Nigeria: At 58, Infrastructure, Low Purchasing Power Undermine Real Sector’s EODB
Several steps have been initiated by the government to attract investment into the country and to make it a manufacturing hub despite the numerous challenges bedevilling the sector. While government’s ERGP focus labs are one of the ways the authorities are using to accelerate more investment in production, there are calls for government to address familiar challenges in the sector as state of infrastructure worsens and consumer purchasing power drops.
The Gross Domestic Product (GDP) report of the National Bureau of Statistics (NBS) for the second quarter (Q2) showed a 0.45 per cent fall from 1.95 per cent in Q1, to settle at 1.5 per cent (year-on-year) in real terms.
For the financial analysts, the nation’s economy is experiencing turbulent seasons, which they had already described as similar to the quarters prior to recession.
Though the Q2 data from NBS showed improvements in the non-oil sector, as driven by the services sector, the manufacturing sector contributed 9.29 per cent.
Leading the non-oil sector contributions that helped to salvage the situation were the transportation, construction and electricity sectors, while agriculture growth dipped to 1.3 per cent from three per cent.
Growth without real sector’s contribution
To the Immediate past President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, while the manufacturing sector has proven to be the heart of industrialization and driver of sustainable and inclusive economic growth in developed and developing economies, no economy will experience sustained growth without a vibrant sector.
“It is no longer news that manufacturers are still faced with numerous challenges that are largely responsible for the not too impressive performance of the manufacturing sector and the uncompetitiveness of Nigerian manufactured products.
This is evidenced by available data which showed that the Nigerian manufacturing sector was stunted in 2017.
“These challenges are still manifesting in the form of high inventory of unsold finished products, inadequate electricity supply, frequent increases in electricity tariff in the face of poor services from distribution companies and abnormally high interest rates.
“Others are: high excise duties on some products, inadequate trade facilitation infrastructure, expensive price of natural gas, unfriendly port environment, multiplicity of taxes/levies/fees, exorbitant cost of haulage, congestion at the Lagos seaports arising from the non-functionality of other seaports in the country, high incidence of smuggling and counterfeiting of locally manufactured products, to mention but a few”, Jacobs added.
Jacobs then urged government to speed up actions that would lead to the quick resolution of these constraints in order to reposition and further improve the performance of the manufacturing sector.
Cost of Production
In his view, Ghanaian President, Nana Addo Akufo-Addo, said manufacturing can be capital intensive and sometimes require the support of governments either in its tax policies or some level of protection.
According to him, while some producers in other countries like Asia may enjoy very low single digit lending rate, majority of operators in Africa especially in Nigeria and Ghana are facing double-digit lending rates.
“In addition, it is difficult to get long-term loan facilities required for manufacturing. All these make the cost of production in Africa very expensive.
Unfortunately, we have allowed our markets to bring in cheap imports which not only kill our local industries but also compound our Balance of Payments problems.
“African governments must therefore find an innovative way of assisting our local industries without breaking the treaties such as the WTO rules, ECOWAS and other conventions we have subscribed to, but then collaborate to ensure that we all development common trade platforms that are of our mutual interest.
“We need not secure our individual interests to the detriment of the larger African market which provides greater opportunities for our citizens as they freely move and trade amongst themselves”, he added.
Akufo-Addo who was represented by Senior Minister of the Republic, Yaw Osafo-Maafo, while speaking at the yearly general meeting of MAN, said agricultural policies must feed into the industrialisation policies of any country in order to produce enough to feed citizens and particularly feed industries sustainably.
Akufo-Addo, stressed the need for African nations to build capacity to support effective value addition as part of efforts to enhance revenues position on the international market.
“This calls for policy harmonization, coordination, and effective collaboration between the public and private sectors to drive effective and time tested industrial framework to fully utilize our natural resource to the best of international expectations.
“Our biggest challenge as inhabitants of this resourceful continent Africa has been our inability to transform the abundant natural resources into opportunities for creation of jobs and wealth.
“The continent boasts of young, determined and highly educated people across all sectors and yet we have not been able to get the right mix of policies to fully unearth and develop the entrepreneurial talents that abound in Nigeria in particular and on the continent.
“This is the bane that we need to fix. It can be done for it is not a rocket science to ensure a well-balanced and thought through policy-mix to mainstream industrialization in Africa.
Our lazy approach of always rushing to the international market to sell our resources in their raw state which fetch us peanuts must stop.
“It is far better to leave our resources untapped till our future generations rise up to the challenge and conscientiously develop the best policy-mix that prioritises industrialization as the most convenient cause to drive the much needed effects in our socio-economic development”, he added.
While some sub-sectors in the manufacturing industry are beginning to witness a turnaround in their fortunes owing to significant improvement in access to foreign exchange for purchase of raw materials, as well as allocation based on priority demands, others are struggling with rising inventory.
Affirming the drop in prices of some commodities at the retail segment, the Manufacturers Association of Nigeria (MAN) stated that intervention from the Central Bank of Nigeria (CBN) has helped in addressing challenges through improved foreign exchange access, while many local producers are also intensifying their local sourcing activities.
To address rising inventory challenges, many operators are exploring measures to manage price, considering that consumers’ capacity to pay for some commodities has dropped.
For instance, PZ Cussons said its performance in the quarter ended August 31st is in tandem with its expectations.
According to the company, its entire global operations have been experiencing challenges in different markets, particularly so in Nigeria where people’s disposable income is lowered due to the upcoming general election in the country.
The statement went further to state that the company has, however, taken steps towards remedying the situation. Performance improvement will largely be dependent on macroeconomic developments in the economy.
Similarly, Nigerian Breweries noted that it would be consolidating its earnings and profitability through improved consumer value engagement, market penetration, stocking to hedge against market volatility as well as ensuring a balance in the management of input costs and price consumers are willing to pay for its products.
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