Industry: Struggling with a gradual rebound
The economy is gradually on the road to recovery, after the debilitating effects of limited economic activities forced by the COVID-19 pandemic and falling oil prices. However, the manufacturing sector, which is a major yardstick for assessing the health of the economy, is still struggling, requiring urgent policy measures to revitalize it. Assistant editor CHIKODI OKEREOCHA reports.
The report of the first quarter of 2021 of the National Bureau of Statistics (NBS), which revealed that the economy had again experienced a successive positive growth rate after the 0.11% recorded in the fourth quarter of 2020, rejoiced the hearts of operators of the real sector, especially manufacturers.
On the one hand, the report was an indication that the economy, and by extension the manufacturing sector, was starting to gain momentum after the emasculating effect of COVID-19 lockdowns and limited economic activity.
The report therefore set the stage for what should understandably be a favorable and heartwarming review of the performance of the manufacturing sector in the first half of 2021. But it is doubtful that members of the organized private sector (OPS), especially manufacturers, are influenced by the report; they still recognize the fact that the industry is still struggling.
For example, the Manufacturers Association of Nigeria (MAN) admitted that the report was “a welcome departure from the negative growth seen in recent quarters,” but its managing director, Segun Ajayi-Kadir, was quick to comment. add: “We are aware of the negative impact of the depreciation of the value of the naira and the severe shortage of foreign exchange, as they remained huge challenges during the quarter. “
Indeed, in the first quarter, through the first half of the year, the value of the local currency, the Naira, plunged against other international currencies, notably the dollar, trading at N503 / $ this week. Additionally, the forex tightening compounded by falling oil prices and the COVID-19 pandemic has not yet improved significantly, although there has been a gradual rebound in oil prices.
However, the depreciation of the value of the naira and the acute shortage of foreign exchange are not the only indicators of the unfavorable macroeconomic environment in Nigeria that have limited the performance of the manufacturing sector during the period under review. Manufacturers are still worried about a high and rising inflation rate, double-digit credit rate and unfavorable exchange rate parity.
The regulatory environment, according to Ajayi-Kadir, remains severe and induces high operating costs in the economy. Due to the high business environment, the manufacturing sector has consistently suffered from low-price competitiveness, as a plethora of close substitutes for local manufactured goods are imported while others are smuggled across land borders.
The infrastructure deficit, in particular the inadequate electricity supply, is largely responsible for the high-cost business environment over the period. This is because manufacturers’ electricity expenses account for about 40 percent of production overhead in some sub-sectors. And it’s easy to see why manufacturers are heavy users of electricity in Nigeria.
MAN, The nation learnt, represents the interests of more than 3,000 manufacturers (small, medium, large and multinational) in 10 sectors, 76 sub-sectors and 16 industrial zones. The manufacturing sector also employs more than five million workers, directly and indirectly, with a contribution of 8.93 percent to the country’s gross domestic product (GDP).
Despite the size, scope and contribution of the sector to GDP, manufacturers spent more than 67.38 billion naira on self-generated electricity to keep their businesses operating in 2019 alone, according to its chairman, Ahmed Mansur.
He added that in addition to insufficient electricity supply and relentless tariff increases without commensurate improvement in generation, transmission and distribution, members of the sector also face key challenges, challenges that are obviously not conducive to growth and are contrary to the competitiveness of the sector.
Rather than benefit from a significant improvement in electricity supply, manufacturers continued to face the overwhelming negative impact of rising electricity tariffs in the last six months of the year, such as the decrease in foreign exchange earnings of the sector, as the high cost of production feeds into the prices of raw materials for export.
There is also a reduction in government tax revenue caused by lower sales, as less disposable income is available to purchase manufactured goods. In addition, reduced capacity utilization, continued declining GDP and widespread unemployment in the 76 manufacturing sub-sectors have raised fears of an increase in the crime rate.
Manufacturing sub-groups with higher energy consumption are expected to include base metals, iron and steel, and fabricated metal products; Domestic and industrial, rubber and foam; Non-metallic mineral product; and the Chemicals and Pharmaceuticals sector groups are less well off.
However, as part of the authorities’ efforts to mitigate the high-cost manufacturing environment and improve the competitiveness of the sector, the Central Bank of Nigeria (CBN) has established several development finance windows with “low-cost” interest rates. figure ”to support real productive enterprises, including the manufacturing sector. .
Despite the availability of these financing windows, Ajayi-Kadir said manufacturers still suffer from the double challenge of scarcity of funds to invest and high lending rate.
For example, he lamented that the COVID-19 stimulus for manufacturing and import substitution of N1 trillion, a stimulus to support manufacturing and improve production in the sector, as well as other funds created by the CBN at a liberal lending rate, were not sufficiently accessible. to manufacturers.
He accused the managers of the stimulus package, namely the participating financial institutions (PFI) and deposit banks (DMB), of procrastination, saying the banks claim they did not receive the framework for the administration. from the ease of CBN.
Ajayi-Kadir, in a recent statement made available to The nationMAN said, observed that most of its members who requested the installation were unable to obtain it. He said that according to the CBN, only 76 companies received 300 billion naira, which is 30 percent, in one year.
As if that wasn’t enough for a sector that still struggles to be competitive, Mansur has stopped denouncing the many, often duplicated, demands from the three levels of government in the form of taxes, levies, fees and permits that manufacturers still face. .
“Manufacturing companies are continually overwhelmed by multiple regulations from different regulatory bodies and excessive revenue seeking by government agencies. And this has continued to be a major drag on the country’s manufacturing sector, ”he said at a recent forum in Lagos.
During the period under review, manufacturers have also been hit by rising inflation, which is not healthy for the well-being of Nigerians and the aspiration for growth of the economy, in particular. expected economic growth of 2.5% this year.
The director general of the National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Ambassador Ayo Olukanni, blamed the country’s spike in inflation on the rise in insecurity that has spread across the country.
He said the consequences of insecurity on agricultural production, especially for smallholder farmers in the country’s food belt, are enormous, as many farmers are unable to engage in active agriculture or to evacuate their agricultural products.
Stressing that business and productive activities thrive only in a safe and secure environment, Olukanni said that a lasting solution must therefore be found to the problems of banditry and other sources of insecurity across the country.
Given the current worrying economic climate and the difficult state of the manufacturing sector, many operators and industry stakeholders believe that in the future, the government should step up its intervention initiatives and follow up on the cost reduction aspect of the ease of doing business.
There is also a consensus among operators on the urgent need to create a more user-friendly operating environment and to deliberately support the productive sector in a strategic way and to define priorities in the direction of improving infrastructure, competitiveness and strengthening. industrial links.
They also recommend that the government, in partnership with manufacturers, select strategic products, especially those with high cross-industry linkages, to support upstream integration and scale up the resource-based industrialization agenda.
Traders also called for a priority allocation of forex to manufacturers to import inputs that are not locally available and for which there is no immediate plan or resources to produce locally.
To fight food inflation, Olukanni said there must be a significant improvement in road infrastructure to facilitate the movement of agricultural products and goods across the country. “It’s about strengthening the food supply chain and reducing transport costs from farm to market,” he said. The nation.
He added that increased support should also be given to SMEs in the agro-food sector, as they are important in the quest to ensure food security and tackle food inflation. “The movement of goods within the country should also not be disrupted by incessant roadblocks on our highways, as this is another cause of the upsurge in inflation and rising prices,” he said. he declared.