Every year has its own package and 2019 is no exception. This year, like other years, will likely see Nigerian manufacturers battling with policy to infrastructure challenges.
One major issue that confronts Nigerian manufacturers this year is election. The Manufacturers Association of Nigeria (MAN) has recognised this point by tying the performance of the economy in 2019 to the conduct of the election.
“Being an election year, performance of the economy in 2019 would to a large extent depend on the transparency and credibility of the election,” MAN said while analysing the 2019 budget.
More than this, there will be implications no matter who wins the presidential election. If the incumbent President Muhammadu Buhari wins a second term, there will likely be policy consistency. However, there may also be lethargy that follows politicians that win their second term. Again, there may not be significant changes in the sector because there is currently more attention to agriculture than the value chain where light manufacturing belongs.
Should the opposition win, there will likely be policy inconsistency, as the new government will do away with certain policies they are not comfortable with. This has consistently been a challenge over the years and remains one big reason why manufacturing is always a troubled sector. Two, constituting a government and appointment of ministers may take time. The new appointees will spend some time to get themselves attuned to the new realities in their ministries.
Analysts expect that challenges will continue to hit the automotive industry because the current National Automotive Policy is encouraging the importation of rickety cars.
The 2013 National Automotive Policy imposes 35 percent levy and 35 percent duty on imported vehicles, amounting to a total of 70 percent.
Even with 70 percent fees paid on imported vehicles, importers of damaged or ‘accidented’ vehicles officially enjoy a rebate of 30 percent. What this has done is to encourage the importation of rickety vehicles, which make up 70 percent of imported cars today.
Today, the age of most imported used cars in Nigeria is 15 years, whereas that of Algeria, Angola, Chad, Mauritius and Seychelles is three, according to a research done by PwC.
The prohibitive levy and duty paid on imported cars have encouraged smuggling of vehicles into Nigeria. Officially, market for cars in the country is just 6,999 as against 555,716 in South Africa; 181,001 in Egypt; 168,913 in Morocco, and 94,408 in Algeria.
“There is no market for even the investors,” said Thomas Pelletier Thomas Pelletier, managing director, CFAO Nigeria.
Next is cost of production, which will continue to rise. New state governors could come up with their revenue strategies to increase the Internally Generated Revenue (IGR), and they may impose more taxes, levies and fees on businesses.
Tax experts told BusinessDay that the number of taxes payable by businesses across the country is now 54 as against 37 in 2014.
They project that this may rise further, considering that oil price is trending around $55 and may fall more, thereby reducing federal allocations to states and pushing states into desperate revenue drive. This is not an alarm but a possibility.
Vivian Chigozie-Nmonwu, tax expert and lead partner at Vi-M Professional Solution, said these taxes need to be amalgamated into one or a few, since the whole tax cycle is a multiple chain of taxes on the same income stream.
Forty percent of manufacturing expenditure goes to alternative energy. Manufacturers have spent N212.85 billion on alternative energy sources between the second half of 2016 and the first half of 2018. This is over 100 percent higher than what was incurred in the previous four halves.
There is no possibility that power supply will be readily available for manufacturers no matter who wins. This means that production costs will continue to remain the way they are or rise.
Firms bringing in raw materials into Apapa ports and those exporting commodities abroad may continue to battle with rising dwell time, which results in high demurrage charges except a new government does something meaningful.
Only 10 percent of cargoes are cleared within the set timeline of 48 hours now while the majority of cargoes take between five and 14 days to clear, according to a maritime report conducted by the Lagos Chamber of Commerce and Industry (LCCI).The report notes that some cargoes take as many as 20 days to be cleared at the ports.
Manufacturers could also embark on job cut in order to protect slim margins as they can no longer pass cost onto consumers already distressed following constantly falling disposable income.
“We will see some layoffs but it will be worse for companies at the lower segment that do not have a large market share or competitive advantage,” said Christian Orajekwe, equity research analyst at Cordros Capital Ltd.
Manufacturers were unable to sell goods worth N149.23 billion in the first half of 2018 after producing goods worth N4.6 trillion.
Incidentally, they are selling to a population whose disposable income and spending are shrinking.
Real household consumption and government consumption expenditures declined in 2017 (at –0.99 percent) while national disposable income fell by 1.52 percent, according to the National Bureau of Statistics (NBS).
According to a recent World Bank data, 92.10 percent of Nigerians live at below $5.50 a day. Nigeria, with a population of 180 million people, has 87 million people, nearly half its population, in extreme poverty as high inflation environment continues to erode discretionary income.
Job layoffs due to mounting wage bills and macroeconomic headwinds are a double whammy for a country where the vast majority of people are wallowing in abject poverty.
More so, the country’s manufacturers will likely continue to face high logistics costs as roads remain in decrepit conditions and railways are still work in progress.
Manufacturers told BusinessDay that logistics costs have risen by 50 to 100 percent in the last two years, owing to poor state of roads and lack of a good transport system.
There is yet no respite in sight for low-cost-seeking manufacturers who would have seen their logistics costs fall, had GE not exited a railway contract linking Apapa ports to Lagos mainland.
Manufacturers may not finding borrowing easy as interest rate charged them by banks in the first half of 2018 stood at 22.9 percent, 0.25 percentage point higher than 22.65 percent recorded in the same half of 2017.
Nigeria’s monetary policy rate (MPR), which is a benchmark interest rate in the country, is 14 percent. Deposit money banks lend as high as 30 to 35 percent, according to BusinessDay checks.
The monetary policy committee (MPC) of the South Africa’s Reserve Bank met in March this year and cut interest rates by 25 basis points.
The current repo rate (central bank lending rate to commercial banks) in South Africa is now 6.5 percent, and the prime lending rate (lending rate to customers) is 10 percent.
The Reserve Bank’s MPC had earlier cut the repo rate in July 2017 by 25 basis points from 7 percent to 6.75 percent.
Similarly, Kenya Central Bank’s monetary policy committee cut the determining bank rate in late July to 9 per cent from 9.5 per cent.
BusinessDay gathered that Kenyans now borrow at an interest of 13 per cent (as against from 13.5 percent earlier) in line with the interest rate capping rule that limits lending rates to 4 percentage points above the CBR.
Zambia is one of the emerging countries in SSA and its central bank cut benchmark lending rate by 50 basis points to 9.75 percent in February this year, citing lower consumer inflation and weaker economic growth, according to Reuters.
In October 2017, the central of Ethiopia raised its benchmark interest rate to 7 percent from 5 percent. But these things are not happening in Africa’s most populous country, with 37 million small and medium businesses.
Babatunde Paul Ruwase, president of the LCCI, said the current state of the economy shows the government must prioritise stimulation of investment and growth.
“The proposition is that low interest rate will stimulate investment, impact positively on growth, create more jobs, increase income, and boost output. This would ultimately have a moderating effect on inflation,” Ruwase said.
ODINAKA ANUDU
