Oil price, border closure, implementation of the African Continental Free Trade Area (AfCFTA) and Central Bank of Nigeria’s policies are critical issues, analysts say, will make or mar Nigeria’s manufacturing sector in 2020.
The AfCFTA implementation will begin in July 2020 and all manufacturers are keen on what the trade treaty holds out for them. While it provides opportunity for Nigerian firms to leverage broader continental market, it also promises to pressure firms to either innovate or die. Other than what firms do, Nigeria’s preparedness is also a major factor that will redefine manufacturing in Africa’s most populous country.
Bismark Rewane, CEO of Financial Derivatives Company, said last July that the AfCFTA would favour Nigeria, Kenya, Egypt and Ghana and other big countries, but warned that any government that was not effective would fail within the AfCFTA environment.
Across the manufacturing sector, there is consciousness that AfCFTA will increase competition for their products, and export-oriented firms are consolidating to leverage the trade pact.
“Our group presence in the export trade zone, especially in the oil and vegetable oil, is an indication that we are ready,”
Osaro Omogiade, managing director, Nosak Distilleries, which manufacturers food-grade ethanol, told BusinessDay.
“We have commenced export of food-grade ethanol to the neighbouring West African countries, particularly Ghana. It is an expression of our readiness. We believe in living global because of the associated advantages. If you do export, you will hedge against the foreign exchange problems,” Omogiade said.
Also, manufacturers are keeping a close eye on the oil price in the global market, which ended at $68.67 per barrel on Monday. A drop in oil prices, as experienced in late 2015 and 2016, will shrink the foreign exchange available for the economy and manufacturers for the importation of inputs, machinery and packaging materials.
About 54 manufacturing firms shut down during the oil market crisis of 2016 as they could not access their inputs, according to Frank Jacobs, president of the Manufacturers Association of Nigeria (MAN) at the time.
A report released by NOI Polls in association with Centre for the Studies of Economies of Africa in 2017 showed that dollar crunch forced 272 firms to shut in one year.
Should oil price fall, manufacturers will, again, increase local input sourcing or scale down operations.
Earlier in August 2019, the Federal Government gave a directive to shut Nigeria-Benin borders in a bid to reduce smuggling of rice, petrol and arms.
Some manufacturers welcomed the idea as it drastically raised the competitiveness of their products. Protectionists argue that by shutting borders, imports are restricted and local manufacturers have the space to scale and make profits.
On the flip side, many exporters can no longer ship out their products to the African market to earn foreign exchange, and manufacturers have resorted to the more expensive seaports and waterways for the movement of their goods.
“Eighty percent of Nigerian manufacturers are comfortable with the border closure. Howbeit, the border closure has increased the menace of smuggling as the border lacks the right infrastructure to function effectively,” Vincent Nwani, CEO, RTC Advisory Services, said.
Nwani explained that it was difficult to manufacture some goods locally as they required raw materials that were not available in the country.
Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said in a statement that while protectionist policies might help local industries stay afloat, it would make them remain less competitive to their foreign counterparts.
“It is probable that government will leave the land borders shut till it gets the desired level of commitment from neighbouring countries,” Yusuf said.
Continuous closure of the border may favour manufacturers, but it will hurt some depending on the border for inputs, including exporters that must ship their products to the West African market through the border.
More so, the CBN loan-to-deposit ratio of 65 percent, which was recently raised from 60 percent, may favour manufacturers in 2020 as analysts predict more aggressive funding for the sector. However, some manufacturers might be hurt if the CBN continues to increase the list of items ineligible for foreign exchange, experts say.
“We believe manufacturing sector will continue to benefit big from CBN’s aggressive credit push to the real sector. In furtherance, we see scope that competition between foreign and local producers will fade on prolonged closure of land borders,” Yusuf further said.
ODINAKA ANUDU & GBEMI FAMINU
