• Sunday, June 23, 2024
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Rising costs push manufacturing exports down 62% in 4yrs

Why Nigeria needs new strategy for non-oil exports

The contribution of the manufacturing sector to Nigeria’s non-oil exports has declined by 62 percent in four years as operators battle rising expenses amid high borrowing costs and low consumer spending.

Data from the most recent foreign trade report shows that the share of manufacturing exports to total exports declined from N2.1 trillion in 2019 to N778.4 billion in 2023.

Manufacturers have attributed the decline to the continued surge in production costs and the worsening business environment that is crimping profits, wiping off shareholders’ funds and making local products uncompetitive.

According to them, the sector has suffered from a lack of competitiveness, resulting from poor infrastructure and financing, high energy costs, high cost of logistics, inconsistency in government policies, the multiplicity of taxes, and skills shortages, among others.

Muda Yusuf, chief executive officer for the Centre for the Promotion of Private Enterprise, said that Nigerian manufacturers are more inward-looking and dependent on domestic markets than the international markets owing to the rising production costs and declining competitiveness.

“The foreign exchange trend has been raising production costs for manufacturers because of their dependence on imported raw materials and export is about competitiveness. If you are not competitive, there is no way you can make progress in terms of export,” he said.

“Also, our cost of production is too high for us to make an impact as far as manufactured exports are concerned and this has made primary product exports dominate.”

He added that the few manufacturing exports are within the African continent, particularly the West African region, noting that most trade data do not capture much of the informal trade that also takes place within the region.

Energy is a key element of the production process. Nigeria’s inability to supply and distribute sufficient electricity has left businesses at the mercy of generators powered by diesel, whose prices have increased in recent months.

The price of diesel – the lifeblood of industries reliant on heavy machinery – has jumped by 380 percent from an average of N312 in January 2022 to an average of N1,500 as of the time of writing.

This raises the production costs for manufacturers significantly and forecloses their chances of competing with international peers.

Local products are often more expensive than imported products because production costs in the country are much higher than in most countries globally, especially when key issues such as taxes and regulations are factored in.

Sola Obadimu, director general of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, said the rising energy costs, FX volatility, accelerating inflation and worsening insecurity are hurting manufacturers in the country and hampering their growth.

Obadimu said if nothing is done to address the issues limiting manufacturing in the country, the sector’s contribution to exports will continue to decline, adding that the challenges have caused the exits of some multinationals.

Data from the World Trade Organization shows that South African manufacturing export value was $46 billion in 2022, while that of Nigeria was $3 billion in the same period – over 15 times greater than Nigeria’s manufacturing export value in 2022.

This is because it is cheaper to manufacture products in South Africa than in Nigeria, according to experts.

“The Nigerian economy has encountered a range of challenges in recent years, such as foreign exchange instability, escalated energy prices and food insecurity that have heightened the inflationary pressures and grossly eroded the consumers’ purchasing power,” Segun Ajayi-Kadir, director general of the Manufacturers Association of Nigeria, said.

“These issues have hurt the manufacturing sector, leading to decreased production and reduced competitiveness,” he added.