Senior Correspondent, PHILLIP OLADUNJOYE,
attempts an overview of how the manufacturing sector fared in 2013 and
concluded that it is not yet uhuru for the sector. The manufacturing sector of the Nigerian economy
appears to be gradually bouncing back to reckoning, based on the achievements
recorded in the sector in the out-going year. Manufacturing activities were paralysed at the
beginning of the year due to the ‘partial’ removal of fuel subsidy by the
Federal Government, which consequently led to an increase in the pump prices of
petroleum products, after mass protest and industrial actions across the
country.
Activities in the sector picked up by the second
quarter of the year, with the Ministry of Trade and Investment, the supervising
ministry of the sector, evolving policies and carrying out measures to make the
operating environment conducive for operators in the sector. The Federal Government kicked off an Industrial
Revolution that it said would strategically position and empower the nation’s
manufacturing sector as the key driver of economic growth through job creation
and increased contribution to Gross Domestic Product (GDP). Minister of Trade and Investment, Olusegun
Aganga, said the Industrial Revolution Plan would be based on areas where the
country had comparative advantage, adding that the government had embarked on
far-reaching reforms aimed at improving the business climate and making Nigeria
the preferred investment hub in Africa and globally.
The ministry also held series of workshops to
sensitise players and prospective investors on the Industrial Revolution Plan
of the government. At one of such workshops, with the theme ‘Enhancing the
Productivity of Nigeria’s Industries’, Aganga said: “If we are going to move
from a poor nation to a rich country, industrialisation holds the key because
it has the potential for unlocking the wealth of our country. For us as a
country, manufacturing is very important because it solves three critical
problems: it solves the problem of GDP growth, unemployment and balance of
payment. Also, manufacturing is critical for wealth creation.
“Part of the objectives of this workshop is to
come up with big, practical and implementable steps on how to remove the
barriers to industrialisation because we must industrialise our country. If we
are going to diversify our economy, then the industrial sector must play the
leading role. If we are going to move from a poor nation to a big nation, we
must have a strong and vibrant industrial sector.”
The Federal Government had also, through the
ministry, announced a new scheme of tax credit aimed at encouraging an increase
in the flow of foreign investment into the country. Explaining the new
incentives packaged in the form of tax credits, Aganga said companies that
invested in the development of infrastructure such as the construction of
access roads, power plants and water plants in the course of setting up their
businesses are now entitled to tax credit of up to 30 per cent of the cost of
generating the infrastructure.
He said the initiative was a temporary relief
measure introduced by the Federal Government to help cushion the debilitating
effects of the challenges posed by the lack of infrastructure in the country,
which is a major setback to the inflow of investment into the country.
Meanwhile, efforts of the Federal Government at
driving investment into the manufacturing sector seem to yield positive
results.
Aganga said the country recorded an $8.9 billion
investment inflow last year, making Nigeria the number one investment destination
in Africa. The minister said Nigeria also recorded an
increase net inflow of 46 per cent, better than the net growth of other West
African countries put together, which he attributed to the renewed effort of
the present administration to bring foreign direct investment (FDI) into the
country. According to the Registrar-General of the
Corporate Affairs Commission (CAC), Bello Mahmud, the Commission registered a
total of 74,651 companies, 87,640 business names and 8,291 incorporated
trustees between January and October 2013. This, he said, amounted to increases
of 10.7 per cent, 18 per cent and 6.7 per cent, in that order, over the
corresponding period in 2011. According to him, this brings the total number of
companies, business names and incorporated trustees to 979,016, 2,041,341 and
54,397 in that order.
However, players in the manufacturing sector said
the sector is still inundated by myriads of challenges, which affected their
operations in the year. For instance, the national president of the
Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture
(NACCIMA), Dr. Herbert Ademola Ajayi, noted that the current state of the
country has continued to pose some challenges to the business community, as the
performance recorded so far has not translated to any significant positive
impact on the real sector of the economy and the citizenry.
He said, for the business community, the
challenges arising from unfriendly operating environment and infrastructural
constraints, particularly in the areas of power and energy, and, of course,
security, which when added up to other recurrent businesses threatening
economic and social ailments, would easily wipe out any gains of progress and
recovery. He noted that available statistics on macro-economic
indicators showed some development within the year, including an exchange rate,
which stabilised within a band of N155 and N161 to the dollar; inflation rate,
which went up from 10.3 per cent in December 2011 to 11.3 per cent in September
2013; a GDP growth rate, which also went down from 7.40 per cent in December
2011 to 6.28 per cent at the end of second quarter of 2013.
According to Ajayi, external reserves rose from
$34.4 billion in December 2011 to $45.6 billion as at November 19, 2013. Interest
rate, he said, remained double digit, hovering between 17 per cent and 28 per
cent as against a single digit rate expected by business operators.
He noted that some banks, however, had, under
special arrangements, already been offering single digit interest rates to
small and medium-sized enterprises (SMEs). Ajayi said capacity utilisation in
real sector and manufacturing production hovers around 45 per cent, which
showed huge unutilised capacities within the year.
“Our association wishes to reassure business
operators and Nigerians that if all hands are on deck and with undivided and
deserved attention also paid by governments at all levels, to constantly weigh
the resultant strengths and weaknesses of these indicators in our nation’s
unique economic environment, we should be able to manage these macro-economic
fundamentals for businesses generally to move in the direction of expected
destination rather than marking time,” he said.
The NACCIMA boss said industrialists are also
worried that despite the recent high tariff charged by the Power Holding
Company of Nigeria (PHCN), electricity supply is yet to reduce the burden of
private generators for businesses and the citizens since the government’s
intention to meet the 6,000 megawatts (MW) to 10,000MW has been difficult,
saying that this has contributed, as always, to the high cost of doing business
estimated at about 40 per cent. He said manufacturers expect that adequate
mechanism would be put in place in the implementation of the on-going power
sector roadmap with supporting infrastructure (including maintenance) to
overcome the challenges of power generation, transmission and supply. This, he
said, will be a comforting thought for business operators.
“We, therefore, wish to counsel that government,
with private sector collaboration, should not rest but intensify the commitment
towards sustainable power supply of not less than 10,000MW by end of 2013, as
well as make provisions for sufficient pre-paid meters to consumers, to ensure
that every citizen pays his or her bills timely, while the era of ‘crazy bills’
becomes a thing of the past,” he said.
On the security situation, which adversely
affected the manufacturing sector during the year, Ajayi posited that while
government continues to partner with the private sector and other stakeholders
to find lasting solution to the security challenges in the country, it has
become imperative for both the immediate and the remote causes to be
effectively tackled and with all sincerity, noting that it is only then that
the alarming new wave of security problems will be uprooted and the symptoms
totally eliminated from the society.
“We plead with governments at all levels,
individuals and groups, especially politicians, to desist from playing politics
with security and demonstrate the courage to work together for the good and
safety of all. Such will produce true nationalists and nation-builders,” he
added. According to the director-general of the Lagos
Chamber of Commerce and Industry (LCCI), Muda Yusuf, the transformation of the
Nigerian economy is critically dependent on the quality of investment climate.
He noted that in an assessment of the business
environment in 2013 carried out by the chamber, the chamber discovered that the
business and economic environment was typically characterised by upsides and
downsides, but the latter seemed to outweigh the former. The economy, he said, offered tremendous
opportunities during the year, but the capacity of investors to harness the
opportunities was constrained by the prevailing challenges of the operating
environment, adding that the limitations were even more profound for indigenous
entrepreneurs.
“The country is reputed for its robust natural
endowments, youthful demography, large coastlines, largest population in the
continent, seventh largest oil-exporting country in the world, a large
enterprising population, an innovative banking sector, a GDP growth of 6.6 per
cent, which is one of the best globally; rising foreign reserves which was
$44.5 billion as at November 2013, excess crude account of $9.6 billion and a
stable polity, bolstered by increased credibility of the electoral process. All
these form the major components of the upside in the economy in 2013,” the
chamber said, but lamented that for most investors, the downside was more
overwhelming, as the operating environment was generally adjudged to be unsatisfactory
by many investors, which had profound impact on returns on investment (RoI) and
profit margins.
It noted that some of the challenges faced by
many investors during the year included weak consumer demand; cost and access
to credit; cargo clearing processes; transportation costs, especially the
collapse of the rail system; institutional problems, and corruption, especially
in relation to public sector transactions. Other concerns of the manufacturing
sector in the out-going year were the uncertainty and inconsistency in the
policy environment, growing insecurity, manpower issues and the relevance of
educational curriculum to the needs of the economy, high level of receivables
across sectors, power supply challenges, poor sectoral linkages and weak
commitment to the development of indigenous enterprise.
The chamber also noted that the security
situation in the country was a major concern to investors during the year,
adducing that beyond the direct consequences for the economy, it had profound
effect on the perception of the country as an investment destination. It noted
that the security problems did not abate during the year, but worsened and
consequently affected the economies of the affected states, which suffered
setbacks following the closure of companies and relocation to other states,
with profound job losses.
Many firms, as a result of the security
situation, also lost sizeable portion of their sales, as they could no longer
access most part of the Northern market; while manufacturing firms sourcing raw
materials from the North faced new challenges. Projects funded by banks in the affected states
were also at risk and many bank branches were closed, while the working hours
for others were drastically reduced.
Sales representatives of many companies had to
flee the affected states, while many projects under construction in the North
were abandoned. Funding was also identified as a major problem
for investors in 2013. The chamber noted that the cost of fund in the economy
was high and access to credit was even a more serious problem, explaining that
the tight monetary policy stance of the CBN was identified as a major factor
that affected the credit conditions. It noted that collateral cover requirements by
banks were beyond many investors, which impeded access to credit, slowed down
the tempo of economic activities and undermined intermediation role of banks in
the financial system.
Industrialists also lamented that government
borrowing at a high cost of between 14 to 16 per cent – one of the highest
globally – was a major source of the credit problem in the year. This, they
said, created a disincentive to lend to entrepreneurs, put pressure on interest
rates and increased the flow of funds from the banking system to the government
coffers; a scenario they say was not healthy for the economy.
Manufacturers were also faced with high energy
cost during the year, which affected productivity and profitability of
investments. They said though the power supply situation in the country
improved slightly mid-year, it declined in the last quarter. Major challenges faced by the manufacturing
sector in the course of the year, according to the survey, include insecurity
in most parts of the North and few spots in the South, which impeded turn-over
and distribution throughout the year, rising cost of production due to high
cost of capital and alternative source of power, increasing cost of labour due
to scarcity of required skills, new minimum wage legislation and unabated
influx of finished consumer goods as well as substandard products into the
country.
These challenges, the chamber noted, resulted in
a decrease in sales/turn-over and margins across the manufacturing sub-sector
and rare cases of expansion, diversification and new employment while
importation of technical skills required by the industry affected the bottom
line. The chamber said many manufacturers faced
difficulty, delays and high cost of getting bank loans, while innovation and
planning by manufacturers also suffered as a result of uncertain and unstable
policy environment.
As the country enters the New Year,
industrialists are calling on government to ensure that SMEs and manufactures
get loan at single digit and that government should eliminate delays associated
with loan processing. Government, they say, should also check the
influx of substandard goods into the Nigerian market as well as swiftly and
permanently fix the security problem in the country.
To avert the challenge of skilled manpower in the
manufacturing sector, industrialists are also calling on the government to
reform the curriculum of tertiary institutions in the country to bridge the
wide gap between industrial skill requirement and the output from Nigerian
institutions. The immediate past executive director of the
African Institute for Applied Economics (AIAE), Prof. Eric Eboh, said a survey
carried out by the Institute identified inadequate electricity, transportation
challenges and water and sanitation as some of the constraints of doing
business in Nigeria. Eboh said the result of the survey showed that
many business environment constraints were imposing additional costs and risks
to doing business in Nigeria while infrastructure remains a key constraint,
particularly power, transport, water and sanitation.
“Red-tape in business regulatory services such as
property registration, business licensing, tax administration and commercial
dispute resolution and advocacy by private sector and civil society weakened by
lack of organisation, poor resource mobilisation and paucity of research
evidence among others have hampered business climate in no small way,” Eboh
noted. The representative of the United Nations
Industrial Development Organisation (UNIDO) to Nigeria and Economic Community
of West African States (ECOWAS), and Director, Regional Office, Dr. Patrick
Kormawa, said unlocking sustainable wealth creation through manufacturing
requires the efforts of the government and a private sector-driven economy,
adding that there are certain things that have to be in place to overcome the
huge barriers in entry into the elite group of globally competitive
manufacturing countries.
He observed that there has been a significant
widening of the gap between expectation and reality concerning manufacturing
growth and economic diversification, observing that the manufacturing sector
has not served the purpose of unlocking economic prosperity and wider
industrial inter-linkages in the Nigerian economy. He submitted that the government needs to get the
business climate and the cost of doing business right. According to him, the economic success story of
the emerging economies of South East Asia, India, China and Brazil, which were
evident in their upscale of global economic ranking, was essentially driven by
their manufacturing success, adding that if it could happen in these countries,
people at UNIDO fully subscribe to the view that the same success is also
possible in Nigeria.
“Therefore, we will fully support all efforts of
the government, the industry and other stakeholders, to achieve the much-desired
goal of making Nigeria one of the world’s major manufacturing centres, in the
ultimate quest to achieve sustainable industrial development. For Nigeria, as a nation, to succeed in
domesticating and sustaining the robust manufacturing experience of South East
Asia, Brazil, India, and China, she must begin to understand that success
depends on the right policies in place, he said.
He advised that in the quest to revolutionalise
the manufacturing sector, government must put certain things in order, including
high cost of production due to poor infrastructure (roads, water and power) and
high cost of finance, policy instability (trade and industrial policy
instability), poor investment climate and weak institutions, low investment in
efficient and newer machines and technology leading to technological obsolesce,
and high cost of production and uncompetitiveness.
Other factors that must be attended to, he said,
include poor corporate governance, poor skills, work ethics and other
organisational deficiencies, political instability and insecurity, large-scale
import and smuggling of sub-standard products as well as low investment in
research and development and weak linkage between research, innovation and
industry. On the challenges being faced by the SMEs in the
country, the managing director of Bank of Industry (BoI), Ms. Evelyn Oputu,
said some of these major challenges, including finding solutions to the high
cost of doing business occasioned by poor infrastructure (power, roads, water),
multiple taxation, high cost of legal documentation of credit facilities at
both the states’ Lands Registries and the CAC; bureaucracy in obtaining title
to land and state governors’ consent to mortgage property; inadequate capacity
building on the part of the SMEs in the areas of entrepreneurship, and skills
acquisition, resulting in the perception of the sector as high risk and poor
attitude to loan repayment by borrowers in the sector need to be addressed
immediately for the sub sector to thrive.
She said government needs to address power and
other infrastructure challenges, which she said is already in progress as part
of the Federal Government’s Power Sector Reform Programme and the provision of
financial/technical support through the Central Bank of Nigeria (CBN) for the
power sector. There is also the need to adopt a cluster
approach to Micro, Small and Medium Enterprises (MSMEs) development by setting
up industrial/cluster parks with all necessary amenities, she added. This, for
her, would address the issue of infrastructure and high legal documentation
registration fees. She explained that the cluster approach shall examine the
possibility of setting up small renewable energy (hydro, wind, etc) power
plants of one to five megawatts capacity or more to serve the clusters and the
immediate community, adding that some of the current Industrial Development
Centres (IDCs) under the management of the Small and Medium Enterprises
Development Agency of Nigeria (SMEDAN) are suitable and could be used as the
launchpad for immediate take-off of the industrial/cluster parks.
The BoI boss said focus of SMEs financing should
be targeted at: entrepreneurs that would convert the country’s comparative
advantages in the utilisation of local resources into competitive advantages,
the generation of employment and the re-establishment of the middle class in
the society and the specialised SMEs that have linkages with large firms, or
that belong to clusters, as well as women entrepreneurs. She explained further that financing of the
sub-sector should also be targeted at sustaining the development of SMEs that
would have a positive impact on inflation, as it reduces/eliminates imported
inflation and inflation tied to the food basket, noting that in Nigeria, the
on-going reforms powered by the Transformation Agenda, is seeking to facilitate
the development of a conducive environment for SMEs to thrive.