•FDI up 2.2% to $934m – NBS

•MAN lists variance factors

•NIPC tracks $10.5bn investment announcements

•How to attract more investments – MAN, LCCI, CPPE

By Yinka Kolawole

Manufacturing investment in Nigeria surged 157.4 percent to N305.02 billion in 2021 from N118.51 billion in 2020, signaling a recovery in the sector.

The development is traced to the return to full economic activities following the lifting of restrictions occasioned by the COVID-19 pandemic during the year 2021.

Financial Vanguard findings from the Manufacturers Association of Nigeria (MAN) data indicates a steady rise in manufacturing activities after a two consecutive half year down-turn in 2020 when investment in the sector dropped to N62.08 billion in the first half 2020, H1’20, and further down to N56.44 billion in the second half, H2’20.

In the H1’21, investment in the sector rose to N144.14 billion, and further rose to N160.88 billion in the H2’21.

MAN clarifies NBS figure

Also within the same period, the National Bureau of Statistics (NBS) in its fourth quarter 2021, Q4’21, Capital Importation report stated that foreign direct investment (FDI) in Production was $934.11 million in 2021, indicating 2.21 percent increase over the $913.89 million recorded in 2020.

On the variance in the figures between MAN and NBS, Director General, MAN, Mr. Segun Ajayi-Kadir, stated: “The FDI figure ($934.11 million) by NBS is for economic activities related to Production and not just manufacturing.

“However, based on the capital intensive nature, the structure of the Nigerian economy and productive activities generally, manufacturing accounts for a significant proportion of the inflow.

“Therefore, when you consider the Naira equivalence of the $934.11 million FDI for Production when converted with the 2021 average exchange rate of N399.63/US$ based on data provided by the Central Bank of Nigeria (CBN), you will observe that the value is N373.3 billion.

“When all of the above are considered and you now compare the 2021 full year FDI of N373.3 billion ($934.11 million) and the full year 2021 of MAN Bi-annual Economic Review of N305.02 billion, you will see a difference of N68.28 billion. 

“This variance is attributable to three factors. First, the NBS data is a nationwide data covering all production activities in the country including manufacturing concerns (within and outside the fold of MAN). 

“Secondly, MAN data, sourced directly from real operators, is focusing purely on production activities of only manufacturing concerns within the membership of MAN spread across the 10 sectoral groups, 74 sub-sectoral groups and over 16 industrial zones cited across the six geo-political zones of Nigeria. 

“And thirdly, is the technically broad spectrum of productive activities, which is much more than just manufacturing.”

Investment proposals up 25.6%

Meanwhile, the Nigerian Investment Promotion Commission (NIPC), in its 2021 Investments Announcement Report, said it tracked $10.5 billion (about N4.2 trillion at N399.63/US$) investment proposals into the manufacturing sector in 2021, representing 25.6 percent above the $8.36 billion announcements tracked in the sector in 2020.

Comparing the figures by NIPC ($10.5 billion) and NBS ($934.11 million), there was a $9.57 billion gap between investment announcements and actual capital imported into the manufacturing sector during the year.

Acting Executive Secretary of NIPC, Emeka Offor, noted that the gap between announcements and actual investments demonstrate investment potential.

“A more proactive all-of-government approach to investor support, across federal and state governments is required to convert more announcements to actual investments,” he stated.

Sectoral investment

A cross-sector analysis of the data from MAN shows that manufacturing investment improved in most of the sectoral groups in the period under review.

Details of the data from MAN revealed that the bulk of the manufacturing investment in 2021 (in value terms) came from the Food, Beverage & Tobacco sub sector, attracting N117.59 billion or 38.6 percent of the total investment. The investment in the sub sector (N117.59 billion) in 2021 represents more than 307 percent increase over N28.87 billion recorded in 2020.

In the Non-Metallic Product sub sector, investment rose by 1,287 percent to N22.05 billion in 2021 from N1.59 billion in 2020. Investment in the Basic Metal, Iron & Steel sub sector rose 561.8 percent to N19.92 billion in 2021 from N3.01 billion in 2020.

In the Motor Vehicle & Miscellaneous Assembly sub sector, investment increased by 3,212 percent to N38.42 billion in 2021 from N1.16 billion in 2020. Also, in the Chemical and Pharmaceutical sub sector, investment rose by 37.5 percent to N54.56 billion in 2021 from N39.67 billion in 2020. 

Stakeholders’ views

Commenting on the increase in investment in the sector during the period under review, President of MAN, Engr. Mansur Ahmed, noted that, “The increase in manufacturing investment follows the easing of economic and social restrictions meant to contain COVID-19 pandemic and the full rebounding of economic activities globally and in Nigeria within the period.

“In the last one year significant investment has been recorded with the commissioning of the new BUA Group cement factory in Sokoto and the new African Glass Limited factory that produced glass products.”   

Also commenting, NIPC boss said: “The increase in value (of the investment announcements) is indicative of the growing adaptation to the global ‘new normal’ after the economic disruption occasioned by the restrictions imposed to check the spread of COVID-19 pandemic. It also indicates the growing confidence of investors in the efforts to improve the national investment landscape.”

Attracting more investments

The MAN President declared that notwithstanding the improved performance of the manufacturing sector during the year, it is still far below its potential growth and contribution to national output due to the many challenges confronting the sector.

He stated: “Following direct feedback from manufacturers, we recommend that the government should create plausible incentives for investment in the development of raw materials locally through the backward integration and resource based industrialization initiatives.

“The government should encourage investment in local development of raw materials through direct incentives, and ensure that a significant proportion of available foreign exchange is allocated to productive purposes.

“There is also the need to strengthen the Bank of Industry (BoI) and Bank of Agriculture (BoA) to adequately provide liberal finance for the manufacturing sector, provide credit guarantee for industrial loans from commercial banks, and ensure effective allocation of available forex to productive sectors, particularly the manufacturing sector for importation of raw materials and vital machine and equipment that are not available locally.” 

Similarly, Director General, Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Almona, stated: “Security and returns on investment are critical to an investment decision. The primary concern of every investor is the security of capital after that, returns on investment, market growth, and other objectives in that order.

“The synopsis shows that we need to solve the security challenges ravaging the country headlong and prevent the escalation of security risks to manufacturing clusters, zones, and hubs. Without peace and security, the business environment would be very volatile and unconducive even if commercial potentials are compelling and returns relatively attractive. 

“We must also implement sound macroeconomic policies to align government development programmes with investors’ expectations. Specifically, our forex policy should be flexible and transparent to allow exchange rate convergence across all foreign exchange market segments.

“The wide gaps between official NAFEX and parallel markets could discourage fresh capital inflows, be it a foreign direct investment, portfolio investment, or non-oil export proceeds into the economy.”

On his part, Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, noted that the manufacturing sector is still largely stagnated, with capacity utilization still at 40 percent threshold.

He stated: Current challenges to manufacturing investment include weak infrastructural base – power problems, transportation and logistics issues, cargo clearing challenges, inadequacy of the railway system, etc.

“Others are the worsening energy crisis, especially the high cost of diesel and gas, high cost of funds, absence of long-term funds, challenges of access to credit by SMEs as well as other firms in the sector, because of the perception that manufacturing is very risky in the economy.

“Except for intervention funds, especially from the Bank of Industry (BoI), the cost of funds in the Nigerian economy has been well over 20 percent 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 tenure of fund of just one year or less.”