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Manufacturing returns to negative terrain after 2 consecutive growth years

… Records worst contraction since 2016

Nigeria’s manufacturing sector has once again glided into a negative terrain after recording improved performance consecutively in 2018 and 2019, but the sector’s performance has now dropped to -2.75 in the full year 2020 GDP report released recently by the National Bureau of Statistics ( NBS).

The contraction is also the worst experienced since 2016 when the Nigerian economy entered into recession as data from the NBS reveals that the sector still managed to record slower growth of -0.2 in 2017, in 2018 its growth picked up and achieved 2.1 percent however it dropped to 0.8 percent in 2019.

Analysts say the contraction was expected seeing that the sector slid into recession in Q3 2020 on the back of the Coronavirus (COVID-19) pandemic which induced a supply cut of raw materials and other inputs, crashed oil prices and restricted movement thereby limiting productivity as well as other inherent challenges in the business environment. The problem was further aggravated when the country was hit with the #ENDSARS protest, which eventually developed into a civil unrest affecting economic and commercial activities all of which was simply too much for the already ailing sector to bear.

The impact of this was also felt in the sector’s contribution to GDP as it dropped to 8.99 percent in full year 2020 as against the 11.64 percent it achieved in 2019. “Real contribution to GDP in the fourth quarter of 2020 was 8.60 percent lower than the 8.74 percent recorded in the fourth quarter of 2019 and the 8.93 percent recorded in third quarter 2020. Nevertheless, annual contribution stood at 8.99 percent in 2020,” the GDP report stated.

Before the pandemic, the manufacturing sector was struggling with growth going by the multitude of challenges it continually suffers like FX Liquidity concerns, to rising operating cost to infrastructure deficit, etc, then COVID-19 and associated disruptions came, and amplified pre- existing structural challenges facing the sector, Jide Bababtope, a Lagos based economic analyst said.

Of the 13 manufacturing subsectors, only three recorded positive growth howbeit minimal, while one subsector recorded slower growth, these are the motor vehicles and assembly which grew to 4.03 percent from 2.31 percent in 2019, Cement recorded 3.88 percent from 3.11 percent in 2019, the chemical and pharmaceuticals had 2.54 percent from 0.35 percent in the previous year, while the food, beverage and tobacco subsector dropped to 1.50 percent from 2.17 percent in 2019. It is imperative to note that the last three emerged winners amid the pandemic.

All the other nine subsectors noted in the report contracted significantly especially the oil refining, which plunged to – 62.22 percent, electrical and electronics fell to – 16.48 percent, non- metallic products declined to – 11.55 percent. The pulp, paper and paper products shrunk to – 9.32 percent, while the textile, apparel and footwear sub-sector dropped to – 7.59 percent.

Beyond the impact of the pandemic, despite the gradual resumption of business activities in Q3, manufactures found it tough accessing FX for production and operation purposes, which slowed productivity. According to the Manufacturers CEOS Confidence Index ( MCCI) for the fourth quarter of 2020 compiled by the Manufacturers Association of Nigeria ( MAN), 82 percent of business managers in the sector complained that the rate at which FX is sourced and accessed has not improved adding that the unavailability of FX has negatively impacted the sector’s performance.

Moving from N196 to a dollar in 2015, and hovering between N350 and N500 in 2020 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.

“Significant amount of FOREX is not available for use and on average over 40 percent of manufacturers cannot get the funds they require to give their operations a full capacity,” Mansur Ahmed, MAN President, told Businessday.

Read Also: Demand for residential properties rises as WFH gains traction

Experts are of the opinion that if issues around FX availability and accessibility are not addressed promptly, many of these companies will fold up which will consequently collapse the sector, this they say will adversely affect the economy.

“Despite the resumption of activities after an unprecedented break, manufacturers returned to the challenges which keeps affecting their productivity, output and economic impact many firms are shutting down operations and if nothing is done, many more will collapse” Ambrose Oruche, communications director, MAN said

Stating the implication of the sector’s poor performance, Babatope said the impact of the poor performance will have unequal effects on manufacturing outfits depending on their industry, size and product type,

“Based on size, I expect big manufacturing outfits to shrug off the contraction and sustain resilience, however the impact would however be weighty on manufacturing SMES, who seems to be the ones majorly affected with different challenges especially high interest rates, FX shortage and tough regulation

Based on product type, I see manufacturers with elastic product portfolio ( basically FMCGS) to continue to feel the pressure of high cost environment. There is a limit to which players can transfer the Burden of higher inputs costs to final consumers,” He explained.

Babatope also mentioned that the sector’s poor performance also has implications for the expansive economic growth the country and its citizens yearn for.

“When the largest sectors of the economy, are performing badly, it means that the unemployment situation is not about to improve, therefore prompt actions geared towards the revival of these sectors should be taken up,” he said.

When the largest sectors of the economy, are performing badly, it means that the unemployment situation is not about to improve, therefore prompt actions geared towards the revival of these sectors should be taken up

In recent times there has been a growing interest in African designs, textiles, and products, and Yemisi Ojeyomi, cofounder and chief executive of Cyprus Cedar with his talents in interior décor is taking the design world by storm.

Yemisi was inspired to establish Cyprus Cedar- a start-up interior and brand creator business with his co-founder and wife – Ayomiku Ojeyomi to provide solution services in different areas.

In 2014, Yemisi quitted his advertising job after 17 years in the industry to pursue his passion for interior designs and also to kick-start his entrepreneurship journey.

“The inspiration was to provide solution services in different areas of our interests. So, we started with furniture designs and productions, interior decorations and brand representations through innovative corporate gift17,” he says.

Yemisi started the business in 2016 with zero capital while relying on family and friends for contracts.

Since starting, the business has grown steadily in its customer base and service offerings. A feat, the economist-turned-entrepreneur attributes to his employees and customers. “We started using our network of friends and family to source for jobs which were outsourced but monitored by us to ensure maximum quality satisfaction,” he says.

“The business has grown impressively that we no longer outsource. We now produce all our furniture in-house, do quality checks and deliver to our clients from our workshop,” he adds. Currently, he has 15 full-time employees and works with several part-time employees serving individuals and corporate clients across the country.

He notes that creativity, innovation, and simplicity have helped him remain in business over the years. He adds that the business has created a niche for itself in the country’s interior design industry.

He says the COVID-19 pandemic has affected her business negatively as it has caused a spike in the prices of its raw material used for designs.

“The cost of production has increased and we now have limited access to certain raw materials import,” he explains.

Cyprus Cedar resorted to having its showroom when the initial restriction directives to contain the pandemic were obstructing his business activities.

According to Yemisi, this helped the business survive the difficult moment of the virus outbreak.

“During the ease of lockdown, we realized there was a short time for our outsourcing production team to work as their workshop was a general market which had time restrictions and could not meet up with most demands,” he says.

“This gave us a nudge to have our workshop where we can produce without time restrictions and even at a more competitive price. This has been a significant survival strategy for our business,” he recounts.

In evaluating the country’s interior design industry, he says the industry is growing rapidly and has paved the way for creative entrepreneurs to thrive.

“Nigeria’s interior design industry is rapidly growing and thanks to our government for encouraging local furniture production as this has paved the way for entrepreneurs who are creative and innovative within the sector to thrive and become more relevant,” he states.

“There are so many opportunities from just designing to production and even decoration. Despite the recession, everyone is still striving to have a home or make their rented apartments comfortable and stylish,” he says.

He says the business plans to have a larger workshop than it is currently occupying in the short run and to diversify into logistics in the long run. Speaking on the challenges confronting the business, he says logistics and inadequate capital has remained a big problem in the industry.

He urges the government to support more creative and innovative entrepreneurs in the industry with adequate capital and also bridge the country’s huge infrastructural gaps to reduce the cost of logistics.

On his advice to other entrepreneurs, he says “be persistent, consistent, have integrity and customercentric values that are key to the success of any entrepreneur.”

The integration of digital technology in agricultural value chain has been identified as a major stimulus that would help the county combat the challenges of hunger that may arise as a result of increased in the world’s population which is projected to have risen to 10 billion people by 2050.

The Minister of Communications and Digital Economy, Dr Isa Ali Ibrahim Pantami stated this today in Gombe, Gombe State capital while delivering his keynote address at the opening ceremony of the training program organised to absorb another 140 youthful farmers into the National Adopted Village for Smart Agriculture, (NAVSA.)

NAVSA is an ecosystem driven digital platform envisioned for the transformation of the agricultural sector in Nigeria. It is designed to help farmers and other agricultural ecosystem players navigate their journey across the agriculture value chain.

The Minister explained that with the imminent increase in the population with about 2.5 billion that would be challenges of hunger adding that “any nation that fails to strategize on how to take care of itself agriculturally, then will definitely face a very huge challenge because no country export until it is satisfied.

“In less than 30 years, the world population will increase by 2.5 billion which is unprecedented and this increase will come with so many challenges and the number one challenge is going to be hunger especially in the developing nation that are still lagging behind when it comes to policies and strategies.”

Citing example of how Netherlands becomes second exporter of agricultural produce in the world with its relatively small population and land mass, Dr Pantami noted that the adoption of digitization in farming would surely bring about transformation into the sector.

“The model of agriculture being practiced in Netherlands reduces the consumption of water by 90 percent, and it increases the quality of production by minimum of 500 percent. It also reduces the use of insecticide by minimum of 99 percent why because the way they deployed modern technology in agriculture.”

He added that “climate change and population explosion remain two most dangerous challenges confronting agriculture and the earlier we use technology to drive the sector the better for us.”

He said, “It is because of this; and part of the Federal Government policy under the administration of President Muhammadu Buhari that the Ministry of Communications and Digital Economy came up with National Digital Economy Policy and Strategy and NITDA has been directed to champion this program on Smart Agriculture in Nigeria.

To appreciate the beauty of digital technology in agriculture, the minster reiterated that digitization is key to economic development and it is no more a luxury but a necessity. “You will appreciate that digital technology is a necessity if you look at the COVID 19 pandemic as it completely disrupted the world,” he added.

The Minister who described the consistency in coming up with policies which are geared towards promoting digitization in the country as unprecedented in the history of Nigeria explained that the policies are yielding tremendous result.

“This program is one of the policies given to the parastatals to implement. Other parastatals will join in the training. Nigeria Communication Commission may probably join in 2021. They will start organising similar training because we have so many models to deploy in agriculture. So we do hope our teeming youths will grasp the opportunities to become entrepreneurs at the end of the training and support the economy by creating more jobs for our citizens.”

Earlier in his welcome address, the Director General, National Information Technology Development Agency, Mallam Kashifu Inuwa Abdullahi maintained that the program is part of the Agency’s implementation to national digital economy policy for digital Nigeria.

He stated further that the innovative initiative is meant to transform agriculture business in Nigeria by making it fancy and attractive investment to the youths and increase food production as well as reduce wastage in the sector.

“In digital economy, innovation plays a huge role in creating values and prosperity. He described it as process of taking idea from inception to impact and coming up with new business model that would make businesses fanciful,” he concluded.

The Director General informed that with the comparative advantage Nigeria has in agriculture, the youth can make more money if they venture into it more than any other sector of the economy.

“Looking at what is happening globally and how digital technology is changing the way we live, the way we work and the way we do business, we see it as a source of inspiration to look at how we can adapt and adopt these technologies in agriculture because most of us in Nigeria take agriculture as our source of income and it contribute more than any other sector to our Gross Domestic Product, GDP,” he noted.

He said the adoption of digital technology in agriculture and the NAVSA initiative would solve the problems wastage associated with the sector which are; inadequate knowledge techniques to harvest foods, poor post-harvest management and lack of suitable infrastructure and market platform to sell agricultural produce.

“This initiative would provide a platform for you to share knowledge among yourselves and other stakeholders in post-harvest management, the emerging technology will help you in preserving the produce and we would create a market platform you because the world is moving into a platform business. This national platform will help you to get access to all stakeholders in agriculture value chain in the country and it can provide you link to the off takers that would buy your produce,” he added.

Most of the beneficiaries expressed their appreciations to the Ministry of Communications and Digital Economy and NITDA for the opportunities the NAVSA would avail them. They promised that they would ensure they translate the program to the aspiration of the Agency.

Dignitaries at the event include the NITDA Board Chairman, Dr Abubakar Saidi, the Vice Chancellor, Gombe State University, Prof. Aliu Usman El-nafati, managing Director Galaxy Backbone. Prof M.B Abubakar and host of others.

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