Merit Ibe
Nigeria, which is ranked 131 among 190 economies in the ease of doing business, according to the World Bank annual ratings, had its numerous challenges that hindered the progress of the manufacturing sector and discouraged the flow of potential investments into the sector in 2019.
Though the country improved to 131 in 2019 from 146 in 2018, not without the upheavals in the real sector.
The environment was less friendly and less desirable for profit investment as the recurring challenges continue to hinder optimum utilisation of the capacity of the manufacturing sector.
Manufacturers Association of Nigeria (MAN) had said the manufacturing sector was struggling as operators strived with low confidence level but a high expectation that manufacturing performance will improve.
Specifically, local manufacturers decried the poor electricity supply to industrial firms, over-regulation, multiple taxes and levies, poor accessibility to ports/high demurrage, poor economic infrastructure, and difficulty in sourcing foreign exchange, low patronage and counterfeiting/influx of substandard goods. Others include poor access to reasonable loans, policy somersault, loss of a reasonable size of the market of manufactured products due to insecurity, failure to properly develop available raw materials and fabricate machines for production, lack of political will to effectively develop and implement deliberate industrial policies that will take care of planning, trade protection, development finance and public investment in strategic industries, policy inconsistency, poor patronage of locally manufactured products, poor supporting infrastructure, among others also confronted manufacturers.
However, 94 per cent of chief executive officers (CEOs) of manufacturing companies across the country reported that congestion at the ports significantly affected productivity negatively.
The CEOs complained that delays in clearing raw materials and machinery often result in high demurrage, which increased production costs and slowed down manufacturing operations.
Lending rate
The rate at which commercial banks lend to manufacturers discouraged productivity in the sector. Lending and interest rates were other problems. Beautiful programmes by Central Bank of Nigeria (CBN) ended up in wrong hands.
Border closure
The border closure which was a sudden move by the Federal Government, drastically affected importers and exporters, there is no doubt that it came with benefits and costs; upsides and downsides. In fact, reports so far showed a drastic reduction in smuggling of rice, poultry products and sugar and smuggling of petroleum products to neighbouring countries also declined.
Nigeria’s borders with neighbouring countries were shut in August with President Muhammadu Buhari saying the action was taken to curb smuggling.
However, it is also important to note that manufacturers suffered huge losses and incurred major lapses in financial transactions, just as production lines shut down and workers were laid off. Poor implementation of the Executive Order (EO) 003 also hampered the productivity of goods.
Non-payment of Export Expansion Grant (EEG) to genuine exporters affected exporters too. The purpose of EEG is to make exporters compete in the international market.
AfCFTA
On July 7, the African Continental Free Trade Area (AfCFTA) was signed by President Buhari, with various experts against the signatory, saying Nigeria was not yet mature to be involved in such agreement. Representatives of the private sector, key government institutions, and experts highlighted that the Nigerian economy was faced with challenging domestic realities that need to be overcome to ensure the private sector is able to compete under a liberalised African market.
Banned 41 items
In 2015, the CBN banned Foreign Exchange (forex) for the importation of 41 items, saying the move would conserve scarce forex and encourage local production. The 41 items banned also affected productivity in 2019. It caused certain items from accessing the official window of the forex market.
VAT
The issue of increase in VAT was one of the latest policies. Micro, Small and Medium Enterprises (MSMEs) operators complained that the proposed increment would shoot the cost of doing business and force many of them to close-shop.
350 companies shut
Reports also showed that about 350 companies shut down in the country between 2015 and the year under review, due to harsh business environment. Industry stakeholders say about 50 of the affected firms were involved in the manufacturing sector.
Despite the challenges that confronted the Nigerian manufacturing industry, there is the popular view that it witnessed growth in recent years.
Some stakeholders believe the manufacturing industries have done well in the production of goods.
Prof. Eustace Iyayi disclosed that the land border closure saved the poultry industry about N50 billion. The Chief Executive Officer of the Nigeria Institute of Animal Science (NIAS), said the multiplier effect of the closure reflected on the upsurge in the operations along the value chain with regards to supply inputs, storage, facilities, transport, logistics and value addition. Also, the Poultry Association of Nigeria (PAN), added that the closure was gradually reducing smuggling of chicken into the country, and would further cut this down by one million if the effort to stop smuggling is sustained.
Way forward
Nevertheless, stakeholders want the federal government to attend to issues that slowed down the growth of industries while continuing in its drive to strengthen industries.
SMEs are very vital as the providers of job, govt should pay more attention to them. Smuggling on a massive scale and particularly, import of substandard products and illegal importation harmed the manufacturing sector. So, it is right that the government should be looking at ways in which they can be curtailed.
Experts suggest that government can also encourage companies to grow by giving them tax holidays.
They said the cost of production is high and many companies can’t cope with high overhead cost and tax holidays should also be given to some categories of companies. Good roads, electricity and good infrastructure, among others should be visited.
Lack of funds and an enabling environment for industrialists have denied the nation of growth. Considering the enormous importance attached to industrialisation and how it impacts on the economy, any problem militating against its achievement should be of interest to the Federal Government.