Investor confidence improves as manufacturers set up new plants

After a lull in the first three quarters of 2015, manufacturers are now beginning to establish new plants and machinery, a development that shows an uptick in the Nigerian investment climate.

The pre-general elections tension and the failure of President Muhammadu Buhari to constitute his cabinet early, slowed down investments in the first three third quarters of the year.

The absence of economic policy direction created uncertainty in the minds of investors, prompting the Lagos Chamber of Commerce and Industry, manufacturers and other real sector players to demand a policy direction.

But the situation is  changing slightly in the real sector, with Cadbury setting up a new N10 billion plant in Lagos, which will ramp up the firm’s production capacity by about 37 percent.

The investment, worth over $50 million, promises to create more jobs and value-addition in Nigeria’s agro-industrial sector.

“Our investment in this plant reflects the company’s confidence in the fundamentals of the Nigerian economy and commitment to the development of Lagos State as our host community,” said Roy Naaman, chief executive officer, Cadbury Nigeria plc,  at the  weekend in Lagos .

Similarly, BASF, a global chemical maker, last week set up a new production plant for concrete admixtures in Lagos. The new BASF investment is a response to rising demand for construction chemicals in West Africa.

“We are now able to rapidly supply our customers with admixtures for all cement and aggregate types, whether their construction projects are located in the urban areas of western Africa or in more remote sites,” said Nair Narayanan, country manager for BASF Construction Chemicals, West Africa.

The MD Services Limited has also inaugurated a new plant in the South-East part of Nigeria. The chemicals plant produces water purifiers, targeted at reducing  water-borne diseases.

“We intend to expand investments to ensure that water-borne diseases are reduced to the barest minimum in the country,” Matthew Ibeabuchi, managing director, MD Services told BusinessDay.

Manufacturers often make investments in land and building, plants and machinery, furniture and equipment, as well as motor vehicles and assets under construction.

Manufacturing investments have been low in 2015, owing to election tensions which scared investors away. The situation is different from 2014 when Procter & Gamble and other firms made huge investments in local plants.   Manufacturing investments went down by a massively  N1.31 trillion in 2014. According to the latest economic review released by the Manufacturers Association of Nigeria (MAN), investments in the ten broad industries of the manufacturing sector nose-dived from N2.07 trillion in 2013 to N691.81 billion in 2014, representing a 65.4 percent drop.

The decline was attributed to pre-election tension and the rise in production costs in the economy.

Some manufacturers complain that one of the biggest disincentives to investment in the sector this year is the monetary policy.

The recent CBN monetary policy, which restricted 41 items from accessing foreign currencies, has had some impact on manufacturers who source raw materials from abroad. They say this is already affecting productivity in the economy and has led to a shedding of 40,000 workers.

Remi Bello, president, Lagos Chamber of Commerce and Industry (LCCI), says the challenge has posed problems for manufacturers and potential investments in the sector. Bello however adds that on the upside, the situation presents an opportunity for backward integration.

“Let me say that we should demystify the need for foreign exchange. We should start to think of what we can do locally,” Bello says, while calling on manufacturers to backward integrate, to have local access to needed inputs.

The investment climate is also considered harsh to investors, as they are uncertain about the number of taxes to pay, contrary to the canon of certainty in taxation. Most businesses spend longer  time paying taxes, while a number of them operate with generators, owing to poor power supply.

“Nigeria has to develop an enabling environment that nurtures medium to high-tech industries in order to accelerate the growth rate. With the global environment, the country has to consciously shift from low- to high-tech industries in some of its sub-sectors,” says Frank Jacobs, president, Manufacturers Association of Nigeria (MAN), in his economic blueprint sent to President Muhammadu Buhari.

ODINAKA ANUDU