•MAN lists challenges, charts way forward

By Yinka Kolawole

Against the background of low investors’ confidence occasioned by the prevailing hostile operating environment for business in Nigeria, foreign investments in the country’s manufacturing sector fell  by 51 percent to $978.31 million in 2022, from $2 billion in 2021.

Financial Vanguard investigations reveal that the manufacturing sector attracted only 18.4 percent of the $5.33 billion total capital importation into the country in 2022. This indicates a decline when compared to 2021 when the sector attracted foreign investment worth over $2 billion, representing about 30 percent of the $6.7 billion total capital importation recorded in the year.

Available data from the National Bureau of Statistics (NBS) indicates that capital importation into the manufacturing sector in 2022 ranked second behind the banking sector which recorded the highest inflow of $2.09 billion, representing 39.2 per cent of total capital imported.

This is a far cry from the record of 2021 when capital importation into the manufacturing sector ranked first at 30 percent of total investments, with the banking sector coming second with investment of $1.46 billion representing 21.8 percent.

Disaggregating the NBS data on foreign investments in the manufacturing sector in 2022, Brewery subsector attracted $0.55 million investment; Electrical $22.96 million; Oil & Gas $6.37 million; while $948.43 million was invested in the Production subsector, totalling $978.31 million for 2022.

In 2021, Brewery attracted $0.81 million; Electrical $327.46 million; Oil & Gas $101.82 million; Production $934.11 million; while Tanning attracted $645.59 million foreign investment, totalling just over $2 billion for 2021.

NBS captures the manufacturing sector to include 13 activities namely: Oil Refining; Cement; Food, Beverages and Tobacco; Textile, Apparel, and Footwear; Wood and Wood products; Pulp Paper and Paper products; Chemical and Pharmaceutical products; Non-metallic Products, Plastic and Rubber products; Electrical and Electronic; Basic Metal and Iron and Steel; Motor Vehicles and Assembly; and Other Manufacturing.

The NBS data also shows that foreign investments into the sector declined 33.4 percent, quarter on quarter (QoQ), to $264.9 million in the first quarter of 2023 (Q1’23) from $397.8 million in the fourth quarter of 2022 (Q4’22). It however increased by 16 percent, year on year (YoY), compared to $228.36 foreign investments in the sector in Q1’22. 

Challenges and way forward

The Manufacturers Association of Nigeria (MAN), the umbrella body of manufacturers in Nigeria, has been warning over time that the increasingly harsh business environment in the country is prompting decline in both local and foreign investments into the sector.

Only recently, the President of MAN, Otunba Francis Meshioye, lamented that some multinational manufacturing firms had exited Nigeria as a result of the nation’s power crisis, coupled with the unpredictability of the country’s foreign exchange (forex) rate, before it was recently floated.

He warned that more multinational firms may leave the country if appropriate measures are not taken.

Speaking exclusively to Vanguard, Director General, MAN, Mr. Segun Ajayi-Kadir, enumerated challenges confronting the manufacturing sector that have made it remain unattractive to foreign investors. 

His words: “Some of these challenges include the high cost of doing business, erratic power supply at an exorbitant billing rate, insecurity, inconsistent and failed government policies, multiple taxation and untoward means of collection, shortages of foreign exchange supply, stiff competition arising from influx of cheaper imported or smuggled manufactured products, high and rising inflation, and weak sectoral linkages.

“Basic infrastructures such as good roads, railways, ports, and electricity supplies to aid production and product distribution activities remain inadequate and underdeveloped. This is in addition to the problems posed by inadequate port management and high interest rate. 

“High excise duty, inadequate support for local content development, and unmet promises by governments over the years have also contributed to the weak performance of the sector. They have combined with the aforementioned to de-market investment in the sector.”

On what to do to halt the decline in foreign investments, Ajayi-Kadir said a conducive business atmosphere must be created in the country.

According to him, expensive ventures such as road shows, foreign trips, bilateral trade agreements and diplomatic engagements will not achieve much, if they are not matched with the creation of a conducive atmosphere in the country, adding that there is no better marketer than a satisfied customer.

He stated: “First, investors’ confidence must be cultivated in the sector. We need to de-risk investment in manufacturing and intentionally promote local and foreign investment. The relative improvement in ease of doing business should be matched and surpassed by unmitigated reduction in cost of doing business.

Holistic approach 

“The government must take a holistic look at the manufacturing sector and engage the stakeholders in order to achieve a turnaround of the fortunes of the operators.  “There are low hanging fruits in removing challenges that are presently constraining manufacturing. 

“The dollarisation of the price of gas should be discontinued, as it has compounded the endemic power supply palaver and completely wiped out the advantage in converting to use of gas. The calculation of duty on imported raw materials, machines and spares should be delinked from the floated rate of the Naira or a minimum of 50% discount granted to bonafide manufacturers. 

“The major stakeholders, including the Manufacturers Association of Nigeria, should be actively involved in all matters and policy formulation and implementation relating to the manufacturing industry.

“The government should intentionally target and implement productivity-enhancing policies, particularly those that boost manufacturing, in order to reflate the economy. 

“Also, there is a need for the provision of incentives for local raw material sourcing and the formulation of consistent policies and regulations that will boost investors. Sustainable finance for the industry is equally important.”

Ajayi-Kadir concluded that if the problems confronting the manufacturing sector are adequately tackled, it will leapfrog into a continuous free flow of foreign investment into the sector.

Current reforms can boost investments — CPPE 

In his comment, the CEO of Centre for the Promotion of Public Enterprise (CPPE), Dr. Muda Yusuf, said if current economic reforms are sustained, there will be improvement in foreign investments.

He stated: “Foreign direct investment is largely a function of the totality of the investment climate conditions.  

“The investors are typically very cautious because they have a long-term perspective of the economy. They worry about the macroeconomic fundamentals, structural issues, and security issues, consistency of policy, regulatory environment, trade policy and foreign exchange policy. 

“The forex policy regime of the past few years was a major impediment to foreign capital inflows into the economy. It affected both foreign direct investment and foreign portfolio investment. It also led to the exit of many investors from the economy.

“With current economic reforms, the outlook should be more positive for FDI in manufacturing and other sectors of the economy in the near future.”

Tackling multiple taxation’ll help — CITN

Meanwhile, the Chartered Institute of Taxation of Nigeria (CITN) has said that one of the ways to encourage more foreign investments is by tackling the issue of multiple taxation in the country.

Kennedy Iwundu, chairman, Abuja chapter of CITN, speaking on ‘Tax Reforms Digitalisation and its Impact on Doing Business in Nigeria’, said some investors have resorted to importation instead of setting up companies for production because of multiple taxation.

According to Iwundu, multiple taxation usually discourages both foreign and local investments from coming into the Nigerian economy.

“The current tax system which had multiple federal taxes such as company income tax, levy on the profit of companies apart from other sectoral collections, posed a serious problem to investors,” he stated.

Iwundu however commended President Bola Tinubu for setting up a committee to look into tax reforms so as to ensure that multiple taxation was eliminated.