4 issues dragging Nigeria’s industrial prosperity  

The Nigerian manufacturing sector has experienced growth in recent times. Real contribution to GDP in the first quarter of 2020 was 9.65 percent, higher than 8.74 percent recorded in the fourth quarter of 2019 but lower than 9.79 percent reported in first quarter of 2019 , according to data from the National Bureau of Statistics (NBS).

Capacity utilisation in the sector, which measures the rate at which factories make use of their capacities, was 56.8 percent in 2019 as against 49.32 percent in 2015, according to the Manufacturers Association of Nigeria (MAN)’s data.

The Manufacturing Purchasing Managers’ Index (PMI) stood at 60.8 percent in December 2019 from 59.3 percent in November 2019, according to the Central Bank of Nigeria (CBN) data. The number has dipped to 41 percent in June 2020, but that is down to COVID-19 which is wreaking havoc on the global economy.  A reading above 50 shows that the manufacturing sector is expanding, while a reading below 50 suggests the sector is contracting.

The numbers have been relatively good in recent times, showing that a lot of progress has been recorded in the last 10 to 15 years. However, some of the data do not really reflect the realities in the sector.

Firms have continued to shut down due to policy-, tax- and infrastructure-related issues. The closure of P&G factory at Agbara, Ogun State, and the exit of Grif, Federated Steel and Universal Steel, among others, in the last three years are still fresh in the memories of many Nigerians.

The simple reason for such exits and shut-downs in the sector is that age-old problems die hard, and they are hurting the sector badly. Hence there are four key issues that have dragged the progress of the manufacturing sector and require government urgent intervention.

First is that the country’s infrastructure is getting worse. Clearly, rains are increasingly exposing the poor state of roads in Ogun and Lagos—two industrial hubs in the country. From Agbara industrial cluster in Ogun to Apapa in Lagos, roads are bad or inaccessible.  Access road to Apapa and Tin Can ports has continued to be nightmares for manufacturers and exporters. Between October 2019 and March 2020, cost of moving goods in a 40-foot container from Apapa to Ikeja (ordinarily 40-minute drive) rose from N350,000 to N450,000 to N650,000 to N700,000. Similarly, goods stay for weeks on bridges before being exported. Perishable goods get spoilt, in addition to frustrations by the port authorities at times.

In the first quarter of 2020, MAN undertook a CEO survey to determine what constituted challenges for them. At the end of the survey, 94 percent of the CEOs interviewed agreed that congestion at the ports significantly affected their productivity negatively.

“Most worrisome are the issues of deliberate delay in cargo clearing time, raising of technical barriers, rejection of relevant documents by officers of the agency that approved import documents, multiple agencies with duplicated functions and other rent-seeking activities of vested interests at the port that excessively fleece operators,” the CEOs said.

It is impossible to talk about infrastructure without discussing power. Though the cost of alternative sources of energy by manufacturers dropped from N82.6 billion in 2018 to N67.38 billion in 2019, signifying an 18.4 percent decrease over the period, the cost of energy is still high. Most manufacturers have long ditched DisCos because of irregular supply of power, which raises their production costs significantly and forecloses their chances of competing with international peers. Local products are often more expensive than imported Chinese products because production costs in the country are significantly higher than China’s, especially when key issues such as taxes and regulations are factored in.

Apart from infrastructure, regulation is a major issue hurting the sector. In Nigeria, Africa’s most populous country, agencies of the government work at cross-purposes. For instance, the Standards Organisation of Nigeria (SON) does not accept tests done by the National Agency for Food and Drug Administration and Control (NAFDAC) and vice versa. Worse still, their responsibilities overlap. Similarly, local or state governments do not accept agreements by the Federal Government, particularly when it has to do with money or taxes.

 In the CEO survey mentioned earlier, 94 percent agreed that multiple/over-regulation by agencies of government hurt productivity in the manufacturing sector.

“Quite often, agencies of the federal, state and local authorities regulate the same manufacturing process resulting in man-hour loses, supervisory duplication using similar checklist and multiple regulatory charges which ultimately translates to increased cost of production for manufacturers,” MAN said.

Another critical issue bedeviling the industrial sector is funding. Nigeria is cash-strapped due to falling oil prices. This is hurting the country’s capacity to fund projects and critical sectors. However, pool of funds from the CBN and development finance institutions is stashed in banks which are sometimes unwilling to lend to businesses due to what they call ‘high-risk level’ of lending to businesses in Nigeria.  Consequently, several manufacturers have complained that they are unable to access most funds advertised by the government.

Manufacturing needs funding, especially long-term, single-digit funds, to compete. In 2019,  China set up a $21 billion fund to further develop its advanced manufacturing sector. India has billions of dollars for funding start-up manufacturing firms. In the face of foreign exchange scarcity, which is stalling manufacturers’ capacity to import inputs, firms are pumping billions to source raw materials locally and beat the FX crunch.

 FrieslandCampina WAMCO, for example, has set up 16 milk collection centres in Oyo State and is constructing 10 new ones for the collection of raw milk from local herdsmen as input. PZ Wilmar, a subsidiary of PZ Cussons, has 26,500 hectares of palm oil plantations in Cross River State.

Flour Mills of Nigeria (FMN), on its part,  is pumping N50 billion in Sunti Golden Sugar Estates, Niger State, featuring 17, 000 hectares of irrigable farmland and a sugar mill processing 4,500 metric tons (MT) of sugarcane per day.

Guinness Nigeria is supporting over 30,000 smallholder farmers, who supply them with sorghum, to enable them move from basic to more efficient and productive yields.

Many medium firms are also setting up projects to source inputs locally. All these ongoing projects require large chunk of funds to continue.

While some manufacturers have accessed the CBN, Bank of Industry and other forms of funding, the feeling in the sector is that funds are not easily accessible to all players in the sector.

Next to this is policy inconsistency. There is no guarantee that some of the current CBN policies- as protectionist as they are- may survive in the next dispensation. Similar ones have happened in the past and, as usual, died natural deaths. Take the Export Expansion Grant (EEG) as an example. It was targeted at raising the competitiveness of Nigerian products at the global market. But by 2009, it had been suspended five times. In 2013, it was suspended again, putting a lot of firms who borrowed from banks in jeopardy. Firms had borrowed from banks to process their exports with the hope that the government would, as promised, give them incentives. But the government in 2013 suddenly suspended it. Up till now, it is yet to be reinstated, though a lot of processes have been undergone by exporters, including approval by both houses of the National Assembly.

The level of policy failures in recent times has been worrisome. Think about the cassava bread policy, which has now died a natural death. The Goodluck Jonathan administration, which promoted it, did not follow it through and those who invested money into cassava production with an eye on that policy might have lost a lot of money.

Consider the Automotive Policy, which was sincerely meant to enable Nigeria make its own cars at cheaper rates. No one knows where the policy is at the moment.

More so, the country is battered by multiple taxation and low level of skills among its largely youthful population.

Perhaps, Nigeria can learn one or two things from Bangladesh. At independence in 1971, the South-East Asian country had 82 percent of its citizens below the poverty line. But by early to mid-2000s, the country had lifted 33 million citizens (23-26 percent of the population then) out of poverty. Two of the reasons adduced by analysts for this miraculous jump out of poverty pit were industrial policies and market reforms.

Bangladesh’s garment industry is partly responsible for rising prosperity witnessed in the country, according to Brookings Institute.

“Bangladesh offered a better environment for manufacturing firms to achieve economies of scale and create a large number of jobs,” Kaushik Basu, an economic analyst, said.

The country offered low and organised tax system, cheap funding, and empowered its manpower, skilling its youths to fit into the new industrial vision.

“ And though Bangladesh still needs much stronger regulation to protect workers from occupational hazards, the absence of a law that explicitly curtails labor-market flexibility has been a boon for job creation and manufacturing success.”

Bangladesh earned $33 billion from exporting garments in 2018—10 times what Nigeria earned from exporting 25 products the same year. Nigeria today is world’s poverty capital with nearly half of its population in extreme poverty.