By Bimbola Oyesola
THE challenges of the manufacturing sector are numerous: from insecurity to rising cost of production, due to high cost of capital and alternative source of power; increasing cost of labour, scarcity of required skills; new minimum wage legislation and unabated influx of finished consumer goods as well as substandard products.
But in spite of these, the President of the Manufacturers Association of Nigeria (MAN), Dr Frank Jacobs believes the sector is still faring well.
He, however, contends that more can still be achieved if the Buhari administration can put manufacturing and industrialization in the front burner.
In this interview, he sets agenda for the Buhari government on the nation’s fiscal outlook, diversification, and blocking of revenue leakages as well as power shortages.
The major challenge facing the sector is inadequate supply and exorbitant cost of electricity. Energy cost constitutes about 40 per cent of production cost. This is the reason Nigerian products are not competitive. For instance, the average number of power outage per day across MAN industrial zones in 2014 is five times, while the number of hours electricity is supplied per day is six hours in 2014. Over the years, the sector has been greatly constrained. We are faced with high energy cost during the year, which affected productivity and profitability of investments. These challenges resulted in a decrease in sales/turn-over as well as margins across the manufacturing sub-sector and rare cases of expansion, diversification and new employment, while importation of technical skills required by the industry affected the bottom line.
However, it is pleasing to report that our interaction with the Nigeria Electricity Regulatory Commission (NERC) is also producing desired results. The monthly fixed charge has been reduced by a margin of between 17 per cent and 50 per cent, depending on the Disco area that services your facility. In fact, members experiencing continuous or cummulative power outages for a period of 15 days in a month are no longer liable to pay the monthly fixed service charge.
Another problem is multiple taxation. As a matter of certainty, when taxes are harmonized, illegal taxes will be eliminated; cases of multiplicity will be addressed; our production cost will reduce; our products will be globally competitive; enforcement will be cheaper; compliance rate will increase enormously and the government will enjoy steady revenue. Another major challenges faced by the manufacturing sector in the course of the year include insecurity in most parts of the north and few spots in the south, which impeded turn-over and distribution throughout the year; rising cost of production due to high cost of capital and alternative source of power; increasing cost of labour due to scarcity of required skills, new minimum wage legislation and unabated influx of finished consumer goods as well as substandard products into the country.
Well, the commercial banks are not manufacturing friendly as their interest rates are usually very high and, therefore, remain a major challenge to the sector. Even the BoI framework, though at nine per cent, only finances machinery acquisition and does not cater for working capital for those who get it.However, manufacturers are pleased with the bank’s funding of machinery, though, there is need for improvement. It is in this regard that we welcome the advent of the Development Bank of Nigeria and we hope it will deliver on its mandate.
May I also inform you that in response to the recent CBN policy on foreign exchange bidding affecting our members, a letter was forwarded to the CBN governor to allow our members have access to foreign exchange for import of all inputs required for manufacturing. The issue of funding remains a challenge to the manufacturing sector as credit by banks to the manufacturers is below expectation! The current situation where manufacturers pay double digit interest rate is not manufacturing friendly.
For instance in 2014, banks’ lending rate averaged 22.5 per cent. At a high lending rate of 22.5 per cent, definitely there is a credit challenge in the sector.
The manufacturing sector needs significant attention of the government to move forward. The government should continue to engage in dialogue with manufacturers on policy issues and implementation on all resolutions reached. For instance, the effects of the low capacity along with other factors which have led to current policies that are favourable to the manufacturing sector should be sustained. For example, Nigeria Industrial Revolution Plan (NIRP) and government position on ECOWAS Common External Tariff ( CET) and Economic Partnership Agreement (EPA). Improve and accelerate the implementation of the power sector reform and government position on multiple taxation. We also called for the diversification of the Nigerian economy because any country that largely dependent on a single source of revenue runs the risk of operating an economy that is dictated by external market forces. The nation’s economy still depends heavily on the oil and gas sector, which contributes 82.9 per cent of export revenues, 70 per cent of government revenues and 11.2 per cent of the GDP in 2013. Despite the country’s oil wealth and the relative improvement in the GDP growth, the United Nations Human Development Index (UNHDI) revealed that poverty was widespread, with over 67.9 per cent of the population living on less than $2 a day in 2013.
The manufacturing in Nigeria depends on foreign exchange (forex) to thrive since large proportion of raw materials used in the sector are imported. For instance, in 2014, based on the outcome of bi-annual survey of MAN, an average of 53.53 per cent of raw materials in the sector are imported. By implication the devaluation of the Naira will lead to high input cost in the sector.
Agenda for Buhari regime
For the manufacturing sector, we expect a mutual relationship with the new government. MAN is expectant that the government will, as a matter of urgency, honour all outstanding obligations on Export Expansion Grant (EEG) to rekindle the motivation for export-oriented industrialization and comprehensively review the EEG in a way that will further promotes exports. We will appreciate a reduction in the electricity fixed charge from N110 thousand to N25 thousand for all categories of companies and streamline electricity tariff to reflect the actual consumption by the industries to drive further improvement in power supply. We want the government to facilitate adequate local sourcing of LPFO, especially for supply at reasonable price to industries operating in area without gas network.
We also want government to deepen the ongoing efforts geared towards further diversification of the economy and consolidate the transformation in the agriculture and solid minerals and other sectors. It would be of immense benefit to all if the Buhari administration can continue with the development in the sector. Nigeria, as giant of Africa, would, in short time, reclaim her position if the new administration can put manufacturing and industrialization in the front burner.
One of the major programmes is the Nigerian Industrial Revolution Plan (NIRP) which is the bedrock of a new industrial revolution. It should be highly implemented. We urge the president to put adequate policies in place that would encourage massive manufacturing as most graduates have even resorted to manufacturing and agriculture due to lack of jobs
There are so many youths, willing to work, especially in the Small and Medium Enterprises (SMEs), which is the engine of growth. So this sector, as well as the multinational companies, should be provided with a more enabling environment. If the new government can work more on the implementation of the existing policies and programmes, the nation will move forward and more jobs would be created.
The remaining part of the yet-to-be-disbursed N220 billion Micro, Small and Medium Enterprises (MSMEs) Fund should be given urgent attention to empower SMEs. There is need to suspend the implementation of MYTO 2.0, which would run its full course to terminate in 2017.
Source : SunOnline