lAverage GDP contribution, 9% in 3 years
lTrails agric sector’s 26% contribution
lNigeria well below industrialisation goals — NACCIMA
lFG must tackle binding constraints urgently — MAN
lSector remains largely import dependent — CPPE
By Yinka Kolawole
In apparent reflection on the nation’s slow progress towards industrialisation, the manufacturing sector recorded a dismal 9% average contribution to the Gross Domestic Product, GDP in three years, from 2019 to 2021.
This performance, which indicates impact of the multiple challenges bedeviling the manufacturing sector, represents 16.7 percentage points below the 25.7 percent average contribution of the Agriculture sector during the three years.
Available data from the National Bureau of Statistics (NBS) shows that the aggregate contribution of the manufacturing sector to the Gross Domestic Product (GDP), in real terms, over the three year period was N19.26 trillion while that of the Agriculture sector was N55.05 trillion.
The nation’s aggregate economic activities in the period under review stood at N213.79 trillion.
Analysts opined that the huge gap between the GDP share of the Agriculture and Manufacturing sectors is an indication of a need for improvement in value addition in the production chain of the economy.
Infrastructural deficiencies are major constraints to the growth of Nigeria’s manufacturing sector, chief among which is power supply, with most firms relying on power generators to run seamless operations eventually adding to costs. The situation has been recently compounded with the escalation in the price of diesel, with other challenges including forex scarcity, difficult access to credit, and the rising cost of imported raw materials, amongst others.
Recall that Financial Vanguard last week Monday exclusively reported 40 percent increase in raw materials cost of seven companies that produce Fast Moving Consumers Goods Products, FMCGs.
A breakdown of the NBS data shows that the real contribution of the manufacturing sector to GDP in 2019 was N6.47 trillion; N6.29 trillion in 2020; and N6.50 trillion in 2021, representing 9.06 percent; 8.99 percent and 8.98 percent, respectively.
Within the same period however, the contribution of the Agriculture sector was N17.96 trillion in 2019; N18.35 trillion in 2020; and N18.74 trillion in 2021, representing 25.16 percent; 26.21 percent; and 25.89 percent, respectively.
Commenting on the development, President, Nigerian Association of Chambers of Commerce, Industries, Mines and Agriculture (NACCIMA), Ide John Udeagbala, stated: “I think that a situation where less than one-in-ten products produced in the Nigerian economy is the outcome of an industrialised process does not bode well for our economic growth and development objectives. This is because industrialisation is well-established as a pathway to development.
“Industrialisation often means that a country can produce a wider range of higher value goods – both for sale at home and for export abroad. This was the basis of the Nigeria Industrial Revolution Plan (NIRP) published in 2014 and carried into the Economic Recovery and Growth Plan (ERGP) of 2017.
“To quote the NIRP, “History shows that no country has ever become rich by exporting raw materials without also having an industrial sector, and in modern terms an advanced services sector. The more a country specializes in the production of raw materials only, the poorer it becomes”.
“Although Nigeria can be said to have an advanced services sector, an average manufacturing contribution of 9% to national output (GDP) indicates that we are falling well below our industrialisation goals.”
Also commenting, Director General, Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadir, noted that comparing the contributions to GDP by the manufacturing and agriculture sectors highlights the fact of low performance of the former and the imperative of a virile manufacturing sector.
His words: “Conceptually, manufacturing is unarguably the backbone of national economic development. This is due to the fact that the manufacturing industry is key to the modernization of agriculture. The industries help to reduce the heavy dependence of the citizenry on agricultural income through the provision of jobs in secondary and tertiary sectors.
“It is countries that are able to transform their raw materials into a wide range of furnished goods and add value that are prosperous. Beyond the role of the sector in the domestic economy, manufactured exports expands the scope of trade, commerce and foreign exchange inflow.
“These and more underscore the disruption that the Nigerian economy suffers on account of the low performance of the manufacturing sector, as exemplified by its relatively low contribution to the GDP.
“There is therefore the need to address the binding constraints that have continued to militate against the performance of the manufacturing sector and limited its share of contribution to the GDP.”
In his reaction, Director General, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, stated: “The Nigerian manufacturing sector has been practically on a progressive decline since the early eighties.
“For the first decade after independence, the sector grew on the back of resource-based industrialisation where industrialisation was shaped by raw materials available in the country. There was a transition to an import substitution strategy of industrialisation following the oil boom. There was enormous foreign exchange to import raw materials in abundance.
“With the collapse of oil prices in the early eighties, the manufacturing sector suffered considerable setbacks as there was no sufficient foreign exchange to support the import dependence of the sector.
“The sector is still grappling with this shortcoming till date. The performance of the various sub sectors was largely dependent on the extent to which they could source their raw materials locally. This became a major factor in the competitiveness of industries.
“Many manufacturing firms have low local value addition, weak backward integration, inadequate forward integration, and low job creation potential. All of these weakened the impact of the sector on the economy and the development process.”
On what could be done to improve the situation, the NACCIMA President, Udeagbala, said: “There are a number of things that must be done to boost the manufacturing sector’s contribution to GDP.
“Foremost is to resolve the challenge of high cost of energy and poor infrastructure. Data from private sector operators show that energy and transportation account for more than a third of production costs.
“Secondly, there must be a focus on creating an enabling environment for businesses to thrive. This requires a change in mentality in government to more of facilitation than regulation and taxation.
“Finally, there must be cohesive monetary, fiscal and trade policy to ensure that Nigeria’s comparative advantage is identified, the basis of which import substitution and export promotion can then be pursued.”
The MAN DG, Ajayi-Kadir, said that to remedy the problem, there are perennial challenges and more recent ones that should be addressed.
“Encourage investment in local raw materials through direct incentives; Ensure that significant proportion of available foreign exchange is allocated to the productive sector, particularly manufacturing; Improve power supply by removing the impediments to access of the eligible customers scheme by manufacturers; Improve the capital base of BoI to allow for adequate lending to the productive sector by the bank; Rehabilitate existing major economic road corridors and construct new ones for seamless movement of raw materials to factories and finished goods to the markets.
“Implement the harmonised taxes and levies project which should be monitored strictly by the Joint Tax Board (JTB) to check the high incidence of multiple taxation. Also ensure that all tiers of government comply with the Taxes and Levies (Approved list for collection) Act CAP T2 LFN 2004; Fully implement the Steve Oronsanye Report on the reduction and re-alignment of Government Agencies and Parastatals in order to streamline the number of taxes, levies, fees and administrative charges; Invest significantly in ports infrastructure to aid smooth clearing processes, and eliminate the gridlock into the ports, whilst the moribund rail tracks leading from the ports to industrial areas are reactivated.
“There should be cooperation amongst government agencies operating at the ports to ease compliance by importers and exporters; Ensure only commensurate charges on HS Codes are charged by Customs and avoid uplifting of duty rates; Implement the single window platform to eliminate significant human inference in the ports clearing system; and avail to the productive sector the CBN non-oil export stimulation facility with liberal term and condition,” he stated.
On his part, the CPPE boss, Yusuf said: “The systemic issues of infrastructure should be addressed as a matter of utmost priority. Immediate focus should be on electricity supply and logistics.
“Unless we have these two critical infrastructures in place, it will be very difficult to ensure a competitive industrial sector and to make possible the transformation of the sector.”