Policy Mismatch as Bane of Manufacturing

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Earlier in the week, strategic stakeholders and private sector players converged on Abuja to proffer solutions for the real sector of the economy. They x-rayed the state of manufacturing and their verdict was that official policy mismatch has remained a hindrance to the sector. Ndubuisi Francis reports

State of the Economy

It is now beyond mere conjectures to official confirmation that the Nigerian economy has ‘technically’ slipped into recession.
Gross Domestic Product (GDP), capacity utilisation and all the macroeconomic indicators that gauge a robust economy have journeyed south.

It was therefore, not surprising when various players from the Organised Private Sector (OPS) took turns on Wednesday to paint a rather gloomy picture of what has become the lot of a once fledgling economy.

The forum was at a ‘Stakeholders’ Dialogue on the Manufacturing Sector in Nigeria’, organised by NOIPolls in collaboration with the Centre for the Study of the Economies of Africa (CSEA).
The dialogue saw eggheads from the Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI), National Association of Small and Medium Enterprises (NASME), NOIPolls and CSEA x-ray developments in the real sector, in recent times.

For the participants at the forum, a major area of concern was the Central Bank of Nigeria’s (CBN’s) policy on 41 items restricted from the official foreign exchange window.
As part of overall measures to strengthen the naira in the face of acute shortage of the much-needed foreign exchange, the CBN had last year placed a lid on 41 items from the official forex window.

Since the policy evolved, not a few watchers of economic trends in the country had shouted themselves hoarse that it had stymied the real sector and sounded the death knell of many budding enterprises.
The OPS players at the dialogue did not detract from the same clarion call that the apex bank must urgently rethink that policy, and toe the path of reversal.

The policy, in their conviction, is injurious to the manufacturing sector in such a way that could no longer be sustained.
The forex restriction, they contended, had led to the closure of many companies, the exit of many more to Ghana and other neighbouring countries, as well as resulted in the refusal to repatriate over $10 billion held offshore by Nigerian businesses.

MAN, NASME, LCCI and NOIPolls stated that about 272 manufactures are either ailing or have closed shop over the last couple of months, while thousands of jobs are being cut on a daily basis.

LCCI Submission
In his submission, the Director, Research and Advocacy, Lagos Chamber of Commerce and Industry (LCCI), Mr. Vincent Nwani, lamented that the CBN announced the 41-item list without consulting the sector, adding that the chamber had made several representations to the apex bank without the desired results.

“We did press releases; we did stakeholders engagement; we engaged with the CBN at all levels, at least three times; we met the directors twice–up to the CBN Governors on this same matter of the 41 items- giving them examples of product-by-product.

“There must be an urgent review of the CBN’s policy on the restriction of access to foreign exchange placed on 41 items, as about16 of the total items in the list, serve as critical raw materials for intermediate goods produced in Nigeria, especially as the country lacks the capacity for optimal production of the items,” he said.

Pointedly, he affirmed that the ban on oil palm had led to the loss of about 100,000 jobs over the last couple of months, with major blue chip companies in Nigeria relocating to neighbouring countries.

In the same vein, Nwani noted that the ban on glass and glassware had culminated in the loss of 80,000 jobs mainly in the pharmaceutical industry, as companies in this sector now find it difficult to package their products.

Local production of oil palm is put at about 600 metric tonnes annually, but the total demand of the country is at about 1.8 million metric tonnes. Presco Oil has orders of up to December 2017 to fill, and is presently hard pressed with demands.
Nwani contended that listing oil palm among the restricted items meant a shortfall of about 1.2 million metric tonnes.

“Some of the items placed on the restriction list by the CBN should be reinstated until the country develops the capacity to produce them locally. Some of the items need a period of between three and seven years for the country to develop self-sufficiency in their production.

“For instance, it takes a minimum of five years for oil palm to be planted and for harvest. The CBN should have given us more time. The manufacturing and industrial sectors lost about N1.4 trillion as a result of foreign exchange issues, while about 780 raw materials needed by the sector were affected by the restrictions placed by the CBN.

“I have talked about palm oil, I have talked about glass and glassware, I have talked about rubber and rubber ware. Glass and glassware, rubber and rubber ware, you need about three years gestation period.

“The palm oil, we need five years gestation period before we can have the local capacity to be able to supply the 1.2 million metric tons that is in deficit, as we speak. I will not be able to remember all the items off hands but we have the list and I can simply make it available.
“We have sent it to CBN before, they were resistant about it and we are ready to send it again. You know the challenge the organised private sector had initially was that we were not able to understand the magnitude of this challenge.

“We are making this demand on the basis that we don’t have local capacity for the affected items on the list. Even if we are having scarcity of foreign exchange some of these list needs to be supplied and because of that, few of our members who have been able to earn export credit or export income in dollar have refused to bring it in or repatriate it.

“We have about $ 10 billion stuck in one country or the other earned by our members. Some of them are not manufacturers, some are agriculturists or merchants of different products. They cannot bring it in because the business confidence, the manufacturing confidence, industrial confidence is negative.

“Until we do something to boost this confidence, all of these money will be stocked abroad; even Nigerians that are living in the Diaspora that were able to bring in $ 23 billion in 2013 . Last year, we saw about $5 billion. This year, it is going to be less than $3 billion. These are what negative confidence can do to an economy,” he said.

NASME
Speaking in the same vein, the Executive Secretary of NASME, Mr. Eke Ubiji, stated that recently, about 222 of its members have either collapsed or are ailing, even as he blamed lack of access to credit, foreign exchange challenges, high interest rate, multiple taxation and poor infrastructure, among others, for their woes.

Ubiji recounted the experiences of NASME members in manufacturing, adding that In February 2016, the Federal Ministry of Industry, Trade & Investment asked the association to furnish it with a list of members having ailing and collapsed manufacturing industries.

Accordingly, Ubiji said NASME responded and contacted its members around the country.
Data gathered from 11 states following that exercise, he disclosed, showed that eight industries in Abia State were either ailing or had collapsed while 20 suffered the same fate in AkwaIbom; Anambra (8), Bauchi (34), Enugu (4), FCT (12) , and Kano (25).

Others are Lagos (22), Nasarawa (3), Ogun (67), and Rivers (19), bringing to a total of 222 , the number of either collapsed or ailing industries in just 10 states and the FCT.

MAN’s Experiences/Way Forward
In his presentation, the Director, Economics and Statistics of the Manufactures Association of Nigeria (MAN), Mr. Ambrose Oruche lamented that the unavailability of productive input is the major challenge confronting manufacturers, stressing that this was as a result of the foreign exchange restriction placed by the CBN on certain items.

The current operating environment in the country, Oruche lamented, was harsh for many manufacturers to continue to operate even as he disclosed that some economic policies enunciated by the federal government and the CBN were conflicting and are retarding the growth of the manufacturing sector.

He argued that the manufacturers were not consulted by the CBN and other regulators before the restrictions were placed on the items, noting that many of the products under foreign exchange restrictions were raw materials needed by manufacturers.

“Presently, about 50 manufacturers have closed shop, while some have downsized. Some manufacturers are still producing due to their love for this country. Government policy on cement should have been adopted in this case.

“In the case of cement, Nigeria used to be a net importer of cement, but the government set up a policy over a five-year period, which made it possible that today, we are a net exporter of the commodity,” he said On Monetary Policy Rate (MPR), Oruche picked holes in the decision of the CBN to increase it to 14 per cent, arguing that it had made it difficult for manufacturers to access funds to finance their operations.

The fact that the economy is technically in recession, the CBN’s effort should have been directed towards expanding the economy rather than contracting it, he maintained He also listed high interest rates, poor patronage of local manufactured products, poor supporting infrastructure, such as poor power supply, policy somersault and policy inconsistency, among others, as the challenges confronting manufacturers.

To address the declining fortunes of manufacturers, Oruche called for the resuscitation of domestic refining, as this would ensure that certain chemicals imported into the country, can now be sourced locally.

He equally recommended that attention should be paid to developing the infrastructure base of the economy as well as on energy generation and distribution, while the federal government should also grant incentives and concessions to businesses.

Oruche, who emphasised the critical role of manufacturing in an economy, said it is best described as the heart of industrialisation, structural change of any economy and catch-up amongst nations in terms of economic prosperity.

Manufacturing, he added, galvanises social regeneration in terms of employment creation
and poverty reduction, which are some of the cardinal pursuits of any government, stressing that this was because a singular robust factory can create multiple jobs for the teeming population and lift them out of the hopelessness of poverty.

“Therefore, based on this backdrop, special attention should be given to the manufacturing sector to insulate it against distortional and more persistent economic shocks. This is the practice in other climes including the high- income/industrialised economies.

“We feel that the government should extend the same attention to the manufacturing sector in Nigeria so as to always keep it afloat and improving.
“It is important to understand that the challenge of manufacturing is the challenge of the entire economy; therefore if the manufacturing sector is healthy, then the entire economy is healthy,” he stated.

He recalled that since the crash of crude oil prices in late 2014, the unfriendly operating
business environment had unfortunately continued to worsen, making
manufacturing almost impossible.

“The major challenge is the inability of manufacturers to maintain sizeable
capacity utilisations due to unavailability of productive raw materials.

“It is noteworthy that the cause of the dearth of raw materials in the country was caused by the acute shortage of forex following the declined inflow of foreign currency into the economy and its depreciating impact on the value of naira, as crude oil prices in the international market plummeted.

“Unfortunately, some of the policies implemented to resolve the eroding Naira
value were inimical to manufacturing activities. For example, the continued inadmissibility by the CBN of the 41 items of manufacturing raw materials in the forex market is a huge challenge to the sector,” Oruche pointed out.

The MAN top official regretted government’s policy mismatch, noting that very often, the policy solutions of the government do not match the challenges they are meant to tackle but worsens it.
To buttress this, again, he cited the continued exclusion of 41 items of manufacturing raw materials from the forex market even under the deregulated forex regimes; and the increase in MPR to 14 per cent even when the economy is at the brink of recession, describing the development as incongruous.

NOIPolls/CSEA organised dialogue provided a veritable platform for stakeholders to appraise developments in the manufacturing sector of the economy.
The Chief Executive Officer of NOIPolls, Mr. Bell Ihua, said that the organisation’s survey covered all six geopolitical zones of the country and that urgent actions were needed by the federal government to save the sector.