Dissecting  MAN’s Recipe for Manufacturing Sector Growth

Following the poor showing of the manufacturing sector and its declining contribution to the Gross Domestic Product in 2022, the Manufacturers Association of Nigeria has come up with a list of recommendations to drive the sector in 2023, writes Dike Onwuamaeze

For the umpteenth time, the operators of the manufacturing sector have called on the federal government to implement measures and programs that would aid the growth of the sector. Their call followed the poor showing of the sector in the latest GDP report that was published recently by the National Bureau of Statistics (NBS).

According to the Manufacturers Association of Nigeria (MAN), the manufacturing sector accounted for 8.59 per cent of real GDP in the third quarter of 2022 which is marginally lower than the 8.96 per cent recorded in same quarter of 2021 and 8.6 per cent recorded in the preceding quarter of 2022.

On a year-on-year basis, the sector grew negatively by -1.91 per cent in the third quarter of 2022 compared to 4.29 per cent in the third quarter of 2021 and 3.0 per cent recorded in the second quarter of 2022. This represented a -6.2-percentage point and -4.91 percent point decline from the growth witnessed in 2021 Q3 and 2022 Q2 respectively.

The overall decline in both aggregate and sectorial performances, according to the Director General of MAN, Mr. Segun Ajayi-Kadri, could have far-reaching adverse effects on the manufacturers.

These adverse effects included lower manufacturing turnover, heightened forex challenges, slow infrastructural development and reduction in credit intervention as well as fall in manufacturing investment.

Ajayi-Kadri explained: “The GDP growth slowdown will most likely result in higher unemployment rate. Coupled with high inflation rate, the economy is likely to face higher misery index that worsens the poverty level and further shifts consumers away from elastic manufactured goods. This will eventually result in drastic reduction of patronage and lower sales turnover.

“The slag in the diversification drive implies further dependence on imported raw material and machinery. Hence, the forex crisis bedeviling the sector is not likely to be resolved anytime soon.

“Considering that the revenue generating capacity of the government is hampered by high unemployment, the limited funds will slow down the provision of infrastructure and credit facilities necessary to boost productivity of the manufacturing companies. Otherwise, the government will resort into more borrowings and put the country in debt peonage.

“The negative growth of the sector’s GDP sends a strong signal to potential investors in the sector. The impending result is negative investors’ sentiments and pessimism against provision of critical raw materials, technology and technical know-how required to promote the industry.”

Path to economic growth

He noted that Nigeria’s path to economic growth, industrialisation and sustainable development has been compromised by inadequate attention to the numerous pressing challenges of the manufacturers who are meant to be the propellers of its long-term economic agenda.

He argued that achieving a stable rapidly-growing economy would require the government to tackle head-on the daily bottlenecks confronted by business owners within the manufacturing sector, considering its active inter-linkages with other key sectorial drivers of the economy.

These bottlenecks included foreign exchange scarcity, multiple taxation, and exorbitant interest rate, high-cost business operating environment, smuggling, insecurity, energy crisis and epileptic power supply.

In order to restore the sector to an enviable position in the global business environment and in turn propel an inclusive growth of Nigerian economy, MAN hopes that the government would be committed in facilitating the formal service sector to widen tax net and avoid multiple imposition of tax on the manufacturing companies.

Tackling insecurity, smuggling

The MAN urged the government to tackle insecurity and smuggling by up scaling capacity building and providing adequate security equipment and technology for surveillance and intelligence gathering; continue to involve all stakeholders to play a vital role in supporting security along the oil infrastructure while also ensuring they are beneficiaries of the awarded surveillance contract and to deploy means to reduce unemployment and boost productivity of the manufacturing by encouraging local sourcing of raw materials, improving infrastructural developments, resolving all credit and forex-related challenges, ensuring implementation of the Executive Order 003 and imposing cost-reflective electricity tariff and energy prices.

In addition, the manufacturers’ association asked the Central Bank of Nigeria (CBN) to jettison the failing hard peg policy and establish a clear and transparent market framework to guide the interventions of the CBN in the forex market.

It said: “Synergistically align monetary and fiscal policies while also curbing fiscal deficits by the gradual removal of fuel subsidy backed with appropriate palliatives for the poor.

“Tackle flood disaster by adopting erosion control mechanisms, early warning and emergency services as well as flood risk assessment and ecological funds.”

The manufacturers also urged the government to     upscale electricity generation and build super grids that are regionalised to avoid continuous national system collapse and ensure a more robust transmission infrastructure.

It also made case for further reduce the reliance of the country on imported products and raw materials by encouraging local sourcing through a comprehensive and integrated incentivised system since Nigeria is largely bearing the brunt of imported inflation.

It also wanted government to restrict the exports of maize, cassava, wheat, food related products and other manufacturing inputs; and suspend the 15 per cent charges on imported wheat while encouraging growth in domestic investment in agriculture.   

The MAN also urged the government to         “incentivise investment in local development of raw materials; Give attention to domestic production of Active Pharmaceutical Ingredients (API) and Basic chemicals by incentivising investment in the area; refocus on Backward Integration and Resource-Based Industrialisation.”  

Headwinds, FX Scarcity

Speaking in the same vein, the Director General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Chinyere Almona, noted that the manufacturing sector suffered from headwinds like scarcity of FOREX for import of inputs, weakened consumer demand due to weak purchasing power, high energy cost, logistical challenges, policy uncertainties, and harsh regulatory environment.

Almona said that if these factors should be allowed to persist in 2023, Nigeria might likely record a growth in the sector away from the negative growth of -1.9% as at Q3 of 2022.

“With lowering imports due to forex scarcity, local manufacturing could rev up in growth to meet the growing unmet local demand for hitherto imported finished products.

However, this can only happen if we address issues like rising inflation, scarcity of FOREX, high energy cost, high interest rates, and logistics challenge due to insecurity in most parts of the country.

“In the case of subsidy removal by the new administration, we should expect some shocks to the economy in the short term with possibility of adjusted pricing and demand in response to market forces in the long run.

“The Dangote Refinery coming into operations by mid-year will boost production levels and support growth in the manufacturing sector. However, the contribution of manufacturing to GDP may fall from the 8.2% recorded during the third quarter of 2022 except the Government takes urgent and targeted financing support to critical productive infrastructure in the country,” she said.. 

The LCCI urged the federal government to sustain its targeted interventions in selected critical sectors like agriculture, manufacturing, export infrastructure, tackling insecurity, and free more money from subsidy payments.

“It is very imperative that we need sound monitoring and evaluation over the budget allocations to capital projects and defence spendings to respectively tackle infrastructural deficit and the fight against insurgency. We urge the government to tackle oil theft to earn more foreign exchange, borrow from cheaper sources to reduce the burden of debt servicing, and pave way for the removal of the fuel subsidy by the incoming government.

“With increased spending by the government for census and general elections, the government must block revenue leakages, reduce costs, and empower the private sector to create jobs and generate more revenue to the government.