Following the poor performance of the manufacturing sector in 2016, analysts are looking beyond the poor statistics to map out the way forward for the sector, writes Olaseni Durojaiye
As the managers of the nation’s economy continue in the efforts to set the economy on the path of recovery and growth, it has become expedient to interrogate the role of each sector of the economy towards the objectives. This has necessitated the need to take another look at the real sector on the strength of the potential in the sector, particularly in terms of employment creation, especially with the current economic recession.
This becomes more important given the argument of economists that the current recession is cost-driven and not product-driven, thus the need for fiscal, monetary and trade policy to be fine-tuned to help the sector get back on its feet and running.
Even the argument that the sector is not the highest contributor to the nation’s GDP bandied by opponents of the CBN directive on the allocation of 60 per cent of foreign exchange for the sector does not whittle down its importance to economic recovery and growth, even though the sector performed miserably in 2016.
It will be recalled that the sector’s poor performance in the last year was caused by myriad challenges. The challenges include scarcity of foreign exchange, infrastructure deficit, double-digit interest rate and lack of raw materials even with the adoption of the backward integration policy.
Manufacturing Sector’s Performance
According to operators in the sector, the effects of the challenges manifested in the shutdown of about 272 firms, reduced capacity utilisation, reduced production, staff downsizing and downward review of workers remuneration.
Data released by the Central Bank of Nigeria (CBN) also corroborated this. According to the data, the industrial sector recorded a decline between January and November as revealed by the Purchasing Managers Index (PMI).
The PMI is an indication of the economic well-being of the manufacturing sector, and is based on five major indicators namely; new orders, inventory levels, production, supplier deliverables and the employment environment. The index, according to the CBN data, stood below 50 index point in the months of January and November which indicated decline in industrial production.
Stakeholders Point Way Forward
A handful of stakeholders who spoke to THISDAY reiterated the need to revisit trade, monetary and fiscal policies believing if that is done, the sector would benefit and reclaim its lost glory. One analyst, however, adopted a holistic approach to the problems that the sector faced in the last year and argued that the sector shouldn’t be an isolated case.
President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, emphasised that the way forward was for government to revisit the foreign exchange policy. According to him, “The major challenges that majority of our members faced last year was inability to buy FX to procure raw materials, spare parts and machinery and that led to low capacity utilisation in the sector.
“Aside from that, the issue of infrastructure decay is very paramount. The 2017 budget proposal appears to have emphasised infrastructure development; it is our hope that government will implement that budget faithfully such that more funds could be poured into infrastructural development.
”Apart from roads and the railway, power is another issue that members of the MAN are complaining about. The recent increase in the price of natural gas, based on the United States Dollar, despite the fact that natural gas is produced locally is also another cause for concern and these are issues that we think government should look at seriously so that things will get better than it was last year,” Jacobs stated.
Another operator in the sector, Managing Director of Saclux Industries Nigerian Limited and Lubrisac Oil and Gas Nigeria Limited, Prince Emeka Urechukwu, confirmed the sector’s poor performance last year and re-echoed the effect of unfavourable policies even as he insisted that such policies stunt growth of local industries and the sector’s capabilities to generate employment. According to him, the challenges of FX and power is well known and suggested that government should rethink some of its policy to encourage growth in the sector.
Urechukwu explained that, “Lack of raw materials, cost of generating power are some of the major problems that we’re faced with. The situation is such that operators can’t plan, you cannot really say this is what your price will be for the next couple of weeks because cost of FX was unstable; of course, nobody can claim to be unaware of the cost of generating. As we speak, there is no kerosene in the country and that is a major raw material for some manufacturers.
“If you take the lubricant industry as a case, the major challenge is importation of lubricants and engine oil. There are over 1,000 importers of finished lubricant products into the country whereas there are lubricant blending plants in the country duly licensed by Department of Petroleum Products (DPR). How will the local lubricant industry grow when importation of lubricants into the country is allowed?”
Continuing, Urechukwu also stated that, “I can’t understand why government would allow importation of engine oil when we have companies like Mobil, Total, Texaco, Agip and other smaller indigenous players in that space. One lube plant can employ over 500 staff whereas all the importers need is his drivers and distributors.”
“The worst part of it is that many of the imported engine oil and lubricants are of low quality. What some of the importers do is go to Dubai, recycle condemned engine oil then bring it into the country,” he lamented.
However, in an interview with THISDAY, Director General of the Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, explained that the challenges that the real sector faced in 2016 were not peculiar to the sector, stating that, what will get the sector back on its feet and running is the same strategy that will get the economy out of recession.
Yusuf argued that, “The economic recession experienced in 2016 was the consequence of several factors. There were external factors, which were principally the slump in oil price and other adverse developments in the global economy, and internal factors which included attacks on oil installations which impacted negatively on oil production. The way out of the current economic contraction is to stimulate investment and spending. This should happen at the public sector level, in the investment space and among the households. The expectation for 2017 is that the following policy options will be considered to accelerate the economic recovery process”.
A framework to ensure the liquidity of the foreign exchange market should be urgently put in place. This was a major problem for investors in 2016. Many investors could not access foreign exchange to procure raw materials and other inputs as and when they needed it, remittances were very difficult (the experience of foreign airlines was a good example). Foreign exchange inflows from autonomous sources were impeded because of the dysfunctionalities in the foreign exchange market. This impacted forex supply negatively – Diaspora remittances, capital importation and export proceeds declined. A credible forex regime is critical to the restoration of investor confidence, enhancing forex inflows, boosting FDIs and FPIs, and reducing the level of uncertainty in the economy.
“The tight monetary policy regime should be relaxed to spur domestic investment and consumer spending. High interest rate was a major feature of 2016. Domestic investment would thrive under a low interest rate regime.
I submit that the monetary authorities should review current monetary policy stance to reduce the cost of funds to investors in the economy.”
