ogun State would struggle to move orders to Kaduna by road owing to bad roads and insecurity. Many manufacturers have encountered armed men who steal their products and kill their drivers.
But railways will enable goods to be moved at cheaper rates. The private sector is also looking up to the government to provide security across the country to save lives and products.
“Rather than provide your own security in a cluster or while moving your products, the government has to do that because it is its primary role,” one manufacturer said.
“We spend a lot on security, which cannot make us competitive,” the manufacturer added.