New Year, same challenges for local manufacturers

Every year, for many forward-looking businesses, declarations and resolutions are made on how to make the New Year better than the previous years. In Nigeria, it is often times, business as usual, with government policies and environmental factors determining the pace of growth of the economy as driven by the private sector. As 2020 begins, set goals will be achieved only if challenges are addressed. FEMI ADEKOYA writes.

For local manufacturers, inadequate and epileptic power supply, high taxes, poor infrastructure, and supply variability of rain-dependent agricultural inputs are familiar challenges they have had to deal with, year after year.

To many of them, being innovative and exploring cost-cutting measures is not enough, without considering shocks from the business environment and regulators.

While it is not all gloomy, there are some strengths, as the National Bureau of Statistics (NBS) observes that in Nigeria, labour is cheap, domestic demand is buoyant, and some inputs are available and cheaper domestically.

These advantages notwithstanding are presently being eroded by high inflation, competition from foreign products and weak consumer purchasing power.

Latest NBS data showed that the manufacturing sector grew marginally by 1.1% in the third quarter, up from -0.13% in the previous three months, bringing average growth between January and September at 0.59%.

Between July and September, growth in the sector was buoyed by rapid expansion in the cement industry, which grew 6.87%. Unpacking the components, growth in the sector was not broad-based as only four of 14 sub-sectors including cement and paper industry saw growth printed higher quarter-on-quarter.

The manufacturing sector has been the biggest beneficiary of CBN’s aggressive credit push to the real sector, receiving N459.69 billion out of N1.17 trillion disbursed by deposit money banks between May and October.

According to the Lagos Chamber of Commerce Industry (LCCI) research, local manufacturers still find the business environment unsupportive given the myriads of challenges such as epileptic power supply, poor road network, high cost of borrowing, over-regulations, multiplicity of levies, weak demand, sluggish economic recovery, port-related challenges -delay in clearance of imported raw materials, heavy congestion, among others.

The chamber noted that these constraints make local manufacturers produce at higher costs, making their products less competitive compared with cheap foreign ones, the reason local producers operate below full capacity as capacity utilization is some 55% as of December 2018.

The Director-General, Manufacturers Association of Nigeria (MAN), Segun Kadir, added that traffic gridlock makes manufacturers more susceptible to miscreants who take advantage of the situation.

“The CBN like it did in 2019, will maintain status quo by not relenting in supporting the sector with much-needed funds in ensuring that the wide gap between local demand for food and supply is bridged.

“However, risk factors to our prognosis include security challenges in the North-east zone; a major food producing region in the country, resurgence in the herders-farmers clash in the North-central region.

“Overall, we expect the sector to sustain its upward growth trajectory in 2020,” he stated.

To unlock the potential of the Nigerian economy, Yusuf proposed the promotion of economic inclusion through a right mix of fiscal, monetary and investment policies, regulations, and institutions.

“The potentials for growth of the Nigerian economy are immense, but we should not remain a nation of potentials.

“In order to unlock these huge potentials, we need to put in place appropriate policies, regulations, and institutions.

“Investment is critical to the growth of any economy: this is even more so in an economy that is struggling with revenue and other resources.

“Growth in private investment will boost employment, impact on revenue, promote social stability and enhance the welfare of citizens.

“It is thus very fundamental that we create an enabling environment for investors [domestic and foreign] to create wealth and jobs for the country.

“There is also a need to deepen the consultative process between the policy makers and the private sector,” he said.

With regards to the budget passage, the finance bill and their implementation, the LCCI chief urged the government to create a monitoring mechanism to ensure compliance.

He said the government should also release progress reports about the budget performance quarterly.

“While the early passage of the budget is commendable, our concern is about the implementation following Nigeria’s poor budget performance in years past.

“In furtherance, we believe the implementation of the finance bill will ease the tax burden of small businesses, but will probably not translate to improved performance as the operating environment is still tough,” he said.