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To save manufacturing from total collapse

By Editorial Board
12 January 2021   |   3:55 am
The concern by the Manufacturers Association of Nigeria (MAN) on the need for a special intervention to keep the country’s industries alive, in the midst of economic recession and the effects of COVID-19 pandemic...

The concern by the Manufacturers Association of Nigeria (MAN) on the need for a special intervention to keep the country’s industries alive, in the midst of economic recession and the effects of COVID-19 pandemic, deserves more than a casual treatment. The body had warned that some of the existing industries risk going under in the New Year, in the absence of a special intervention to support the ailing sector and keep it afloat. The MAN’s point is valid and should not be ignored by the authorities. In the short- run is the urgency of a foreign exchange window and cheap funds to facilitate importation of machines and raw materials to sustain production lines. On the long-run is the critical infrastructure for a friendly operating environment – the perennial bane of industrial growth in the country. The rest of the world is on a massive infrastructure drive to cushion effects of the pandemic on citizens and businesses. Nigeria cannot afford to be an exception.

The COVID-19 pandemic amid growing uncertainties has upset the world economy and trade in a manner that provides opportunities for local manufacturing to thrive more. One of the tell-tale signs was the crash in crude oil price and patronage – the major earner of Nigeria’s economy.

Beside the second-wave of lockdown in Europe, industries that could pose risk to further spreads or intransigent to physical distancing rules have been kept under lock and key across the world. Global medical emergency means more dependence on medical consumables. But disruptions in passenger and cargo air movements – major culprits of viral transmission – means troubles for regular foreign supplies. On the flip side of these losses are potential gains for local manufacturers – where opportunities for local substitutes can be harnessed.

President of MAN, Mansur Ahmed, at a forum in Abuja, doubts Nigeria’s readiness in this regard. He bemoaned the devastating effects of the pandemic on manufacturers in particular and the economy in general. Indeed, the economy and manufacturing sector have been waning even in the good times that pre-dated COVID-19. First Quarter 2020 ratings showed that Nigeria’s ability to attract sustainable Foreign Direct Investments (FDIs) remained weak. Portfolio investment, otherwise called ‘‘hot money’’ continued to outshine imported capital. Instability of the naira consistently sent jitters down the spines of willing investors. In January, the exchange rate was N305 to $1. By July, Naira worth has tumbled to N380 to $1. In November, $1 sold for N500 at the black-market. Of the $5.85 billion received in the Q1, portfolio investment accounted for 73.61 per cent ($4.31 billion) of the total capital importation recorded by the National Bureau of Statistics (NBS).

Apparently in recognition of the manufacturers’ relevance at this period, the Central Bank of Nigeria (CBN) has enacted a short-term stimulus plan worth N1 trillion intervention funds for the industry. But many organisations that have been able to access the fund could not buy machines, spare parts and raw materials for their production because of foreign exchange scarcity. The CBN should prioritise allocation of foreign exchange as it did in the 2016 and 2017 recession. Already, most of the sub-sectors in the manufacturing sector are operating at less than 10 per cent capacity utilisation because of the lockdown and cost-demanding safety protocols. MAN has also demanded incentives to encourage local production of raw material, as Nigeria is endowed with abundant human and natural resources. These calls are not new, but they should be given speedy consideration now.

The significance of infrastructure cannot be over-emphasised. Globally, there is already an appetite to binge on infrastructure. U.S. President-elect, Joe Biden, already plans to spend $2 trillion on roads, power grids and railways. The European Union has just approved €1.8 trillion ($2.2 trillion) budget, a slug of which is for digital and energy investments. The new infrastructure infatuation is understandable against the backdrop of public and private investment that has stagnated at 3-4 per cent of GDP worldwide. That is too little to maintain ageing assets in developed countries or to provide enough clean water and electricity in the emerging world. If infrastructure means much to the developed countries, they should mean much more to Nigeria.

Nigeria’s infrastructure failure needs a vigorous attention as it has manifested embarrassingly in logistics nightmare at the major ports. Apapa and Tin Can ports have been an intractable mess and a shame to the nation. Imported goods are stuck at the port of entry for months. The cost of moving a container from Apapa port to mainland jumped from N150, 000 to as much as N1 million. The much-mouthed Presidential Taskforce inaugurated to restore sanity failed while the State government struggles to clear the Augean stable. It is a pity and a shame to all parties concerned.

The macro environment is toxic and unfriendly to ease of doing business. Electricity, gas, water and internet supplies are commonplace, with reasonable cost, in other FDI havens. But their cost is outrageous in the country, while individuals and organisations are still condemned to providing these basics. Today, electricity supplies alone account for 40 per cent of the cost of operation in an average firm. Invariably, inflation is spiraling, provoking job losses, worsening poverty rate, sharp decline in purchasing power, absence of vibrancy in the market and consequently, collapse of industry and premium brands.

But the hemorrhage can be curtailed through special considerations for MAN’s demands. There should be renewed efforts at improving the infrastructure, not only to keep the industries in business but also to make local products cheaper against their foreign variants. Concerted and pragmatic response to the problems, beginning with the low hanging ones, will help the country weather the storm till the world achieves normalcy.