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The National Bureau of Statistics (NBS)’s report indicated a marginal improvement in real Gross Domestic Product (GDP) growth from 0.11 per cent in fourth quarter 2020 to 0.51 per cent in first quarter 2021. It was obvious that the economy was on the rebound from the shocks of the COVID-19 pandemic and its emerging variants. However, the manufacturing sector, which contributed to the growth, struggled throughout the year. Assistant Editor CHIKODI OKEREOCHA reports.
Nigeria’s Gross Domestic Product (GDP) grew by 0.51 per cent in Q1 2021, according to the National Bureau of Statistics (NBS), with the Bureau pointing out that one of the sectors that contributed to the positive growth was the manufacturing sector. The positive growth, early in the year, was an indication that the economy was beginning to recover from the shocks of the COVID-19 pandemic, and later, its emerging variants. However, the prevailing economic circumstances and the struggling state of the manufacturing sector remained worrisome throughout the year.
Some of the obvious indications that the manufacturing sector struggled during the year despite the fact that the economy was gradually gathering some momentum after the emasculating effect of the COVID-19 lockdowns and constrained economic activities included but not limited to the negative impact of the depreciation in the value of the local currency, the Naira; acute shortage of Foreign Exchange (forex); deteriorating infrastructure particularly electricity; unavailability of raw materials; and pervasive insecurity.
The country’s inclement macro-economic environment also seriously constrained the sector’s performance. This manifested in high and rising inflation rate, double digit lending rate and unfavourable exchange rate parity. Even the regulatory environment was perceived by not a few manufacturers as harsh, as alleged over regulation and multiple taxes and levies were said to have induced high business operating cost in the economy. And with low sales or customer patronage, it was hardly surprising that the sector struggled during the year.
Most, if not all these challenges hurting the sector, were visible in the second and third quarter of the year. For instance, the Manufacturers Association of Nigeria (MAN) in its ‘Manufacturers CEOs Confidence Index (MCCI)’ for Q2 2021, lamented that difficulty in sourcing forex for importation of raw-materials and machines that are not locally available was a critical challenge to manufacturing in Nigeria.
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“Since the onset of COVID-19 pandemic in the early quarter of 2020, the severity of forex challenge intensified, particularly as the value of the Naira deteriorated. Unfortunately, even with gradual return to normalcy of business activities and the increasing recovery of forex earning as crude oil prices improved, acute shortage of forex persisted,” the MCCI, which MAN uses as barometer to garner the perceptions of CEOs of manufacturing companies on changes in the economy, said.
Although, manufacturers, based on the MCCI, said lack of forex or unstable access to forex ranked number one on the list of challenges they faced, others included multiple taxes and levies by government agencies, high electricity tariff, gridlock at the national port, lack of credit facilities or high lending rate, poor infrastructure such as bad road and rail network; unfavourable trade policy, shortage of skilled manpower, frequent change in government policies, and of course, insecurity.
In the light of the afore-mentioned, manufacturers, during the year, renewed their call on the Federal Government to ensure that adequate forex was allocated to the manufacturing sector through a preferential arrangement to enable the sector procure raw-materials and machinery that are not produced in the country.
MAN Director General Segun Ajayi-Kadir also said in view of the Central Bank of Nigeria (CBN’s) policy that stopped allocation of forex to the Bureau de Change (BDC) segment of the forex market for operational incongruities, it has, therefore, become imperative to encourage banks to build more capacities.
He said this could be done through designated desks for handling the streaming applications and Form M to ensure seamless and timely processing of forex applications by manufacturers. He also recommended granting concessional forex allocation at the official forex market to manufactures for importation of productive inputs that are not locally available, as well as unification of the various forex windows in the country.
Manufacturers also pushed that CBN take rigorous monetary management measures that would encourage reduction in lending rates on loans to the productive sector by commercial banks. They lamented that cost of funds in Nigeria, which is usually at double digit, has always been one of the core challenges of the manufacturing sector, and this is because it tells directly on cost of production and the sector’s competitiveness.
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They were emphatic that “Lending to the real and the manufacturing sectors had dwindled over the years,” attributing the situation to “The increased presence of the government in the Nigerian money market – government treasury bill, bonds, sukuk, etc, which have almost crowded out private sector borrowing in the market.”
“It is, therefore, pertinent that government balances its participation in the money market with the interest of the private sector,” Manufacturers said, adding that CBN should update manufacturers regularly with status reports on the implementation of the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMED), N300 billion Real Sector Support Facility (RSSF) and the N1 Trillion COVID-19 stimulus to further encourage operators to take advantage of such windows.
Also, as part of measures to address the lack of credit facilities or lack of funds for industries, as well as the high lending rate, manufacturers advocated for the recapitalisation of Bank of Industry (BoI) and Bank of Agriculture (BoA) to adequately meet the productive sector’s credit need at single digit interest rate. They noted that providing a credit guarantee for industrial loans from commercial banks would go a long way in addressing the productive sector’s challenge of access to credit.
Similarly, manufacturers, already hobbled by the impact of COVID-19 pandemic and its emerging variants, continued to push for increased electricity supply at affordable rate. According to them, inadequate electricity supply, high electricity tariff and exorbitant cost of self-generated electricity were responsible for the spike in the cost of doing business with consequential upward spiral effects on unemployment rate.
They argued that private operators were already plagued by high-cost operating environment arising from poor regulatory environment, macroeconomic asymmetries and high cost of energy, adding that this unfriendly operating environment was responsible for the oscillatory performance of the sector in the year under review as well as in the past few years.
Manufacturers pointed out that the trajectory of continuous increase in electricity tariff without commensurate improvement in electricity generation, transmission and distribution was not sustainable and would have catastrophic impact on the real sector.
But it wasn’t all lamentations and tales of woes by manufacturers; the year also saw them riding on the platform of their umbrella association, MAN, to deepen their advocacy and partnership with national and international economic actors in government, organised private sector, host communities and other stakeholders to foster their proactive role in policy formulation and implementation.
One of the areas manufacturers’ proactive role in policy formulation and implementation was clearly visible was the African Continental Free Trade Area (AfCFTA) Agreement. Before commercial trading under the AfCFTA eventually commenced on January 1, 2021, MAN was actively involved in negotiating and sensitising its members on the need to take advantage of the opportunities offered by the trade liberalisation deal.
In response to the kickoff of the AfCFTA, MAN President Mansur Ahmed also said MAN was an active part of a continental Private Sector Movement to bring the African private sector under a single umbrella – The African Business Council where its president has been elected the Vice President of the Council.
In West Africa and Africa, MAN also played significant roles in fostering collaboration amongst manufacturers and advancing the interest and recognition of the private sector. “We are currently mobilising the various Manufacturers Association in West Africa to revive the Federation of West African Manufacturers Association (FEWAMA) with the active support of ECOWAS. At the same time, in conjunction with the African Union, MAN is leading the formation of the Pan-African Manufacturers Association,” Mansur said.
Towards the end of the year, MAN also celebrated its 50th anniversary. Some of the activities organised to commemorate the association’s golden jubilee included lecture on industrialisation in Africa, a three-day Exhibition of Made-in-Nigeria Products, an evening with the Director-General of World Trade Organisation (WTO), the 5th Annual Manufacturers’ Conference, and MAN at 50 Dinner/Award Night.
From a humble beginning in 1971, MAN has evolved into the authentic voice of manufacturers in Nigeria – a credible platform for the private sector to formulate and articulate policy suggestions that complement government’s efforts in the overall interest of the economy.
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