Save manufacturing sector from collapse


THE report that manufacturing industries are generating about 14,000 megawatts of electricity on their own due to poor supply from the power generation and distribution companies in Nigeria highlights the parlous situation in Africa’s most populous country. This sad reality vividly painted by the organised private sector is one of depressed and endangered productive sectors, impacted by an unfavourable operating environment. Beyond the confusion and inertia that characterises his regime, the President, Major General Muhammadu Buhari (retd.), needs to adopt a workable stimulus plan to save the economy.

According to the Manufacturers Association of Nigeria, its member companies spent N639 billion on alternative energy sources between 2014 and 2021. A breakdown shows that manufacturers spent N25 billion in 2014, N59 billion in 2015, and N129.95 billion in 2016 to self-generate electricity. The figure for 2017 was N117.38 billion; N93.11 billion in 2018; N61.38 billion in 2019; N81.91 billion in 2020, and N71.22 billion in 2021.

Though the power crisis is just one of the many problems confronting the sector, it is a very fracturing one. It is estimated that providing alternative power adds over 40 per cent to total production costs. This is further compounded by the over 200 per cent increase in the price of diesel since February, cost of funds and prohibitive exchange rates. Nigerian made products are therefore uncompetitive and cannot take advantage of the devalued naira to boost exports.

Another huge challenge is the difficulty in accessing foreign exchange to pay for imported machinery and raw materials. MAN said producers still find it extremely difficult to obtain forex even after the Central Bank of Nigeria resumed selling dollars to Bureaux de Change operators, and increased supply to banks in the fourth quarter of 2021.

A Bloomberg report recalled that dollar supply had dried up in Nigeria after oil prices plunged following the coronavirus pandemic. Crude oil exports still account for about 90 per cent of foreign earnings. In response, the authorities devalued the naira twice last year to deal with the pressure. But with Nigeria’s weak institutions, rampant corruption, internal production and supply chain disruptions, and external headwinds, the devaluation has worsened, rather than improved recovery prospects.

Other challenges confronting manufacturers include multiple taxes, poor access to foreign exchange and flooding of the local market with cheaper imported substitute manufactured goods. In pricing, packaging, and marketing, these overwhelm local products. Companies in the Fast Moving Consumers Goods segment recently reported a 40 per cent increase in the cost of raw materials.

An underwhelming transportation system makes the distribution of manufactured goods very tedious and adds to the cost of getting them to consumers. These are compounded by low consumer purchasing power as inflation has degraded the average citizen’s take-home pay. Headline inflation rate soared to 20.5 per cent in August, the highest since September 2005, says the National Bureau of Statistics.

Thus cornered, manufacturers now resort to cutting corners to stay afloat. Consumers are being short-changed as they get less than what they pay for; in some cases, the quality of manufactured goods has taken a dangerous dip.

NBS data shows that the contribution of the manufacturing sector to the Gross Domestic Product in 2019 was N6.47 trillion; N6.29 trillion in 2020; and N6.50 trillion in 2021, representing 9.06 per cent; 8.99 per cent and 8.98 per cent, respectively. Given the potential, this is rather low.

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Conversely, the contribution of the agriculture sector remains the highest; N17.96 trillion in 2019; N18.35 trillion in 2020; and N18.74 trillion in 2021, representing 25.16 per cent; 26.21 per cent; and 25.89 per cent, respectively; ICT contribution to the GDP rose to 18.44 per cent by August 2022.

But the manufacturing sector is too critical to be left in distress. After agriculture (34.94 per cent in 2022 per Statista), industries are the second largest employer of labour at 12 per cent. Consequently, many citizens rely on its value chain for sustenance, including farmers, producers, suppliers, transporters, and exporters. For instance, the textile, plastic, and construction sub-sectors contribute significant employment opportunities. Manufacturing should therefore be a major priority for the federal and state governments.

The Nigerian government needs to give incentives to encourage the manufacturing sector amidst headwinds at home and abroad. In Germany’s latest €65 billion economic relief package are tax breaks for energy-intensive industries. Some Scandinavian countries underwrote public debts, and Egypt banned the importation of some goods to encourage local production. The central and state governments should patronise, and encourage others to patronise made-in-Nigeria products as a matter of policy. It is ironic that the Federal Government still imports boots and uniforms for its military when there are local producers.

The government must urgently save the manufacturing sector from collapse to preserve jobs and create many more. The current unemployment rate of 33.3 per cent should be reversed. This it can do by revamping critical infrastructure and easing the bottlenecks impeding the activities in the productive sectors. Under its National Manufacturing Policy, India accelerated its liberalising reforms and increased investments in infrastructure and ICT that the World Economic Forum says keep it on track to meet the objective of raising manufacturing’s contribution to GDP from 14.2 per cent to 25 per cent by 2025.

Priority should be accorded to manufacturing in the allocation of forex. The CBN should fast-track achieving a single exchange rate to ensure transparency in the market.

One major reason the economy is depressed is that unlike every other federation, the 36 states lack coherent, autonomous economic programmes; they should have policies to attract investments in agriculture, mining, manufacturing, transportation and services. As all 36 states are endowed in agriculture, minerals and human capital, they should compete for investment and markets.

There is also a need to harmonise the multiple and often conflicting policies that hinder investment, and improve the ease of doing business: remove the bottlenecks at the seaports for seamless clearance of raw materials and machinery. An overriding objective should be to resolve the power crisis. 

With only eight left months in office, Buhari should act creatively to avoid bequeathing an economy in ruins to his successor. ,

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