It is interesting to be a manufacturer in Nigeria. There is money to be made but also hurdles to cross. The population of 200 million provides a big market for manufacturers though almost half of this demography are extremely poor.
The environment in which manufacturers operate is tough as the sector appears to be the hardest hit from an economy that is struggling and growing at a pace below its population growth.
Dwindling economic activities, coupled with falling purchasing power, has caused sharp declines in the revenues of most manufacturing firms in Africa’s largest economy.
The Manufacturers CEOS Confidence Index (MCCI) survey carried out among business owners in the manufacturing sector for the second quarter of 2019, conducted by the Manufacturers Association of Nigeria (MAN), showed that issues around foreign exchange, bank lending rate, government capital implementation, multiple taxes, overregulation of regulatory agencies, and sources of raw materials were some of the challenges dragging the growth of the sector which have also constrained its performance on the global market scale.
However, in spite of the harsh operating environment, many manufacturing companies have been able to surmount the economic headwinds by growing revenue from sales and raking in good returns for shareholders.
For example, Nestle has succeeded in consistently growing revenue and net income in the last three years.
In 2015, when many companies started feeling the shock of a collapse in oil prices, where Nigeria gets about 84 percent of its foreign exchange earnings from, revenue and net income of Nestle rose 6 percent and 7 percent respectively to N151.3 billion and N23.8 billion.
The same trend was seen in 2017 after the firm picked up the pieces of a horrid year in 2016, to grow revenue by a whopping 34 percent to N244.1 billion in 2017, fuelled by 139 percent surge in domestic sales. Export sales, which contracted in 2016, grew more than double to settle at N3 billion in 2017. Revenue further trended northwards to N266.2 billion in 2018, and a sharp drop in finance cost helped after-tax earnings to soar 26 percent to N43 billion last year.
The firm has continued to succeed due to a combination factors that have been put in place, ranging from long-term investments, development of people, continuous brand building, quality and trust, development of the community it operates, creation of partnership, nutritional products and consumer centric innovations, among others.
The truth is, for the economy and the manufacturing sector to improve, it is important that the various challenges of the sector be adequately addressed. While awaiting government intervention, It is of greater advantage for industry players to address the issues in-house by applying homemade options.
Innovation
To operate in an economy that is Volatile, Uncertain, Complex and Ambiguous (VUCA) like Nigeria, manufacturing companies must be innovative, producing a variety of goods that are price friendly and suit consumer preferences.
Poverty rate is almost 50 percent with unemployment rate hitting 23.1 percent, according to official date, meaning shrinking wallets for consumers. A 2019 Coronation Merchant Bank Report says that price is a key battle ground and companies with lowest price points win. This is Innovation number one: Lowering production cost to give consumer relatively cheaper but comparatively good products.
Manufacturers now produce smaller sizes of goods in response to shrinking wallets of consumers. Frieslandcampina WAMCO for example, now has Peak and Three Crown dairy products in small sizes, helping them to reach more consumers while making good margins.
Data from the National Bureau of Statistics on Gross Domestic Product (GDP) by Income and Expenditure approach at 2010 purchaser’s values show that consumption expenditure of households has been declining at varying pace since it rose by 1.5 per cent in 2015.
Also, the International Monetary Fund (IMF) says that per capital income of citizens in the country has declined to $2,049 in 2018 from as high as $3,268 in 2014, signifying that consumers have less to spend on basic necessities.
Those who fail to see from the angle have lost market share to competitors or have seen their business operations crawl.
Jik once lost the bleach market to Hypo when the latter took notice of economic reality and entered the market with sachet bleach, selling it as low as N20 to serve consumers.
Similarly, Coca-cola has faced intense competition from the likes of Bigi and Big Cola, who are both selling at N100 for a product of same quantity. This pushed CocaCola into innovating to cater for the demands of those consumers who might have N100 and still want to derive satisfaction for its products. The same was with Dufil, when it snapped up the vegetable oil market with the introduction of ‘Power Oil’.
In reality, for manufacturers to stay afloat, they must continuously
Backward Integration
Importation of raw materials is becoming increasingly difficult as naira weakens. For over three years now, 43 items have been on the list of products not eligible for foreign exchange in Nigeria. Imagine a multinational which needs $100 million to import inputs. It may have to resort to black and secondary markets, which may not be easy.
Manufacturing companies can resort to local sourcing of raw materials, also known as backward integration, which will be beneficial for both the company and its host community. Backward integration is a tactical move by the government aimed at sustaining a favourable foreign exchange, boosting local capacity, creating jobs, enhancing skills acquisition and increasing the utilisation of locally available raw materials.
Economists say increased raw materials sourcing by manufacturers, when done sustainably, will not only create a number of value chains and jobs, but will also bring huge foreign exchange and development.
Many multinationals are surviving today by backward integrating or getting raw materials locally. Doing so is cost-effective at best and reduces exposure to foreign exchange. In 2016, 54 manufacturing companies shut down because of their inability to access FX, shedding hundreds of jobs. This should not be allowed to happen again especially now that the government is openly encouraging firms to source inputs locally—even with incentives.
Smart Technology
Using technology comes with attendant of advantages for manufacturing companies and has become a necessity within manufacturing operations that are seeking to reduce cost and eliminate wastes.
Manufacturing technology helps to achieve speed and efficiency.
The advantages of manufacturing technology include: increase in quality / decrease in human error, cost reduction, and reduction in overall production time, among others.
Companies which leverage technology have the potential to easily meet increasing demands whether domestically and internationally. Today several companies are becoming tech-complaint and they have nothing to regret. Beloxxi is a typical example of a company that uses smart technology. Once you press a button, production takes care of itself. This saves cost, though it has implications on employment.
Export Oriented
Manufacturing companies must strive to be export oriented in their operations. This is because companies which export get foreign exchange from sales of their products, making them have dollar liquidity in their confers to purchase more inputs. Recently, the Federal Government ordered the Central bank to stop providing FX to importers of agricultural products, a move that can cripple activities for companies who rely on the CBN for FX of its imports.
Following the order, manufacturers exporting products to the international market are expected to be able to weather the storm without being affected, while those that do not would need to source dollars from bureau de change where dollars are more expensive. This increases cost of production.
Government
Manufacturers must learn how to deal with government agencies. It is a skill that needs to be learnt. Appoint a officer who will deal with regulatory issues.
Government, on its part, must help businesses to grow by eliminating multiple taxes. It can also intervene by enforcing patronage of local goods. One of the things India has successfully accomplished is sensitising its citizens to always buy locally made products. It both increases the economy and instils the spirit of patriotism on the citizens.
Nigeria could do this by enforcing and monitoring the Executive Orders 003 and 005, and encourage the government of all levels to embrace patronage of made-inNigerian products. Doing this would boost the output of the industries and save foreign exchange for the country.
