The manufacturing sector witnessed monumental losses arising from the economic downturn, the challenges of foreign exchange scarcity, and epileptic power supply, among others. Yet, at the tail end of the year, there was a seeming recovery. Jonathan Eze reports
Nigeria’s manufacturing sector performed dismally in 2017 as manufacturers faced challenges which affected them negatively.
The business environment was plagued by epileptic power supply, bad roads, high interest rate and high cost of energy which contributed to high cost of production and impediment to competitiveness of the sector.
Operators said that the sector was faced with myriads of challenges ranging from scarcity of foreign exchange, infrastructure deficit, high banking charges and lack of raw materials.
About 272 firms were shut, while some reduced their production, staff strength and remuneration of workers.
The President, Manufacturers Association of Nigeria (MAN) Frank Jacob, said that industrial capacity utilisation hovered around 20 per cent during the year.
“More than half of the surviving firms are classified as ailing which posed serious threat to the survival of the manufacturing sector.
A major challenge was the acute scarcity of foreign exchange which restricted the ability of manufacturers to import raw materials for production.
The apex bank had earlier maintained an official exchange rate with the bound of N197 to N199/USD from February 2015 to June 2016.
To address the problem of foreign exchange scarcity, the CBN introduced a new foreign exchange system and some monetary controls in 2016 and 2017.
Under the new flexible exchange rate system, the naira exchange rate to the dollar depreciated to the average of N320 in the official market and N485 in the parallel market during the year.
The CBN also banned 41 raw materials from getting foreign exchange for importation at the official segment of the foreign exchange market.
MAN, however, said that the new foreign exchange system worsened the plight of manufacturers as it led to a cumulative loss of N500 billion for manufacturers.
To further address the foreign exchange crisis, the CBN, directed banks to allocate 60 per cent of their foreign exchange sales to manufacturers for procurement of raw materials, plants and machineries.
In spite of this directive, the problem of foreign exchange scarcity persisted.
Director-General, Nigerian Textile Manufacturers Association (NTMA) Hamma Kwajaffa, said that the textile industry nearly went into extinction due to inability to access foreign exchange for critical raw materials.
Kwajaffa said that no textile manufacturer had accessed foreign exchange in spite the $660 million earmarked for manufacturers at the official interbank market.
The Managing Director, May and Baker, Nnamdi Okafor, told the visiting Minister of Trade, Industry and investment, Dr. Okechukwu Enelamah, that the inability of manufacturers to access foreign exchange through the interbank affected industrial production and contributed to inflation.
“It has been a herculean task running any business in Nigeria, especially import-dependent manufacturing business.
“I can confirm to you that as a company, we have not been able to access official forex allocation in the past six months.
“In fact, some of the letters of credit we opened as far back as the fourth quarter of 2015 have not been funded by the banks.
“Consequently, we incurred huge exchange rate losses in 2016 and these will likely impact on bottom-line at the end of the year,†Okafor said.
Erisco Foods Limited, an indigenous tomato paste manufacturer, relocated its 150 million dollars tomato paste processing plant to China due to the same problem.
Erisco Foods had a production capacity of 450,000 metric tonnes of tomato paste annually and had 22 brands with over 2,000 workers in Nigeria.
The Chief Executive Officer, Erisco Foods, Eric Umeofia, said that the company relocated to friendlier business environment since it lost over N3.5 billion in Nigeria.
On his part, the Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said the inability of manufacturers to access foreign exchange at the interbank market impeded growth in the real sector.
He urged the federal government to ensure more liquidity in the foreign exchange market to restore investors’ confidence in the economy.
Industry experts also urged the CBN to review its policy on the 41 items restricted from the official foreign exchange market as it had stifled production and forced many firms out of business.
They urged the apex bank to redirect its policies towards stimulating the economy rather than tightening money supply.
They said that monetary and fiscal policies should be coordinated for economic revival and growth.
The experts also called for review of some monetary and fiscal policies that had hindered the growth of the manufacturing sector.
However, there were ray of hopes for the sector in 2017 as indicated by the PMI. Some of the challenges were surmounted with deliberate government policies like the Ease of Doing Business Bill among others.
Power infrastructure was also a major challenge facing Nigeria’s economy, even as privatisation of the power sector is yet to yield the desired result to resolve perennial electricity shortage in the country.
Currently, the power generation capacity is very low, which is quite insufficient for a population of over 180million. To further improve power supply and sustainability, the federal government approved N3.9billion for power transmission infrastructure. This came few weeks after the National Economic Council (NEC) approved N1.3billion for manpower development and training of 3,700 people under the National Power Sector Apprenticeship Scheme (NAPSAS).
The managing director, IPWA Plc, manufacturers of industrial coatings, marine and building paints, also the Chairman, Paints Manufacturers Association of Nigeria, Mr. Tella Sulaimon Ibikunle, spoke on the measures government must put in place to revamp the sector, the need for government to grant manufacturers licenses for independent power generation and the demand for a commercial court by Bank of Industry (BoI) to tackle non-settlement of bank loans.
For our economy to achieve optimum growth, Ibikunle said: “There must be stability to enhance sustainability both in the medium term and long-run expectation.
The greatest challenge, especially for the industrial sector, is power crisis, which is why local manufacturers cannot compete with their foreign counterparts. For instance, a company can run its plant 16 hours a day on generator. In fact, Nigerians should be able to challenge the electricity distribution companies for poor services.
They give us estimated bills instead of pre-paid meters that we ought to use. For instance, last month they gave us at IPWA an estimated bill of over N600,000 for the month. You can imagine that huge amount for a manufacturing firm for one month, even when electricity supply is not stable.
“Other manufacturers are paying similar electricity bills, yet they spend so much buying diesel on daily basis to power their generators.
He argued that government does not have information about the true picture of the industry.
“Government is trying but the barriers are with those handling government projects. Some of them are conscientious while others are not. Look at the Local Content Act for example, government came up with the policy for local industries to thrive, but implementation is the issue now.
To turn around the sector, Ibikunle said government should grant manufacturers licenses to generate their own power, because refusal to give us approval to generate electricity for our own use is affecting our operations.
Aside from that, each state should generate its own power, rather than depending on the Federal Government. The 36 states must be involved in electricity generation and distribution for us to have constant power supply. Generally, the power sector should be flexible like telecommunications.
“When GSM started in Nigeria over 10 years ago, I bought a SIM card for about N45,000 but today, it is free because different companies were given the opportunity to come into the sector to invest.
However, with the recent PMI report, both Manufacturing and Non-Manufacturing sectors showed further expansions. Manufacturing PMI settled at 55.0 points, 0.3 points lower than September but above the baseline threshold of 50.0 points. This indicates the manufacturing sector expanded for the seventh consecutive month in October, albeit at a slower pace relative to previous month.
The Non-Manufacturing PMI rose 0.4 points M-o-M to 54.9 points, suggesting activity in the sector improved at a faster pace relative to previous month. The upbeat performance of both the Manufacturing and Non-Manufacturing sectors is not surprising, given improving macroeconomic stability anchored by rebound in FX liquidity and cyclical recovery in the oil market.
The report however stated that it is expected that PMI data in subsequent months would stay robust as we remain confident on near term economic prospects on the back of stronger FX earnings and structural reforms by policy makers. Hence, we retain our FY:2017 and FY:2018 growth forecasts of 1.2% and 2.6% respectively.
However, with the considerable growth recorded in the last quarter of 2017, the achievements and ongoing efforts on ease of doing business are laudable, more so that the target set was surpassed; yet, feasible reforms, especially in areas where the country is poorly rated such as getting electricity and trading across borders, need to be given utmost priority in order to truly attain a competitive and attractive business environment.
