Chief executives of manufacturing companies in Nigeria have flagged the high rate of credit inaccessibility, constrained access to national ports as well as issues around severe foreign exchange (FX) shortage as major constraints to the sector’s productivity and growth.
According to the Manufacturers CEOs Confidence Index (MCCI) for the second quarter of 2021 compiled by the Manufacturers Association of Nigeria (MAN), 76 percent of the respondents agreed that the rate at which commercial banks lend to manufacturers discouraged productivity in the sector.
In addition to this, the available loans come with a double-digit interest rate and tough requirements to access which worsens the plight of manufacturers who need funds for improved productivity and business expansion.
The CBN 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 while other countries like Kenya and Ethiopia have an MPR of 7 percent, Rwanda has 4.5 percent, South Africa has 3.5 percent interest rate while Namibia has 3.75 percent.
Furthermore, efforts made by the Central Bank of Nigeria (CBN) to improve lending to the real sector through the increase of the minimum loan to deposit ratio (LDR) to 65 percent and different intervention programs seem unproductive as the report states that lending to the sector has dwindled over time.
“Lending to the real and the manufacturing sectors have dwindled over the years due to the increased presence of the Government in the Nigerian Money market – Government Treasury Bill, Bonds, Sukuk, etc have almost crowded out private sector borrowing in the market,” the survey states.
The report recommends that the apex bank implements rigorous monetary management measures that would encourage a reduction in lending rates on loans offered to the productive sector by the commercial banks.
It also adds that the CBN improve and sustain policies aimed at increasing loans to boost the sector’s productivity especially the Loan to Deposit Ratio policy which should be monitored closely to ensure effective implementation.
“In addition, CBN should update manufacturers regularly with status reports on the implementation of the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMED), N300 billion Real Sector Support Facility (RSSF), and the N1 Trillion COVID-19 stimulus to further encourage operators to take advantage of the window,” it stated.
Beyond credit constraint, persistent inefficient operations of the national ports in terms of accessibility and timely clearance of cargoes pose threats to businesses.
81 percent of the respondents affirmed this stating that that poor access to and incompetent operations at the national ports negatively affects productivity in the manufacturing sector.
Some of the highlighted challenges faced at the ports include gridlock on the access road, delay in clearance of cargoes, high and undue demurrage, poor port equipment among others.
The Lagos Chamber of Commerce and Industry (LCCI) in its economic report revealed that 5,000 trucks seek access to Apapa and Tin Can ports in Lagos daily, however, the two ports could only accommodate 1,500 trucks.
The LCCI added that 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 annual basis due to the poor state of Nigerian ports.
in 2020, Frank Onyebu, chairman, Manufacturers Association of Nigeria (MAN), Apapa branch, said activities of the congested port in Nigeria which is the Apapa and Tincan port worsened the plight of many manufacturers noting that production activities experience delays as some raw materials have either expired or are no longer fit for production purpose.
“The port operations have worsened over time, the haulage fees which use to cost between N150, 000 to N200, 000 surged between N1.5 million to N2 million, in addition to this, the clearing time at the ports was also extended from two days to two weeks which significantly affected clearing operations, this has made many manufacturers incur more cost,” Onyebu said.
MAN notes that efficient operation of the national ports is critical to industrialization and seamless operation of the manufacturing sector hence the government needs to address all port-related challenges while developing other ports outside Lagos State in order to decongest the Apapa and Tincan ports.
“It is necessary to reduce the various port charges and remove demurrage for undue delayed clearance while resuscitating available rail tracks, constructing new ones, and linking them to industrial hubs,” MAN recommended.