Travails and struggles of the Nigerian manufacturing sector

Nigerians across the country are lamenting the suffering and hardships in the land, crying out for urgent measures by the government at all levels to mitigate their suffering, which they said was becoming intolerable and unbearable.

The hunger in the land is unbearable and Nigerians across the states now find it difficult to afford three meals a day. The increase in food prices and the inability of families to sustain their homes remains the same across the length and breadth of the country and manufacturers in the country are not finding it easy either.

Nigeria has the largest economy in Africa. The country’s re-emergent manufacturing sector became the largest in the continent in 2013, producing a large proportion of goods and services for the West Africa region. Nigeria’s debt-to-GDP ratio was 36.63 per cent in 2021, according to the International Monetary Fund (IMF). The manufacturing industry in Nigeria is an economic sector that brings approximately 10 per cent of the total Gross Domestic Product (GDP) each year, but despite this huge contribution, the problems faced by this sector is enormous.

Manufacturing in Nigeria is faced with a lot of challenges, chief among them is power supply and diesel cost, most firms rely on “emergency” power generators to run seamless operations eventually adding to costs. Indiscriminate taxes and ever-demanding annual payment to several government agencies are also impairing successes that could have been recorded in the Manufacturing sector. The country’s physical infrastructural deficiencies are also a major constraint, difficult access to credit, double-digit credit facilities from banks and the cost of imported raw materials.

Since the beginning of last year, the Russia-Ukraine war surged the cost of inputs largely used by manufacturers such as diesel and foreign exchange in Africa’s biggest economy.  According to the NBS, the average retail price diesel rose by 182.6 per cent in December 2022 to N817.9 per litre from N289.4 per litre in the same period of the previous year 2021.

The country’s apex bank, headed by the insensitive central bank governor Godwin Emiefele, announced the naira redesign policy of the Central Bank of Nigeria (CBN) in January 2023. A total of N20 trillion was estimated to be lost since the policy started. According to a report by the Centre for the Promotion of Private Enterprise (CPPE), signed by the CPPE’s Director-General, Dr Muda Yusuf, the losses emanated from the deceleration of economic activities, crippling of trading activities, stifling of the informal economy, contraction of the agricultural sector, and the paralysis of the rural economy.

The report said the economy was gradually grinding to a halt because of the collapse of payment systems across all platforms, noting that digital platforms were performing sub-optimally due to congestion. “Physical cash is unavailable because the CBN has sucked away over 70 per cent of cash in the economy; and the expected relief from the Supreme Court judgement has not materialised. The citizens are consequently left in a quandary,” the CPPE said.

Sales were affected because there was no physical cash for purchasing goods. Mostly affected are the Fast Moving Consumer Goods (FMCGs). Some manufacturers recorded as low as 90 per cent to 95 per cent decline in sales because of this policy. This is understandable since production is not yet complete until the goods manufactured get to the hands of final consumers. The CBN overestimated how cash reliant the Nigerian economy is. Too many critical sectors of the economy rely on cash.

The effects of the cash crunch were so severe that some individuals, including adult men and women, who were driven by desperation, striped themselves naked, even stark naked, in banking halls just to return home with some cash to put food on the table for their families.
On Friday, February 3rd 2023, the Manufacturers Association of Nigeria (MAN), told ThisDay newspaper that the fortunes of its members could be jeopardised, if urgent measures were not taken to halt the current scarcity of Naira notes in the economy.

Without mincing words, a couple of companies had shut down due to all the above , Unilever a giant in the industry announced that she will make changes to its business model in order to accelerate growth and sustain profitability while enhancing its ability to meet consumer needs. The 100-year-old consumer goods company will repurpose its portfolio while putting in place measures to make the business more efficient and future fit. Mayor Biscuit Limited, an indigenous manufacturing company, also announced her suspension of production pending when the economy becomes stable.

Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria (MAN), said that growing the Nigerian manufacturing sector is a prerequisite for raising living standards and economic stability. He said: “manufacturing goods for export makes local firms compete globally, and gradually raise productivity through investments in capital and skills.

Manufacturing remains the most reliable and sustainable path to steady industrialisation, inclusive growth, and development,” he said. He, however, added that governments at all levels must contribute by providing the enabling environment, roads, power, and education for a literate workforce to encourage entrepreneurs to invest. “Government needs to address issues hurting local manufacturing to reduce the cost of production, which remains significantly high,” he said.

Manufacturers get only five per cent of Forex demand from the official market, while over 95 per cent of their Forex needs are sourced in the parallel market, according to Bismarck Rewane, managing director/ chief executive of Financial Derivatives Company. This has made the cost of locally manufactured goods more expensive and unable to compete globally, experts say. The government should improve the level of foreign exchange allocation to the productive sector including manufacturing leveraging on the high and sustained crude oil prices in the international market.

On April 30, the government announced an upward review of the Import Adjustment Tax thereby raising tariffs on importation of rice, wheat, alcohol among 189 items. As at March 8, a bag of sugar was sold for N30,000 per 50kg bag, present price as at today stands at N38,000 per 50kg bag.

How will manufactures survive with this rate of inflation? Between 2018 and 2020, 1.9 million micro, small and medium enterprises shut down operations, according to the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria. Over 30 companies have shut down between January 2023 to date and more Companies are still shutting down today owing to the harsh operating environment in the country.

Something drastic must be done to avoid the total collapse of the economy and reduce unemployment. We can only hope that the Nigerian economy will bounce bank and take her position as the giant of Africa
Adeola can be reached on 08034354664 and adeolakc@yahoo.com