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Jacobs: Any nation that fails to industrialise cannot grow

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Frank Jacobs, MAN President

Dr. Frank Jacobs is the President of the Manufacturers Association of Nigeria (MAN). In this interview with FEMI ADEKOYA, he stressed the need for urgent intervention from government to address factors militating against industrial production in the country.

What factors triggered the gradual fall of industrial production in the country, which has gone under in the last six years?

FOCUSING on the manufacturing sector, I would say that a number of factors triggered the lacklustre performance of the sector over the last six years. 

Some of these include inadequate supply of electricity; poor state of infrastructure like roads, water and rail transport; multiplicity of taxes; multiple regulations and charges; expensive transportation and communication costs.

Others include poor access to reasonably priced loans; policy somersault; loss of a reasonable size of the market of manufactured products due to insecurity; high import dependence occasioned by the failure to properly develop available raw materials and fabricate machines for production; lack of political will to effectively develop and implement deliberate industrial policies that will take care of planning, trade protection, development finance and public investment in strategic industries.

These challenges cumulatively hindered and continue to hinder the progress of the industrial sector and discourage the flow of potential investments into the sector. 

The good news is that vital economic policies that are currently being implemented are capable of changing this story in the next five years, if well implemented.
How will you today’s production capacity with that of seven, eight years ago?

Frankly speaking, the growth of the sector is not so impressive when compared with past performances, especially in terms of the contributions of the sector to the national growth.

We are not and cannot be comfortable with the position and consequently think there is need for urgent intervention from government to address factors militating against industrial production in the country.

Industrialisation acts as a catalyst that accelerates the pace of structural transformation and diversification of the economy, enabling a country to fully utilise its natural endowment and to depend less on foreign supply of finished goods or raw materials for its economic growth, development and sustainability.

Industrialisation plays a complex role in economic growth and development, thus, any economy that fails to industrialise may not grow sufficiently as the effects of a narrowing industrial production on the economy would find expression in economic instability; balance of payment problems; increase in unemployment rate; stunted development of other sectors of the economy; decreased government revenue from duties, taxes and levies; reduction in the nation’s overall income as the Gross National Product diminishes and lowers the standard of living.

How can government make the country attractive to investors?

When you look at the operating environment and high cost of manufacturing, it will not be out of place for a manufacturer to see Nigeria as an unattractive investment environment.

However, when you have a holistic view of all the sectors of the economy, then one may only say that the operating environment is less friendly.

Nigeria still remains an investment destination of choice in view of its high investment returns profile, its population size, abundant resources and prevalence of heavy effective demand.

No doubt, efforts of the Presidential Enabling Business Environment Council (PEBEC) have gone a long way to ease some of the challenges confronting businesses, even though there is still room for improvement.

One of the critical areas of concern that still dampens the performance of Nigerian firms is multiple taxes and levies due to the excessive drive of federal, state and local governments for increased IGR irrespective of its effects on businesses.

Therefore, for the operating environment to be more business friendly as contained in PEBEC mandate, there is the need for the Federal Government to encourage state governments to address the challenge of multiplicity of taxes and levies.

There is also the need to implement the Steve Oronsanye Report on the reduction and re-alignment of Government Agencies and Parastatals in order to streamline the number of taxes, levies, fees and administrative charges payable to them to curb excessive wastage of tax payers’ money and eliminate preventable duplications.

On what the country has lost for decline in production, there is no doubt that government and industrialists in the country have suffered losses as a result of the downturn in industrial production in the last six years, precipitated by the harsh operating environment defined by the challenges earlier mentioned, especially household liquidity squeeze resulting from the erosion of the real value of disposable income, which lowered aggregate consumption in the period.

The challenges jointly compel the industry to operate at sub-optimal capacity leading to output loss, lower sales and ultimately lower profit. 

As the sector suffered losses, the country as a whole suffered the same since the value of government revenue is a function of the profit levels in the industry. 

Therefore, as output, sales and profit shrink in the industrial sector, government revenue also shrinks; little wonder that Nigeria’s Tax-to-GDP ratio of 5.6 per cent (2016) remains one of the lowest in the world and below the World Bank 18 per cent benchmark for developing countries. The actual loss has not been estimated.

How would you advise government to tackle infrastructural challenge?

There is no doubt that the dearth of basic infrastructure to support economic activities is responsible for high cost of production in the country. Chief among infrastructure challenges facing manufacturing is the inadequate electricity supply. 

A survey conducted by MAN in 2016 shows that energy cost accounts for about 36 per cent of total cost of production in the manufacturing sector, which is one of the highest in the world. 

The survey also revealed that manufacturers spent over N129b as cost of alternative energy.

Expenditure on alternative energy utilisation in the sector totalled N117.38 billion in 2017.

You may agree with me that this sum is huge enough to set up a number of ancillary industries to support manufacturing and reduce unemployment rate.

It is also important to note that the major reason that would make a manufacturing concern to relocate out of the country is the problem of chronic policy inconsistency or summersault. 

This, in addition to infrastructure deficit, accounts for the exit of manufacturing firms from Nigeria.

This is the main reason we have always advised government to consider Public Private Partnership (PPP) programme to address the infrastructure challenges through the establishment of concession agreements under Built-Operate-Transfer (BOT) in road construction and maintenance, rail construction and maintenance with credible organisations. 

This will free up funds for other development projects. Government should also allow industrial policies to run their full course, preferably for an agreed gestation period before any review is done.

Bribery, multiple taxation are still niggling problems in the Nigerian business environment. How can these be eradicated?

Although the government has over the years taken bold steps to address some of the challenges confronting companies in the area of multiple taxation and related matters, the efforts of the Joint Tax Board to evolve an efficient tax administration system and resolve areas of conflict on tax jurisdiction among states in the country has not been that effective due to constitutional lacuna that gives states the power to create taxes deemed fit in their area of jurisdiction.

Consequently, any attempt to harmonise taxes in Nigeria must be comprehensive and should entail a review of some of the constitutional loopholes that allow for duplication of taxes by different tiers of governments in Nigeria.

There is no doubt that bribery is endemic in the country and is partly responsible for the poor business-operating environment in Nigeria.

Bribery can be checkmated or at least mitigated if government continues to promote the tenets of transparency, integrity, and accountability in all our private and public lives.

This could be engendered by a number of reforms that will promote a system that works without fear or favour.

There is also the need for government to create policies that will promote improved socio-political and economic life of the citizenry to disincentivise the citizenry from participating in unwholesome businesses and corrupt practices. 

Apart from these measures, government needs to be firm in punishing anyone found culpable of bribery or similar offences.

 
What immediate measures should be taken to halt further production decline and boost employment in the country?

The present government deserves some credit for gradually restoring sanity to the economy considering that it came under the backdrop of economic dilemma.

The plummet of crude oil price in late 2014 led to acute shortage of forex and this severely dampened industrial production. 

At the moment, the economy has relatively stabilized vis-à-vis what obtained in 2015 and 2016. 

The Central Bank of Nigeria’s (CBN) intervention in the official forex market and the Investor & Exporter (I&E) forex window initiative have efficaciously brought stability in the market and made forex more easily accessible. 

Government has also supported resource-based industrialisation and backward integration in the economy, leading to increasing local raw-material utilisation in the manufacturing sector. 

Local raw-materials utilisation in the sector increased from 48.55 per cent in 2015 to 53.14 per cent in 2016 and further to 66.35 per cent in 2017.

There is also an effort at improving the country’s Ease-of-Doing-Business (EODB) with the establishment of Presidential Enabling Business Environment Council (PEBEC). 

However, to boost production and employment, there is the need to address the infrastructure, credit and trade challenges of the sector.

What measures are manufacturers putting in place to address some of these lingering challenges?

Unfortunately, most of the challenges earlier mentioned are macroeconomic in nature, which makes them difficult for one manufacturer to solve adequately. 

For instance, the challenges of high cost of borrowing and unfavorable naira exchange rate parity cannot be feasibly solved by one individual manufacturer.

However, due to the doggedness of our members, they have resiliently maintained production notwithstanding the challenges.

A good number of them have made significant strides in generating their own electricity even with excess capacity and are engaged in heavy backward integration projects.

MAN complements the efforts of manufacturers with evidence-based advocacy.

The association continuously monitors the condition of key strategic roads and rail development in the country; financial development in terms of the need to strengthen the BOI and fully operationalise DBN; trade development particularly smuggling, counterfeiting and cloning activities in the country.


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