Nigeria’s quest to boost foreign exchange earnings through exportation processed leather product is being diminished by the growing cost of operating businesses in the country.
The raising operational cost which is manifesting in forms of indirect Cost (IC) is also having serious negative effect many of the companies playing in the Leather sector of the economy, in the recent times.
Checks conducted by BusinessDay in northern Nigeria city of Kano, shows that the indirect costs ranges from bills from rent, electricity, water, telephone, liquid fuel, solid fuel and gas, stationeries and office supplies in order words other production costs apart from the cost of raw materials.
Other component of the indirect cost includes, Transportation costs, security services if not included in the wage bill, insurance and other business services, promotion and advertising, maintenance of plant, equipment and buildings and industry related services.
The finding indicates that infrastructural problem is identified as the most outstanding in the increment of indirect costs.
Apart from infrastructural problems which has boosted indirect costs, multiple permits and fees are imposed at both the state and local government levels, and the arbitrary application and enforcement of these regulations, as well as bureaucratic burdens impose serious costs and threaten the operations of smaller firms within the cluster.
Some of the most common permits include advertising (mobile and stationary – signboards), sanitation (environmental), health (food and drugs), business premises (land acquisition, construction, store), and water permits.
These permits take less than 3 days to acquire as most of them are obtained at the local government level, and are usually valid for one year. Average official cost varies by type of permit.
All these contribute in increasing the indirect cost experienced by these firms hence militating against their export propensity.
Confirming BusinessDay’s finding, Usman Sani, a Kano based industry operator, noted that the growing cost of doing business as it related indirect cost is one of the biggest impediment minor and major players in Nigeria leather sector.
Sani said that except Government find a way of addressing the challenges identified it will be very difficult to achieve the goal of increasing foreign exchange earnings from the leather sector, as specified in this year`s budget.
Olusegun Awolowo, the NEPC, chief executive officer, whose agency is at the forefront of the diversification of the Nigerian economy, said that the need to diversify the nation`s economy is further reinforced by the recent decline in the price of crude oil in the global market.
Speaking in the commercial city of Kano, while on a working visit, Awolowo disclosed that NEPC had identified 13 National Strategic Export Products to replace oil (Palm oil, cocoa, cashew, sugar, rice, iron ore, metals, aluminum, auto parts, petroleum products, fertilizer/urea, petrochemicals and methanol)
“The expectations we have is to explore the possibility of investing in priority areas that we have highlighted. We need to attract counterpart investments into priority areas by investors such as the agricultural sector. We need to fastback trade event information and we want to support capacity development for exporter.” Awolowo said.
According to the International Monetary Fund (IMF), “Nigerian economy is facing substantial challenges, while the non-oil sector accounts for 90 percent of GDP, the oil sector plays a central role in the economy.
“Lower oil prices have significantly affected the fiscal and external accounts, decimating government revenues to just 7.8 percent of GDP and resulting in the doubling of the general government deficit to about 3.7 percent of GDP in 2015. Exports dropped about 40 percent in 2015, pushing the current account from a surplus of 0.2 percent of GDP to a deficit projected at 2.4 percent of GDP.
“With foreign portfolio inflows slowing significantly, reserves fell to $28.3 billion at end-2015. Exchange restrictions introduced by the Central Bank of Nigeria (CBN) to protect reserves have impacted significantly segments of the private sector that depend on an adequate supply of foreign currencies. According to the International Monetary Fund (IMF), Nigerian economy is facing substantial challenges, while the non-oil sector accounts for 90 percent of GDP; the oil sector plays a central role in the economy”.
