A series of unfavourable factors are contributing to the stunted growth experienced by the manufacturing sector. Specifically, FX scarcity, naira depreciation, high-interest rates and cost of raw materials, multiple taxations from state and non-state actors, among others, are making a mess of the efforts of businesses. While the ugly scenario prevails, the pool of jobless Nigerians swells, and rapid de-industrialisation flourishes. Stakeholders insist that only ingenious steps by the government are capable of bringing about a turnaround. HELEN OJI and TOBI AWODIPE look at how this can be achieved promptly.
It is no secret that the contributions of the manufacturing sector to the nation’s Gross Domestic Product (GDP) have steadily declined in the last few years, and significantly worsened in the last decade.
The sector has also perennially battled with age-long structural challenges ranging from multiple taxations to huge infrastructure deficits, poor power supply, forex shortages, and capital flight, just to mention a few.
The sector’s growth, which should augment other sectors’ efforts to improve employment and create economic opportunities, has tapered off in recent years, thereby throwing many into the over-saturated unemployment market.
Despite the best efforts of concerned stakeholders to save jobs and prevent industries from dying, the sector has, in the last three years, shed almost half the jobs it created in a decade.
Between 2010 and 2020, the manufacturing sector, according to the Manufacturers Association of Nigeria (MAN), employed almost 1.8 million people. Today, this number is almost halved as more industries have shut down due to the country’s harsh operating environment, thereby throwing more Nigerians into the labour market. The sector today employs less than a million people.
Data sourced from the Nigerian Bureau of Statistics (NBS), reveals that around 2018/2019, the real sector was responsible for about 10 per cent of total GDP annually, and employed 12 per cent of the country’s labour force. By Q2 of 2023, this number dwindled to 8.62 per cent and eight per cent of the labour force – the lowest it has been since 2020.
Between 2015 and 2023, the sector lost over 200 players, with MAN adding that 300 manufacturers were delisted as members within this period, accentuating the low attractiveness of the sector. Some divested, while others either exited the Nigerian market or stopped production entirely.
Also, between 2018 and 2020, hundreds of micro, small and medium enterprises shut down operations, according to the NBS, and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). This year alone, MAN said that over 100 players have shut down as high operating costs and a worsening business environment make it impossible to stay afloat.
Age-old problems, with no solution in sight
FOR years, MAN, as well as the different chambers of commerce in the country, have listed many problems that manufacturers and entrepreneurs are grappling with daily. But persistent cries for help to save local businesses from total collapse have made no impact as businesses are still battling with the same old issues, which range from acute FX scarcity, naira depreciation, high-interest rates and cost of raw materials, unfavourable/constantly fluctuating government policies, multiple taxation and levies from state and non-state actors, worsening purchasing power, and decayed/non-existent infrastructure.
Ports also add to the challenges that manufacturers are faced with. For instance, the activities of multiple government agencies at the terminals are a source of worry for manufacturers when they bring in materials. High electricity and alternative energy costs, high cost of funds, absence of innovation, and so on also make life difficult for them the same way corruption and poor access roads to the ports do.
All these have contributed to the rapid de-industrialisation that the sector is faced with, as well as, job losses. For many, it is cheaper and less stressful to import finished goods than to produce locally, a situation that has led to increased competition for local manufacturers and reduced capacity.
Recently, MAN, in its bi-yearly Economic Review Report, said that the manufacturing sector recorded a 52 per cent increase in unsold finished goods in six months. This was despite a 32 per cent (N1.31 trillion) decrease in the manufacturing sector factory output in the second half of 2022 when compared with N3.99 trillion recorded in the preceding half of the year.
According to MAN’s Director-General, Segun Ajayi-Kadir, a variety of unfavourable factors contributed to the stunted growth of the sector, adding that due to the challenges confronting the sector, both local and foreign investors have lost confidence in the economy and, consequently withdrawn investments in the sector.
Why investors avoid listed manufacturing firms
WHILE conditions in the real sector have become extremely volatile, the above-listed factors have aided in depressing shares of listed manufacturing firms on the exchange and directly contributed to the rising cases of firms being delisted from the Nigerian Stock Exchange Limited (NGX).
For instance, no less than 44 firms valued at almost N350 billion were delisted from the daily official list of the Nigerian Exchange Limited (NGX) between 2015 and 2022. This development constituted a huge blow to the capital market within the period.
Conversely, the exchange listed only seven new companies within the same period. The dwindling fortunes of these firms were attributed to their loss of competitive edge in manufacturing and marketing of consumer goods. Many of them had weak domestic bases and relied excessively on importation to survive.
The Chairman of AG Leventis, one of the firms that delisted voluntarily from the exchange under the conglomerates sector, Ahmed Kazalma Mantey, stated that the harsh business environment along with the continued lag in infrastructure, especially poor power supply and the poor road network, added to their cost of doing business, eventually forcing them to delist.
Six listed firms across different sectors also incurred over N493 billion in forex losses in their Q2 2023 financials, with experts predicting more turbulent times and a gloomy outlook for Nigerian businesses next year, a development that may trigger fresh job losses and worsen the nation’s unemployment situation.
How reviving the real sector will create jobs
DURING President Bola Ahmed Tinubu’s inaugural speech in May this year, he said that his industrial policies would utilise the full range of fiscal measures to promote domestic manufacturing and lessen import dependency.
“We shall honour our campaign commitment of one million new jobs…our government will work with the National Assembly to fashion out an omnibus jobs and prosperity bill. This bill will give our administration the policy space to embark on labour-intensive infrastructural improvements, and encourage light industry. I have a message for our investors, local and foreign, our government shall review all their complaints about multiple taxation and various anti-investment inhibitions,” he said.
While this filled local manufacturers with hope, the huge job losses in the last few years, rapid closure of factories and industries nationwide, dwindling productivity amidst rising cost of doing business, sky-rocketing inflation, and reduced spending power of Nigerians among others appear to be dashing this hope, considering that the situation has far worsened since May when that announcement was made.
According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), more jobs have been lost in the last six months than in the last two years.
The group pointed out that there were roughly 39.65 million MSMEs in Nigeria as of 2020 (with 96.9 per cent being micro-enterprises and 3.1 per cent being small and medium enterprises). The highest number of these enterprises are in Lagos State, and the key sectors to which they belong are agriculture (38.4 per cent); trade (33.3 per cent); other services (9.8 per cent), and manufacturing (4.2 per cent).
The SMEDAN data further shows that 96.2 per cent of the MSMEs are sole proprietors, while partnerships constitute just 3.3 per cent. Among the biggest challenges faced by these businesses include high energy costs/electricity tariffs, multiple taxation, access to finance, and high cost of funds. Others are the drastic depreciation of the Naira and FX volatility, as well as, worsening insecurity that is forcing many businesses to either shut down completely or run at half-capacity.
According to the Chief Executive Officer (CEO) of Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, the best channel to accelerate job creation is through the MSMEs, which have been abandoned to die. “If for instance, 50 per cent of these MSMEs create just one job each, that would generate about 20 million jobs. The employment multiplier of investments in small businesses is very high. This is also an effective poverty reduction strategy for governments at all levels.
“What the data also shows is that policymakers must robustly engage small businesses across all sectors to determine the appropriate policy interventions for the promotion of economic growth through the MSMEs pathways.
“Their needs and demands vary across sectors, which is why sector-specific engagements are critical to unlock job creation opportunities in that space. Such engagements would also be very useful for policy feedback that could be used for policy reviews and fine-tuning. The sectoral distribution data is also very valuable for policy. It is useful for proportional intervention to promote the growth of small businesses and accelerate job creation.
“The disaggregated data is useful for effective policy targeting. It is further evident from the data that the prospects for accelerated job creation are much higher in the MSME space, especially in agriculture and the services sector of the economy. This is not to diminish the importance of small-scale manufacturing in employment generation, but the truth is that the vulnerabilities of the manufacturing sector are much higher.”
He added that this also highlights the major bottlenecks to the productivity and growth of small businesses, including access to capital, power supply, energy costs, multiple taxation, regulatory compliance costs, and many more.
“These are good pointers for policymakers to shape their intervention measures to boost the growth of small businesses and create more jobs. Labour data published by the NBS in the first quarter of this year, revealed that over 90 per cent of jobs in the economy are created in the informal sector. This underscores the need for policymakers to develop a comprehensive framework for the integration of the informal sector into the mainstream of the economic policy process,” he said.
Yusuf continued: “If the government must promote economic inclusion, mainstreaming of the informal sector should be accorded a bigger priority than is presently the case. There is a need for deliberate policy to support and protect the informal economy given their strategic contribution to the economy, especially with regards to job creation and economic inclusion. He added that the role of MSMEs fits into the agenda espoused by the president, as five of his eight-point agenda rests squarely within the MSME space.
What this implies, he added, is that for the Tinubu administration to accomplish the eight-point agenda, the government must, as a matter of urgency, focus on and strengthen MSMEs across all sectors of the economy. He said if there is anything that Nigeria is not short of, it is the framing of good policy documents to provide direction for the economy, many of which have very robust sections for industrialisation.
He, however, regretted that most of these policies have not translated into concrete actions or sustainable industrial growth. He explained that the target for the industrial sector under this policy was to achieve seven per cent yearly growth in manufacturing and increase capacity utilisation to 70 per cent. The policy also aims to remove all infrastructure constraints and establish industrial clusters and industrial parks, as well as, an export-oriented manufacturing sector and procurement policy that supports local production.
The CPPE boss lamented that these many lofty visions and objectives have not translated into reality as the sector is still largely stagnated, with capacity utilisation at below 40 per cent, adding that the sector still battles with a lot of basic needs and industries such as iron, steel, and petrochemicals; lack of skilled manpower, infrastructure issues, especially power and logistics, influx of substandard and fake products through porous borders, and weak domestic patronage both from the government and private consumers.
“Our manufacturing sector is too dependent on import, which is a major shortcoming. The sector accounts for about three per cent of FX earnings but over 25 per cent of import bills. This demonstrates that the sector is not properly aligned with the vision of self-reliance being promoted by the current government.
“Local value addition is still very weak. The most sustainable segment of the manufacturing sector is the food and beverage industries and the cement industries where the local content is well over 60 per cent. Aside from the weak infrastructural base of power, transportation, Apapa traffic issues, railway system, and congested ports, there is also the high cost of funds, absence of long-term funds, challenges of access to credit by SMEs, as well as, other firms in the sector, because of the perception that manufacturing is very risky in the economy.
“Small businesses account for over 50 per cent of the GDP but have access to only one per cent of the bank credit to the private sector. This demonstrates the enormity of the funding challenges faced by them. This sector also suffers from weak institutions. This makes regulation ineffective.
“Except for intervention funds, especially from the Bank of Industry (BoI), the cost of funds in the Nigerian economy has been well over 20 per cent for industrialists. It is difficult to achieve any competitive manufacturing investment with this kind of fund. The tenure of the fund is also very short, most times a maximum of one year. It is difficult to make any serious manufacturing investment with a tenure of funds of one year or less.”
On his part, the President of the Independent Shareholders Association, Moses Igbrude, said that the cost of doing business in Nigeria is extremely high, a factor, which he said is responsible for the dearth of manufacturers and real-sector players.
“Manufacturing companies are honestly trying their best; they are passing through difficult times and making very small profits, largely due to the harsh operating environment. For instance, the Flour Mills of Nigeria (FMN) is currently involved in road construction. That is not how it should be, but because they operate at the centre of the problem, they do not have a choice but to do that.
“When their distributors are coming, their vehicles would queue up for days and they would be discouraged. Poor logistics and infrastructural decay are two of the major problems that they are besieged with, and if those two can be addressed properly, it will be a game-changer for many businesses.”
Also giving his perspectives, the president of the New Dimension Shareholders Association, Patrick Ajudua, praised the private sector, which he said is still holding on despite the myriad of challenges being experienced.
“The government is supposed to provide infrastructure, but it has failed in that regard, leaving it for companies and citizens to do. Government must pay better attention to infrastructure to help manufacturers thrive,” he said.
On his part, the Chairman of FMN, John Coumantaros, said the Nigerian manufacturing sector is currently faced with monumental challenges and constraints that combine with lower productivity, output, and increased cost of doing business.
According to him, this has continued to depress the profit margins of many companies like his and impeded their expansion.
“These adverse conditions have contributed to lower industrial capacity and utilisation, resulting in job losses and a commensurate decline in purchasing power,” he said.
Infrastructural renewal tops experts’ demands
TO begin the journey of reviving this sector, Yusuf said that fundamental issues including infrastructure must be addressed as a matter of utmost priority.
“Immediate focus should be on electricity supply and logistics. Unless we have these two critical infrastructures in place, it will be difficult to ensure a competitive industrial sector and to make possible the transformation of the sector.
“The government must ensure adequate investment in core industries such as iron and steel and Petrochemical. We should take full advantage of our large market to scale up our industrial capacity utilisation and focus on the competitive strength of the economy in our industrialisation strategy. Resource-based industrialisation strategy must be prioritised.
“It is great that the government has reversed the excise duty imposed on the manufacturing sector in the twilight of the last administration, but that is just a small relief in the long list of ills and multitude of taxes that besiege this sector. The President should as a matter of urgency, strengthen programmes that provide long-term funds at single-digit to manufacturers and give import duty concessions on intermediate products not available locally to reduce production costs and enhance the competitiveness of the sector. Also, the policy on the patronage of made-in-Nigeria products by government agencies should be better enforced.”
The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Almona, said that more than ever before, it has become imperative to focus on the manufacturing sector to ameliorate the sufferings that citizens are passing through.
“In the president’s inaugural speech, he talked about the manufacturing sector and the need to provide jobs there, and that is positive because it shows that the government is thinking of us. This sector is key, and if we can get it right, we will keep people engaged and create economic value.
“We all know the issues that plague this sector-inflation is rising and purchasing power is declining daily, putting revenues at risk. Businesses have to find ways to reduce costs to remain afloat and keep jobs.”
She advised the Federal Government to put in place policies that can unlock value within the sector. “We want to move from where we are presently, which is importing, to a place where we are exporting more. So, it is imperative that we get the manufacturing sector up and running, support those that are still alive, and encourage new players to come in.
“Not only are manufacturers huge employers of labour, but they also hold the key to improving our export quota where we can earn FX. We talk about industrialisation every time, but we need to put in place policies that would enable it to see the light of day and this includes fairer monetary policies and moderating interest rates so that businesses can get finance to expand as this is the only way that they can remain alive and grow.”
For Ajayi-Kadir, there are some low-hanging fruits that the president could utilise to drive the real sector, including giving priority to the allocation of FX to the productive sector, particularly to manufacturers to import raw materials, spare parts, and machinery that are not locally available.
He regretted that power was still a major problem and the cost of alternative energy was exorbitant, forcing many companies to fold up or scale back on production. He said fixing the power problem would greatly help manufacturers all over the country.
The MAN, which said that energy costs account for 40 per cent of factories’ total operating costs, added that it is important for the president to direct all relevant agencies of government to ensure that the electronic call-up system at ports aimed at redressing the congestion works without fail.
The group also urged the creation of a special policy initiative to address the revival of closed and distressed industries, particularly in the North East where over 60 per cent of companies have closed.
“Craft and announce a special policy initiative to leverage diaspora expertise and investment to address evident gaps and help to boost the performance of the economy. Furthermore, all ministries, departments, and agencies of government must unfailingly comply with Executive Order 003 on the patronage of made-in-Nigeria products.
“In this regard, there should be strict application of the margin of preference, effective monitoring and periodic evaluation of compliance, and appropriate sanctions meted out to MDAs acting in breach of the executive order. The president should also announce a special policy initiative to de-risk manufacturing and release adequate funding for the sector through effective funding of special lending windows,” he said.
