As rising energy cost, FX crisis de-industrialise Nigeria

In the last few weeks, the cost of diesel has shot up significantly, complicating the already high operating cost of manufacturing and leaving industrialists in panic. With naira also losing its value by the day while electricity supply remains unstable, there is fear that manufacturing companies will continue to close shops in the coming months even at a faster rate if the situation is not arrested, TOBI AWODIPE writes.

Recently, the President of the Governing Council of the Nigerian Association of Small and Medium Enterprises (NASME), Abdulrasid Yarima, cried out that over 10 per cent of the 40 million micro, small and medium enterprises (MSMEs) in the country have shut down since May.

He regretted that subsidy removal, rising energy costs, naira depreciation, rising inflation, operating costs and reduced purchasing power are forcing even more companies and businesses to go under. He was worried that if nothing is done to address these numerous problems manufacturers and entrepreneurs face, Nigeria would even be more de-industrialised.

A recent Small and Medium Enterprises Agency of Nigeria (SMEDAN) survey revealed that the biggest challenges of small businesses are high energy cost, high electricity tariffs, multiple taxation, poor access to finance and high cost of funds. Others are the depreciation of naira, high logistics cost and worsening insecurity.

Hence, the Chief Executive Officer, the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said there was an urgent need to stem the rising tide of de-industrialisation in the economy. He regretted that following the collapse of many manufacturing firms, most of which are SMEs, many factory premises have been converted to event centres, supermarkets, worship centres, warehouses for imported finished goods, restaurants and sports viewing centres.

“Many of our industrial estates have become a shadow of what they used to be. Evidence of all of these can be found in industrial estates located in Ilupeju, Ogba, Ikeja, Sango-Ota, Agbara and many other parts of the country. It is imperative to take urgent steps to stem the tide of de-industrialisation if we must curb the growing unemployment and increasing import dependence of our economy,” he said.

Yusuf said some factors causing de-industrialisation include the influx of cheap and substandard products into the country, FX crisis, poor electricity, high cost of energy (especially diesel and gas), multiple taxations, poor domestic patronage, policy inconsistency and weak infrastructural base. Other factors he said include high cost of funds, absence of long-term funds, poor access to credit, weak institutions, low industrial space and absence of innovation.

“The systemic issues of infrastructure should be addressed as a matter of utmost priority. The immediate focus should be on electricity supply and logistics. Unless we have these two critical infrastructures in place, it will be very difficult to ensure a competitive industrial sector and to make possible the transformation of the sector. We must fix the foreign exchange liquidity and currency depreciation issues and structural issues on infrastructure must be addressed to improve productivity and competitiveness of manufacturing firms,” Yusuf said.
He also urged the government to address regulatory and institutional problems affecting MSMES, tackle the challenge of low access to credit and cost of credit, focus on labour-intensive industries to enhance job creation, promote economic inclusion as well as ensure adequate investment in core industries such as iron, steel and petrochemical to facilitate backward integration.

“We should take full advantage of the large Nigerian market to scale up our industrial capacity utilisation, ensure full and effective implementation of Executive Order 003, address the escalating energy cost of diesel, gas and aviation fuel, support SMEs with business development skills as well as technical skills, offer business advisory services to them free while large enterprises alike should be encouraged to sub-contract aspects of their operations and activities to indigenous SMEs where feasible. This would foster linkages and promote inclusiveness in our industrialisation process,” he said.

In its executive summary highlighting issues that stalled economic growth in the first half of 2023, the Manufacturers Association of Nigeria (MAN) revealed that diesel, which has risen to N1,000 a litre, poses a serious threat to the sector. The association said its members spent about N60. 47 billion on alternative energy sources to support production from January to June 2023. It added that the average number of outages per day increased to 4.7 from 4. 4 in the first half of last year.

Former MAN chairperson, Apapa branch, Frank Onyebu, pointed out that it would be a miracle if industries survive this period as most entrepreneurs are holding on by a thread. He noted that local industries are dealing with too many problems while no help is coming from government

“We are not asking for handouts; we just want a stable and safe operating environment to operate. Electricity is so bad these days that there are sometimes we don’t get supply for days. And this is supposed to be an industrial estate.

“Look at the roads, they are all gone. We are still battling with non-existent FX and now the high cost of diesel and gas has been added to our problems. We practically run most shifts with generators. The economy is bad; inflation is at its highest; purchasing power is low. So, we cannot even afford to increase prices so much despite all these issues we are facing. It is little wonder many companies are folding up and many more will follow suit at this rate,” he said.