Enabling Nigeria’s manufacturing sector to unlock AfCFTA gains
The development and strategic positioning of Nigeria’s manufacturing sector is necessary for the country to enjoy the benefits that the Africa Continental Free Trade Area (AfCFTA) has to offer.
Unfortunately, despite expressing willingness to participate in the trade agreement by signing it in 2019, Nigeria is yet to participate or make transactions on the platform due to a series of challenges bedeviling local producers of goods.
Nigeria’s counterparts are however making efforts to effectively utilize the trade platform for economic gains. Although many of them are being propelled by available resources and infrastructure to carry out the provisions of the pact.
Toki Mabogunje, former President, Lagos Chamber Of Commerce and Industry (LCCI) president while speaking at an international conference on AfCFTA, noted that Nigeria is yet to effectively participate in the trade agreement after commencement despite the many months spent preparing in anticipation of the pact.
She said, as a result, Nigeria is losing out on the gains of cross-border trade and this may threaten the speedy economic recovery that the country anticipates.
Similarly, Muda Yusuf, former director-general, LCCI, said participation in the trade agreement will be challenging for local manufacturers, due to the different challenges bedeviling the sector, adding that the government is in a better position to help manufacturers by providing an enabling environment to make Nigerian manufacturing sector competitive.
The Manufacturers CEOs Confidence Index (MCCI) for Q2 2021 compiled by the Manufacturers Association of Nigeria (MAN) highlighted five major challenges hurting manufacturer’s performance.
Sector players also affirm that these challenges have hindered their ability to participate in the trade agreement and therefore called for the government’s prompt response in tackling these issues.
Nigeria lacks the necessary infrastructure needed to grow businesses, especially developed transport systems as Roads are decrepit and although rails are coming up, they are largely disconnected from the nation’s seaports.
Nigeria requires $15bn (N5.8tn at N390 to a dollar) worth of investments annually for 15 years in order to adequately develop its infrastructure according to reports from the Financial Derivatives Company, an economic and financial research firm.
However, the possibility of fulfilling that is quite slim considering the allocated budget for infrastructure in the country, coupled with the dwindling rate of foreign investment into the country.
In the quarterly survey mentioned earlier, respondents affirmed that the country’s infrastructure is in a dilapidated state and has not been able to spur the desired economic growth through enhanced real sector productivity.
According to them, this is caused by the low budgetary allocation for the provision of infrastructure and the absence of monitoring and evaluation mechanisms to interrogate the implementation of the budget and relevant Executive Orders.
MAN advises that budgetary allocations for infrastructure be prioritized and properly monitored for implementation.
Access to ports
In Nigeria, access roads to premier seaports in Apapa and Tin Can, Lagos, are plagued by gridlocks, hurting export and import, in addition to lack of functional scanners by the Nigeria Customs Service, which causes untold delays of raw materials to factories and exports to destination countries.
“Manufacturing companies situated on the Amuwo-Odofin and Kirikiri axes lose over N20 billion annually, and most of the factories are on the brink of shutting down because the roads are inaccessible,” said Frank Onyebu, chairman of Manufacturers Association of Nigeria (MAN) Apapa branch told BusinessDay.
Also between 2019 and 2020, the cost of moving goods in a 40-foot container from Apapa to other areas within Lagos rose from N350,000 to N1.5 million to N2 million making manufacturers incur more costs.
In addition to this, no less than 5,000 trucks seek access to Apapa and Tin Can ports in Lagos daily, however, the two ports can only accommodate 1,500 trucks.
According to the LCCI, Nigeria loses N600 billion in customs revenue, $10 billion in the non-oil export sector, and N2.5 trillion in corporate earnings across various sectors on an annual basis due to the poor state of Nigerian ports.
MAN recommends that the federal government upscale trade facilitation infrastructure at the ports and encourage the use of other ports outside Lagos, furthermore necessary equipment should be installed at the ports in order to hasten clearing procedures.
Improve power supply
Over the years, issues around energy and electricity availability in Nigeria have been on the rise especially among local manufacturers as they are forced to either pay heavy tariffs for electricity or generate power for themselves.
MAN noted that inadequate electricity supply and incessant increases in tariff without a commensurate improvement in the generation, transmission, and distribution remain key challenges of the sector.
In 2020, manufacturers spent N81.91 billion on providing alternative energy, representing a 33 percent increase when compared to the N61.38 billion expended in 2019.
Also, Nigeria ranked 169 in the getting electricity metric, scoring 47.4 points on the World Bank’s ease of doing business 2020 report and a zero in the reliability of power supply.
Experts say that the high energy cost of these companies hinders the production capacity of these firms, thereby limiting local, regional and global competitiveness.
MAN advises that it is necessary to reverse the current increment in electricity tariff and focus more on improving generation, distribution, and efficient use of available electricity.
Another critical issue bedeviling the industrial sector is funding. Nigeria is cash-strapped due to low oil prices. This is hurting the country’s capacity to fund projects and critical sectors. However, a pool of funds from the CBN and development finance institutions is stashed in banks which are sometimes unwilling to lend to businesses due to what they call ‘high-risk level’ of lending to businesses in Nigeria. Consequently, several manufacturers have complained that they are unable to access most funds advertised by the government.
Presently Nigeria has one of the highest lending rates in Sub-Saharan Africa as the financial regulator pegged its Monetary Policy Rate (MPR) at a double-digit of 11.50 percent leaving deposit money banks to lend as high as 25 to 35 percent interest loans.
Other countries like Kenya and Ethiopia have an MPR of 7 percent, Rwanda has 4.5 percent, South Africa and Cameroon have a 3.5 percent interest rate while Namibia has 3.75 percent.
MAN advises that the sector needs funding, especially long-term, single-digit funds, to compete, and therefore recommends that the CBN rolls out modalities for a specialized single-digit interest loan especially for businesses involved in production activities.
MAN also asked the CBN to review the guidelines of the various development funds to ensure that the terms and conditions are liberal enough to attract borrowing from the industrial sector.
Overregulation by agencies
Overregulation is another major issue affecting the sector’s performance. In Nigeria, there are over 25 regulatory agencies that supervise business activities some of which have synonymous duties under different bodies. While each agency tries to carry out its responsibilities, their activities clash and create confusion and problems for manufacturers particularly when it has to do with levies or documentation.
In the CEO survey mentioned earlier, 92 percent of the respondents agreed that over-regulation by agencies of government restricts activities and hurts productivity in the manufacturing sector.
“Oftentimes agencies of the Federal, State and Local Authorities regulate the same manufacturing process resulting in operating losses, supervisory duplication using similar checklists and multiple regulatory charges which often culminates in increased overheads for manufacturers. “ the report stated.
MAN recommends that the government at all levels make efforts to harmonize regulatory operations, checklists, and mandates in a manner that these agencies can promote a friendlier operating environment and enhance sustainable economic growth in the country.