Business

May 31, 2019

Manufacturing sector in 20 years: Our position — LCCI

Real sector leads in CBN’s 100-for-100 scheme

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The Nigerian Manufacturing Sector has been practically on the decline over the past two decades. This is in spite of the numerous policies and measures that have been articulated by successive governments. Manufacturing contribution to GDP remains at an average of 7 per cent over this period.

A cross-section of manufactured Armoured cars by the Nigerian Army Vehicle Manufacturing Company on display, during the company’s show in Kaduna on Saturday.

The sector has remained largely import dependent which has made it very vulnerable to external shocks. This feature is also a factor on the weak competitiveness of the sector. Many manufacturing firms have low local value addition, weak backward integration, inadequate forward integration, and very low job creation potentials. All of these weaken the impact of the sector on the economy and the development process.

Past policy measures

If there is anything that we are short of, it is the framing of very good policy documents to provide direction for the economy. Many of these documents have very robust sections for industrialisation strategy. However, these laudable policies have not really translated into concrete actions or sustainable industrial growth. Since 1998, a few major policy documents have been released by the government. First, the National Economic Empowerment and Development Strategy, NEEDS document, which was put in place during the regime of President Obasanjo as civilian president. The major thrusts of this policy document are as follows:

¨        To radically increase local value addition at every stage of the manufacturing chain;

¨        To reduce the export of primary products and encourage local processing of such products;

¨        To promote total factor productivity;

¨        To promote backward and forward linkages in some niche sectors;

¨        To develop an appropriate Science and Engineering infrastructure that will support industrial development.

The target for the industrial sector under this policy was to achieve 7 per cent annual growth on Manufacturing and increase capacity utilisation to 70 per cent by 2007. The policy also aims to remove all infrastructure constraints and establish industrial clusters and industrial parks. It also focuses on export-oriented manufacturing sector and procurement policy that supports local production. Evidently, the NEEDS document was an excellent document with very rich content for the transformation of the Nigerian economy. But the reality is that these lofty goals have not been achieved. The sector is still as weak today as it was in 1999, when the NEEDS document was put together.

After the NEEDS document during the Obasanjo regime, we had the Seven Points Agenda under the then President Yar’Adua administration. This agenda also had very robust content for industrialisation strategy. The story is the same with the regime of President Goodluck Jonathan, when we had the transformation agenda. However, at the twilight of his administration, he launched the Nigerian Industrialisation Revolution Plan, NIRP which is specifically focused on industrialisation. It is worthy of note that the current administration has adopted the NIRP as its policy document for the promotion of industrial development. I believe this is in good spirit of ensuring continuity of policies that are found worthy. Presently, the NIRP complements the Economic Recovery and Growth Plan (ERGP).

Policy/ outcome dichotomy

The truth is that we are not short of good policies or models for our industrialisation. The challenge has been the yawning gap between the excellent policies and the practical outcomes.

Nigerian Industrial Revolution Plan, NIRP

This is a very comprehensive document which is specific to the industrial sector. It identifies the critical bottlenecks, opportunities and the strategy for the promotion of industrial growth. The main vision of the NIRP is to make;

¨        Nigeria the preferred manufacturing hub in West Africa;

¨        Nigeria the preferred source of supply of low and medium technology consumer and industrial products, domestically and internationally;

¨        Nigeria one of the top 10 players in at least 10 key manufacturing categories within the next five years.

Again, these are very lofty visions and objectives, but not much has happened to translate this to reality. The sector is still largely stagnated, with capacity utilisation still at 40 per cent threshold.

Way forward

The systemic issues of infrastructure should be addressed as a matter of utmost priority. Immediate focus should be on electricity supply and transportation. Unless we have these two critical infrastructure in place, it will be very difficult to ensure a competitive industrial sector and to make possible the transformation of the sector.

¨        We should focus on labour-intensive industries to enhance job creation and promote economic inclusion.

¨        We should ensure that there is adequate investment in core industries such as Iron and Steel and Petrochemical.

¨        We should take full advantage of the large Nigerian market to scale up our industrial capacity utilisation.

¨        State of the manufacturing sector

¨        Lack of the basic industries such as Iron and Steel and Petrochemical;

¨        Lack of skilled manpower;

¨        Infrastructure issues, especially power and logistics;

¨        Influx of substandard and fake products through the porous borders;

¨        · Weak domestic patronage both from the government and the private consumers.

 

Flow of trade

The Nigerian manufacturing sector is too dependent on import, which is a major shortcoming of the Nigerian manufacturing sector. The sector accounts for about 3 per cent of export revenue and 50 per cent of import. This demonstrates that the sector is not properly aligned with the vision of self-reliance being promoted by the current government. Local value addition is still very weak. The most sustainable segment of the manufacturing sector is the food & beverage industries, where the local content is well over 80 per cent. This explains the competitive strength of the sector.

 

Current challenges

¨        Weak infrastructural base – power, transportation, Apapa issues, railway system;

¨        High cost of fund, absence of long-term funds, challenges of access to credit by SMEs as well as other firms in the sector, because of perception of manufacturing as very risky in the economy. Except for the occasional availability of intervention funds, especially from the Bank of Industry, BoI, the cost of fund in the Nigerian economy is well over 25 per cent for industrialists. It is difficult to achieve a competitive manufacturing investment with this kind of fund;

¨        The tenure of fund is also very short, most times, a maximum of one year. It is difficult to do any serious manufacturing investment with a tenure of fund of just one year or less;

Manufacturing sector report: PMI, BCI data portend mixed fortunes for real sector(Opens in a new browser tab)

¨        The Small Businesses account for over 50 per cent of the GDP but have access to only 1 per cent of the bank credit to private sector. This demonstrates the enormity of the funding challenges that are faced by small businesses;

¨        The manufacturing sector also suffers from the challenges of weak institutions. This makes regulation ineffective – faking and counterfeiting, smuggling, under invoicing etc;

¨        Research and Development does not attract sufficient investments needed to promote industrialisation;

¨        A major challenge to industrialisation is the low industrial space and absence of innovation. Many industries have the challenge of getting qualified labour for their businesses. The curriculum of many tertiary institutions is not dynamic and most often, not aligned to the needs of industries, which is very dynamic. Therefore, the static curriculum cannot meet the needs of a dynamic setting.

FG to enhance private investments, remove bottlenecks to growth – Fashola(Opens in a new browser tab)

Competition law

Most times, small players in the industrial sector are very vulnerable to the forces of competition, both from within and outside the Nigerian economy. The big players in each of the sectors tend to dominate and crowd out the small ones. This has made it necessary for a competitive law to be in place to prevent monopoly practices or acts of collusion among major players in a particular sector.

The tariff regime is most often, not in alignment with the industrial policy. This is important, in order to ensure a trade policy that complements industrial development.

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Conclusion

On the whole, it is evident that numerous laudable steps have been taken in the last two decades to promote industrialisation, but not much progress has been achieved. We have seen some outcomes of positive nature with regards to the food & beverage sector as well as the cement industry. Many of the other segments in the sector are not deeply rooted in manufacturing, because of their weak linkages and local content. Some manufacturers are as dependent on import as importers of consumer products of niche goods.

It is important to complement our protectionist policies with the drive for competitiveness. We can only achieve a sustainable industrial growth when we ensure that our manufacturing firms are competitive domestically and globally. This should be our vision.