The Federal government’s proposed backward integration policy to boost local manufacturing in the health sector has elicited concerns and cautious optimism from stakeholders and experts.
Some said the plan may not achieve its ultimate purpose of taming surging cost of medical products manufactured in the country if the government does not proffer sustainable solutions to the perennial problems affecting the entire manufacturing sector.
In January, the government announced that it had designed a backward integration programme which incorporates policies that affect medical devices and the entire healthcare industry. Reports estimate that 70 percent to 99 percent of medical devices and equipment needed in the country are imported.
Doris Uzoka-Anite, minister of industry, trade, and investment, who announced this during a meeting with manufacturers of needles and syringes, said the policy would be a game changer for the healthcare industry.
“It will incorporate policies and incentives to support local manufacturers in the sector and boost local manufacturing of medical devices and the entire healthcare industry,” she said at the time.
She said the programme was in line with the President’s planned executive order that aims to enable local manufacturers while ensuring fair pricing of essential medicals.
The minister said the policy will go through the Federal Executive Council for approval.
Citing previous backward integration policies in industries like sugar and cement, some stakeholders expressed concerns about the potential limitations of such an approach. They argued that previous policies haven’t necessarily translated into reduced prices, largely due to high operating costs.
Paul Alaje, chief economist at SPM Professionals, said previous backward integration policies did not meet expectations due to the lingering problems affecting manufacturers.
For instance, despite the Backward Integration Policy in sugar, Nigeria is still heavily reliant on imports, with the average price of sugar in the country rising astronomically. The country spent about N2.7 trillion on raw sugar imports between 2012 and 2022, according to data from the National Sugar Development Council and the National Bureau of Statistics.
A review of the Nigerian Sugar Development Council (NSDC) in 2021 showed that successes recorded by industry leaders in sugar were anchored more on bringing raw sugar into the country, an economically costly model with negative implications for the naira and cost.
Backward integration, as a policy, involves local sourcing of raw materials to reduce foreign exchange dependence. It is a process in which a company acquires or merges with other businesses that supply raw materials needed in the production of its finished product. Businesses pursue backward integration with the expectation that the process will result in cost savings, increased revenues, and improved efficiency in the production process.
Anticipated benefits include cost reduction and improved affordability of healthcare services, by gaining control over the production of essential materials, and reducing reliance on expensive imports.
While recognising the potential benefits of backward integration, Alaje cautioned against viewing it as the panacea for the manufacturing sector and the wider economy. He emphasised the need to address critical challenges obstructing manufacturing, saying failure to do so could undermine the effectiveness of the proposed policy.
“We need to have technical skills for health, we need our energy sector, and we need electricity to work,” he said. “But we must start with the fundamentals and work the talk. If we can work the talk, we will get there.”
Francis Meshioye, president of the Manufacturers Association of Nigeria, said a policy such as backward integration requires a closer engagement with manufacturers.
Meshioye pointed out that the government ought to be engaging closely with manufacturers on the components and incentives that would form its proposed backward integration policy that should benefit manufacturers.
He said: “Our view of the backward Integration programme is that it is very apt, and what the government should do is to engage with the sector. It is better to engage the sector to be able to know how to assist the sector if the results will be towards constructive and effective targeted objectives.
“The issue is to have a closer engagement with the stakeholders as any programme or policy by the government to help manufacturers is a welcome idea but it will only be effective by engaging the manufacturers so that the government can have a proper direction on what to do.
Samuel Nzekwe, an economic and financial analyst, commended the government’s initiative on backward integration, saying the policy could significantly enhance local productivity and reduce foreign exchange pressure.
Nzekwe underscored the pivotal role of a well-executed implementation process for the policy to yield the desired results.
“Manufacturers need a conducive environment for production to thrive here. They need power, electricity, roads, security, network connectivity, and it’s not yet available,” Nzekwe said, pointing out that the use of generators for manufacturing imposes significant costs on the industry.
He urged the government to include incentives in the policy that specifically address these challenges and not just financial incentives. “Government incentives should address power and other infrastructure issues so that when they empower manufacturers financially, they will be able to produce.”
“The health sector has been suffering, and if we have things that we can manufacture locally. If Nigeria manufactures most drugs locally, it can significantly reduce the soaring cost of drugs and subsequently reduce the overall cost of healthcare,” Nzekwe added.
For Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, the proposed initiative will address the challenges faced by manufacturers, particularly in dealing with foreign exchange issues, but will also require a very robust incentive. This includes subsidising machinery and removing tariffs and value-added tax on critical inputs, he said.
Yusuf highlighted the importance of sourcing raw materials locally to alleviate pressure on forex and reduce production costs, ultimately bringing down prices.
“This is the time to look inwards. You see all the challenges that manufacturers are facing with foreign exchange. So at a time like this, the more manufacturers can look inwards for raw materials and other inputs, the better for the sector and the better for even our forex market. But the government needs to drive this with a lot of incentives so that more of these things can be sourced locally,” he said
