By Bimbola Oyesola
PRESIDENT Muhammadu Buhari may certainly have good intentions spending the greater part of his first one year in office globetrotting and shopping for investors, but those who understand the workings of the economy believe his current strategy would yield only minimum dividend until the business climate in Nigeria is improved.
The Manufacturers Association of Nigeria (MAN), for instance, thinks that most discerning foreign investors may not want to invest in Nigeria today with its litany of inefficiencies in basic economic infrastructure including insecurity, poor power supply, bad road network and unfriendly fiscal environment.
To them, manufacturing in Nigeria has become an endangered species that even entrepreneurs with the midas touch have been cowed to exit. But beyond the challenges of obsolete infrastructure, poor electricity, high interest rates, multiple taxation, foreign currency shortages and other key constraints appear to be the most lethal problems confronting the real sector.
According to the President of MAN, Franks Jacob, many companies have lately given notification of intention to close shop as the CBN still holds on to its policy of foreign currency curbs.
Commenting on the current drive by the government to bring investors into the country when the environment is not even conducive for the local operators, he said it is not the solution to the economic troubles facing the nation.
The MAN boss also said his team will continue to resist the European Union Economic Partnership Agreement, as free trade with Europe will kill indigenous manufacturers who may not be able to compete due to the uncompetitiveness of Nigerian environment.
He also spoke on efforts by the manufacturers to overcome the challenge posed by foreign currency constraints for raw materials importation.
2016 in perspective
This year is full of uncertainties going by indications we are seeing in the first half of the year. Government is settling down with the cabinet, no doubt, but so far its policy thrust is not clear yet. But I believe that about this period of this quarter things are going to become clearer. If that happens, then we will know the direction of the government then we can key in. So I see this year, that apart from the first half that might be turbulent in terms of members trying to adjust to the new system to carry on with their business, I believe that the second half of the year will be better. By then, government would have known the implications of some of these policies and how to address them and perhaps modify some of these policies to help the country to move forward.
Challenges of forex ban on raw materials
The impacts of these developments, which will be felt very soon is the closure of some factories, unless government does something urgently including coming up with policies that make this foreign exchange available to the manufacturers who need raw materials. If they don’t do that, we are predicting that many of our members in that prohibitive list will close shop soon. Already, we have received letters from some of them threatening that before the end of this quarter, they will close their factories and lay off a lot of workers and some of them have as many as 500 workers. If those companies close down and 500 workers in each instance are sent home, we know the social implications. I’m sure government is aware of this and we are hoping that they are going to do something because the impact will be disastrous.
Impact of forex on cost of production
Those who are lucky (which I think are very few) to get the foreign exchange at the official rate have nothing to worry about because it won’t affect their cost of production. But those that would have to resort to black market or from bureau de change, I think the cost implications on their products is significant. That is why we are concerned, and when these costs become too high, it means the product will become more and more uncompetitive, and people may not be able to buy them. The result will be the same effect as closing down some of these factories and we hope it doesn’t happen.
Well, like I said, most of our members still have their raw materials and that is why the impact on the prices of their commodities has not been felt yet. But towards the end of this quarter, when most of these raw materials would be exhausted, we would see that there would be increase on the prices of these commodities. I know there would be increase in the price of commodities considering the fact that the naira now, although officially, is N199, most of the people buy some of these foreign exchange from the black market at over N300. That means the total cost of the goods that people are going to be buying is going to be too high and this is going to affect our members badly.
Buhari’s search for foreign investors
Foreign investors are needed for certain areas of the economy where we do not have present day technology. So in such areas, foreign investors would be needed. However, my belief is that we need to cultivate the local investors by first creating the enabling environment for manufacturing to thrive. It is when we’ve done that that investments in the manufacturing sector will become attractive, both for the foreign investors and the local investors. I think the current fight against corruption has made us to realise that some Nigerians stashed away billions of dollars in foreign land. We are talking of foreign exchange, investors don’t need up to $1 billion to invest here but there are some Nigerians who stocked away billions of dollars somewhere else.
If the investment environment is attractive, those people will not leave those monies there, some of them would want to invest in this country. Imagine what N1 billion can establish here, imagine, how many people it is going to employ. I think the key thing is that the government should try to create a favourable investment climate. Once that is there, people can then invest. But rushing out to bring investors is not the solution because nobody outside this country loves Nigeria more than Nigerians. Nigerians would love their country more than foreigners, and only Nigerians can develop their country. There is no other person that can develop our country for us more than Nigerians. So we shouldn’t deceive ourselves thinking that foreigners will come to develop our country. Yes, they can support us in those areas where they have comparative advantage like machinery but they cannot develop our country for us. We have to do it ourselves.
Our fears over European Partnership Agreement
The major fear we have is just because of the environment under which we operate. We have a lot of costs that our European counterparts don’t have. So when we produce under this condition, the products become uncompetitive compared to those produced in Europe. General infrastructure, including power, is a major issue that adds to our production cost. Multiple taxation is an issue, high rate of interest on loans is also an issue. These are critical issues that add a lot to cost of production such that goods we produce in Nigeria can in no way compare in terms of pricing with those produced in Europe. Europe is interested in the Nigerian and West African market because it’s a huge market.
Nigeria is 170 million people but how many people do they have in Europe where they produce a lot? They don’t have the market in their region, so they want to come to Nigeria. If we allow them to come, they will kill our industries because we cannot compete with them in terms of pricing. It is not in quality of goods but in pricing of those goods, because of the conditions of the environment under which we produce. That is why we have consistently opposed the agreement, at least for now. The agreement could be signed some other time when we have developed and upgraded our infrastructure to the level or close to the level in Europe, then at that point we can open up our borders to them.
With respect to substandard products, we are very pleased with the efforts of the Standards Organisation of Nigeria (SON) because it is really fighting that head on. We are not worried about that so much because SON is doing what it should do. But there are some other agencies that are not as effective. NAFDAC is not as effective as SON. But we are hoping that there would be some changes and some improvement in the way NAFDAC carries out the mandate for which it was created. For us, it’s bad that fake or substandard products are imported into this country because they usually come cheaper and therefore when we produce our own products, they are usually uncompetitive compared to the fake ones which are cheaper, and anybody buying would like to buy a cheaper product even if it may not be the right quality. So that is a major challenge and we are happy that SON is bracing up to those challenge.
Importers who manufacture outside
Those people that go out of the country, to China in particular, to place orders for some items, sometimes place orders for products that are produced in this country, to be produced on a lower level; they are fakers. We see them as people producing substandard goods. As they are not producing these goods in this country, they cannot be members of MAN. They are traders, they take products from here or anywhere to China, ask them to produce them, compromise standard and bring them back to this country. SON is doing something in this area and Customs also should live up to its own responsibility by ensuring that such goods are not allowed into this country. Our government should do everything to prevent those kinds of goods from coming into this country.
There are ways they can do it. Customs should insist to know the source of the goods and who the producers of the goods are. In collaboration with SON, they should check the standard and quality of those goods. If they fall below standard, they should not be allowed to come into the country. They should be confiscated and destroyed. If they do that, it would send some message to those people that are bringing in fake and substandard products into the country and likely they will stop doing it.
There are two approaches to address this issue of forex scarcity as enunciated by MAN. The first one is that we are encouraging our members to look inward in solving their raw materials problem. Even if it means modifying their processes so that they can use local raw materials, we believe they should do that because by so doing, they are going to conserve forex used to buy imported raw materials.