• Thursday, March 28, 2024
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How competitiveness stands between Nigerian manufacturers and AFCFTA benefits

Manufacturers face multiple hurdles despite highest GDP growth since 2015

As implementation of the African Continental Free Trade Area ( AfCFTA) has commenced, every participating country under the FTA is doubling up in order to effectively utilize it as a platform for economic gains. While many of them are propelled by available resources and infrastructure to take advantage of the immense opportunities offered by the pact, concerns are raised when Nigeria’s manufacturing sector is brought to the fore.

The Lagos Chamber of Commerce and Industry (LCCI) in its economic report for 2021 noted that the benefits and costs of the trade agreement will not be evenly distributed among participating countries as only countries with open, friendly, and enabling business environment stand to benefit from the agreement.

The Nigerian manufacturing sector is among the largest in Africa and from 2016 to 2019, the its contribution to Nigeria’s GDP has hovered between 8.7 and 11.6 percent. However this is possible because of the resilience of sector players as data from the National Bureau of Statistics (NBS) shows that the sector’s growth year on year contracted consecutively from 2015 to 2017, and even slipped into recession in the third quarter of 2020.

The United Nations Economic Commission for Africa (UNECA) projects that the trade agreement will boost intra-african trade by between $50bn and $70bn in monetary terms, with a 40 percent to 50 percent increase over the first 20 years of its implementation. In addition, the trade agreement is hoped to expand a market of 1.2 billion people and a gross domestic product (GDP) of $2.5 trillion across member states of the African Union. The trade agreement provides an array of opportunities, but participating firms are pressured to increase production capacity, adopt innovation or lose out of the benefits, which leads to questioning the competitiveness of Nigeria’s manufacturing sector under the trade agreement. While some manufacturers are ready, a number of challenges may dampen their preparedness if not properly addressed.

Recent reports from MAN showed that major problems of these manufacturers included the congested Apapa and Tin Can ports in Lagos, poor power supply, issues around multiple and excessive taxation, infrastructure deficit, difficulty in sourcing Forex, among others.

Segun Ajayi-kadir, director-general of the Manufacturers Association of Nigeria (MAN), told Businessday that manufacturers were ready for the trade agreement, but warned that unless issues around ports, taxes and other regulatory pressures were addressed, the country might lose out.

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“There is a delay in getting our acts right, but I believe strongly that if government is willing, we can mitigate those risks and manage the process robustly and become net gainers of the free trade. The only thing is that if we carry on with business as usual, Nigeria’s economy will suffer badly,” Kadir said.

The Global Competitiveness Report for 2019 ranks Nigeria 116th position out of 141 economies, with a 39.7 rating in infrastructure and 37 in government orientation as well as public sector performance in business regulation, despite posting 58.5 in business dynamism.

Availability of adequate infrastructure is a major determinant of the success of every country’s industrial sector, however, 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 not connected to 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 allocated budget for infrastructure in the country, coupled with the dwindling rate of foreign investment into the country.

“Manufacturing companies situated on the AmuwoOdofin 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, Manufacturers Association of Nigeria (MAN) Apapa branch.

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 out of the country.

Also between 2019 and 2020, 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 cost. Also almost 5,000 trucks seek access to Apapa and Tin Can ports in Lagos daily, however the two ports can only accommodate 1,500 trucks

Furthermore, the Manufacturers CEOS Confidence Index (MCCI) for the fourth quarter of 2020 showed 82 percent of CEOS complaining that the rate at which FX is sourced and accessed has not improved. They also said the unavailability of FX has negatively impacted the sector’s performance, as manufacturers could not access FX required to import vital raw materials, machines and resources that are not available locally.

Mansur Ahmed, MAN President, told Businessday recently that capacity utilization and productivity in the sector was been constrained due to issues around FOREX availability and affordability adding that over 40 percent of manufacturers cannot get the funds they require to give their operations a full capacity.

The FX crisis which has been a source of concern for manufacturers for a long time led to the death of 54 manufacturing firms in 2016 alone and many more have followed since then with manufacturers saying they get two to 10 percent of their dollar needs from the market even after waiting for 30-90 days

Oluwasegun Osidipe, director, economics & statistics department, MAN said Nigeria is presently not in a position to benefit from the various opportunities under AFCFTA, due to the uncompetitive state of the country’s production environment. In recent times, this has hovered between 50 and 57 percent, adding that the most traded products among African countries include crude oil, natural gas, gold (in raw and semi-processed forms), and non- industrial diamonds, cement, among other things many of which are also produced in Nigeria.

“Many of the countries involved in the trade agreement have the same products and resources, and it is necessary to incorporate innovation in order to stand out, furthermore, consumer’s preferences are changing daily so there is need to embark on wide research to achieve customer satisfaction,” he said.

Furthermore, research and development efforts among manufacturers is quite low thereby crippling possibilities of innovative products while making production cost very expensive. Till date, made in Nigeria products are still rejected due to inability to meet set standards, including poor packaging and use of obnoxious chemicals during storage.

Muda Yusuf, directorgeneral, Lagos Chamber of Commerce and Industry said the government is in a better position to help manufacturers thrive internally and externally.

“The issue is not so much with the manufacturers, but for government to provide the enabling environment to make Nigerian manufacturing sector competitive. What is paramount in international trade is competitiveness, in account of price and quality,” he said.

Similarly, Funmilayo Bakare chief executive officer of FAE Limited, said in a phone interview that manufacturers needed better infrastructure to reduce cost of production as well as protective policies to create an enabling and competitive environment.