Aligning incentives in manufacturing sector for economic growth
In order to promote local production and diversify the economy, different governments at several occasions have had to unveil various incentives to attract investors to sectors where the nation have continually depended on imports for survival. However, reviewing such schemes to ensure that they align with economic goals remains important considering various abuses to which such incentives may be subjected. FEMI ADEKOYA writes.
Manufacturing has been and continues to be critical to the success of many developed economies. The emergence of several economic blocs has been hinged on their ability to explore the potential of their manufacturing sectors.
With dependence on crude oil being discouraged by many stakeholders, especially in the light of fewer jobs for a teeming youth population and inability to generate enough funds from taxes, the federal government resolved to explore incentivised manufacturing option to attract investment in the sectors.
Designed to be implemented through a backward integration agenda, the federal government seeks to end the waste of the nation’s scarce foreign exchange on the importation of commodities that can be locally produced if encouraged.
The backward integration policy involves a company or country taking charge of the process related to the supply of the raw materials it needs to churn out its finished products, so as to improve the efficiency of its production process, as well as enhance independence and profitability.
Indeed, the policy has helped to move Nigeria from a nation, which required imports to make up for the short fall in its cement needs, to one that has a surplus in its cement sector, currently being exported to nations in west, Central Africa and beyond.
One of the first sectors in Nigeria to be impacted by the backward integration plan was the fruit juice industry which witnessed massive inflow of investment immediately the government implemented an import prohibition on the product to boost local production.
Juice brands such as Five Alive, Funman and Chivita became popular after this policy was introduced and importation was banned between 2007 and 2008.
With the cement sector serving as an good example of the success that can result from backward integration, the federal government had been exploring the option in prodding investors to increase their stakes in various sectors, especially the agribusiness.
However, as desirable as the incentive programme may be, the need to appraise the effectiveness of the programme is important when assessed against the timeline set for sufficiency in local production.
For instance, the rice backward integration plan which is expected to make the nation self-sufficient in rice production by 2015 remains unattainable despite the huge incentives enjoyed by investors under the scheme. The same applies for other commodities.
Under the backward integration plan, companies operating in an identified sector were given a time frame to begin investing in local production of the commodities which they were then importing and selling.
Importation quota was also introduced by the federal government for companies investing in local production of these commodities while a time table was set for the gradual winding down of importation in order for locally-produced goods to feed the market totally.
With abuse setting in, many investors in the backward integration chain have refused to show commitments to invest locally in the sectors while still enjoying waivers and privileges accorded to genuine investors.
Just like the rice sector where some investors have raised concerns on abuse of import quotas by importers who have not shown genuine investments in the rice value-chain, the sugar industry may be having its fair share of such concerns as there are allegations on breach of the backward integration plan by some stakeholders.
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