Nigerian industrial clusters are in poor state, and something urgently needs to be done to rehabilitate them, writes ODINAKA ANUDU
The 2019 rainy season was bad news for manufacturing companies based in Agbara, Ogun State. A once bustling industrial cluster, it became a shadow of its former self, with potholes and gullies saluting visitors on entrance. Every day, trucks ferrying raw materials and finished products to and from factories got stuck in broken and muddy roads.
The big companies in the cluster all had their fair shares during this period. Flour Mills of Nigeria, Nestlé Nigeria, Beloxxi, Pharma-Deko, and GreenTech, among others, all suffered that fate. Logistics costs piled up. Cost of maintenance skyrocketed.
There was no solution in sight. Ibikunle Amosun, former governor of the state, proposed that manufacturers contribute 40 percent of the total cost of the road reconstruction, with the state bearing the rest of the cost.
It looked more like state abdication of responsibility, but many manufacturers were willing to key into the plan.
Levies and taxes were coming to the cluster in torrents, but the government of Ogun State was reluctant to do the least of its responsibilities—road rehabilitation.
“Whereas we are willing to collaborate with the government on this project, it is important that the government takes the lead in ensuring a proper and timely completion of this project,” Paul Gbededo, chief executive of Flour Mills of Nigeria, one of the companies in the cluster, said while addressing Dapo Abiodun, the then governor-elect of Ogun in April, 2019.
As I moved across the cluster in April, I appreciated why many Nigerians felt governments at all levels had failed them.
“We are job creators; we are foreign exchange earners; we are the growers of the economy, yet government is always unwilling to support,” a chief executive of one of the manufacturing companies in the cluster told me in anonymity.
I came into the cluster in a commercial mud-spattered motorcycle. The rider and I found ourselves twice in muddy water. Ladies, gentlemen, villagers, and visitors had all suffered that fate many times. They also had to alight from motorcycles twice or three times to get to their destinations.
Today, all that is changing as work is ongoing on these roads. But the roads have done a lot of damage already, having been in a poor state for over two years.
Industry cluster defined
The United Nations Industrial Development Organisation (UNIDO) defines a cluster as an agglomeration of interconnected companies and associated institutions. UNIDO said in a report that 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 or training and technical assistance providers. In simple terms, industrial clusters involve manufacturing or industry-based companies situating in the same location. In a working paper, the Bank of Industry (BOI) said industrial clusters provide a platform for enterprises to share infrastructure, equipment and knowledge, and have led to the economic transformation of many Asian economies, including China, South Korea and Singapore.
Nigeria has over 30 industrial clusters which include Aba Leather Cluster (Abia State) , Amuwo Odofin Cluster (Lagos), Apapa Cluster (Lagos), Ikeja Cluster (Lagos), and Sharada Cluster (Kano), Otigba Cluster (Lagos), Leather Cluster (Kano), and Spare Parts Cluster (Nnewi), among many others. Some free trade zones are also referred to as industrial clusters.
Clusters before
Experts say Nigeria used to have a huge number of industrial clusters in 1960s. Then, the country had palm oil milling clusters at Umuagwo in Imo State, Ihiala in Anambra State and several others across the country. Nigerian controlled 45 percent of the global palm oil market, according to a 2016 research by BudgIT, which aggregated data from Indexmundi, the United States Department of Agriculture (USDA) and Vetiva Research. But it only scratches 900,000 metric tonnes of palm oil per annum today, which represents just 1.52 per cent of global production.
Economists say Umuahia, the capital of Abia State, was once a garment cluster. It supplied garments to various parts of Nigeria and West Africa, but a string of poor import policies has hurt this cluster, pushing it into non-existence. One of the features of early industrial clusters, including textile and leather clusters in Kano and Kaduna, was capacity to share resources and cut production costs.
Today’s clusters
Industrial clusters in Nigeria today have more challenges than bright spots.
Apapa Cluster in Lagos hosts some of the biggest manufacturers such as Dangote Sugar, Flour Mills of Nigeria, Honeywell, and Kneipe, among many others. But it has been taken over by trucks hurrying to ferry fuel and imported products from Apapa and Tin Can ports.
Trucks stay on Apapa bridges for weeks, and manufacturers in the cluster struggle to move their goods to the market.
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.
Manufacturers in the cluster source their water and energy individually.
The state of the cluster is already hurting other businesses.
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An exporter shipping out 1,700 tons of commodities per day under normal circumstances when Apapa road was in good before 2015 struggled to ship between 100 and 250 tons in 2017, Tola Faseru, president of the National Cashew Association of Nigeria, told BusinessDay in 2017.
Apapa is not the only cluster in chains. Amuwo-Odofin, which hosts big manufacturing, companies such Nosak Distillery, Hongxing Steel Company, and Agary, among others, is also hard hit by truck drivers.
“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.
Osaro Omogiade, managing director of Nosak Distilleries, said the whole of Amuwo-Odofin has 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.
In Agbara Cluster, there is common access to energy, but the challenge with the cluster is imposition of multiple taxes and levies.
According to the Manufacturers CEOs Confidence Index (MCCI) for the third quarter of 2019 compiled by the Manufacturers Association of Nigeria (MAN), 89 percent of CEOs of manufacturing companies identified multiple taxes and levies as a big snag to the growth of the manufacturing sector.
Apart from clusters in Lagos, others across the country are not better.
Aba Leather Cluster hosts 80,000 leather makers who produce one million pairs of shoes each week.
It has a lot of 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 key 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, federal and state, 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.
“They have abandoned us to our fate,” Nonso Obima, a shoemaker at Ariaria, who lives in Ogbor Hill area of the road, said.
“They have cut off the section through which we supply our shoes and textiles to neighbouring states and Cameroon,” he cried.
Also, clusters in Nnewi, Onitsha and Imo are hard hit by poor roads.
A 2019 survey by the Chartered Institute of Project Management of Nigeria says that there are 15,000 abandoned projects in the South-East; 11,000 in the South-South; 10,000 in the South-West; 6,000 in the North-West; 7,000 in the North-Central; 5,000 in North-East, and 2000 in Abuja.
Many industrial clusters in northern Nigeria are dead. The Borno, Yola and Adamawa clusters are in comatose as Boko Haram insurgents continue to hit them hard. John Coumantaros, Flour Mills chairman, said in 2016 that his company had stopped operations in the war-torn Borno.
In 2012 to 2016 , the insurgents attacked Ashaka Cement and several companies in the clusters in the north.
Kano and Kaduna hosted over 50 textile makers in the 1970s and 1980s, but the number is now fewer than five owing to a string of poor policies.
“The hitherto manufacturing hubs in Kano, Kaduna and Lagos are now solitary camps with most of their factory sheds now used as event centres and warehouses to store smuggled textile materials,” the Manufacturers Association of Nigeria (MAN), which is an association of over 2,500 manufacturers in Nigeria, said in its review of 2018 performance of the sector.
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Cluster and the economy
Since the crude oil boom of 1970s, the industrial sector has been on the decline, with the country suffering from what economists call ‘Dutch Disease’, which an expert describes as revenue from natural resources hurting traditional manufacturing or leading to its neglect. Government policies were tailored towards promoting imports than exports. Policy mismatch became the order of the day, leading to factory closures.
At the 37th annual general meeting of MAN held in Lagos in 2009, Bashir Borodo, then president of MAN, disclosed that 820 manufacturing companies shut down or temporarily suspended production between 2000 and 2008.
A recent report by the World Bank Enterprise Survey said harsh business environment in Nigeria forced 322 firms to go under between 2009 and 2014, .
Bringing back the clusters
Nigeria’s federal government says it is working to rehabilitate industrial clusters. Okechukwu Enalamah, former minister of Industry, Trade and Investment, said in 2017 that the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) was in the process of resuscitating 23 industrial clusters in the country. The minister is no longer in power and this promised has not been fulfilled.
But solutions are not far-fetched. Mansur Ahmed, president of MAN, said the government needs to provide surviving industrial clusters with utilities that will enable them to cut costs.
“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.
Nigeria ranks 131 in 2020 World Bank Doing Business Index—a 15 step improvement from the 2019 position. But manufacturers believe nothing has changed as they still provide alternative energy to power their factories owing to the failure of the public energy system, and face crippling infrastructure crisis.
Ike Ibeabuchi, managing director of MD Services Limited, a manufacturing and services outfit, proposed industrial incentives and deliberate policies to improve industries.
“Cut the number of taxes manufacturers pay,” he recommended.
“Provide single-digit funds for manufacturers to pursue backward integration initiatives. Patronise locally-produced goods. If you do that, investors will know you are serious,” he said.
