Saving the manufacturing sector

These are not the best of times for Nigeria’s manufacturing sector. Indeed, the sector, which has yet to fully take off in many respects, is currently in recession as growth in the last two quarters has remained negative.

The negative growth is a reflection of dwindling output from factories as well as lack of investments characterising the first three quarters of the year. This situation has plunged some sub-sectors of the manufacturing sector into a coma while many others are operating at their lowest ebb, needing urgent policy intervention and direction to stand.

Among the worst hit are paints, pharmaceuticals, primary aluminium, ceramics, footwear, rubber, domestic/industrial plastics, toiletries and cosmetics, chemicals, pulp and paper, glass and foam. Others are electronics, carpet/rug, fabrication, metering, cordage/rope/twine, boat/ship, steel pipe, welding electrode, galvanised iron sheets, miscellaneous machine and equipment, nail and wire, wood products and horolgicals, etc.

Specifically, pharmaceutical firms are losing contract bids to importers and are planning to sack thousands of staff. The ceramics industry is on the edge, as the few surviving industries are competing unfavourably with importers. The firms are also poorly patronised by Nigerian consumers who have high penchant for foreign products. This has caused some local ceramics companies to falsely brand their products as foreign.

Also, footwear makers are struggling to get raw materials, such as adhesives and hides and skins. More than 50,000 of shoe, belt and trunk box makers also say they find it hard to access financing from relevant institutions.

The country’s manufacturing sector has also been negatively impacted by the devaluation of the naira as a result of the decline in oil price. This is as manufacturers struggle to source most of raw materials used for production purposes abroad. Exchange rate volatility is indeed debilitating the performance of manufacturers, as further analyses show that the cost of sales ratio, which measures the relationship between sales and production costs, increased by 5.31 percent, leaving them with low average profit margin of 1.37 percent.

Power has been a major challenge facing Nigerian manufacturers, even as privatisation of the power sector is yet to yield the desired result to resolve perennial electricity shortage in the country. The high cost of production is attributed partly to the erratic power supply which still poses a challenge to the manufacturing sector in Nigeria.

Insecurity in the country is also affecting many manufacturers. Insurgency in the northern part of the country hindered firms from pushing their goods to the crisis region. Vita Foam, for instance, has a manufacturing plant in Jos, which has been closed due to insecurity in the northern region. Between November 2014 and April this year, a period of six months, Lafarge Africa incurred financial losses to the tune of N2.5 billion as a result of the Boko Haram insurgency in the Northeast.

As a result of the foregoing, 40 sub-sectors in Nigeria’s manufacturing industry may be on the verge of collapse unless there are urgent policy interventions by the federal and state governments, according to experts. This will lead to loss of millions of jobs and may expose the country to unbridled importation and dumping. It will further put pressure on the already depleting foreign reserves, while creating more socio-economic crises in the nation.

In view of this, we call on government to rise up to its responsibility to save the manufacturing sector. This can be done through granting of licences to manufacturers to generate their own power if adequate power cannot be guaranteed by the privatised power firms.

Furthermore, some sectors require inter-regional dialogue to remain alive while some others either need clear-cut policy frameworks or specific interventions to haul them out of danger zone. For instance, except the Federal Government imposes some tariff on finished imported drugs from other countries, Nigeria’s pharmaceutical industry may go the way of the textile sector. China closed its economy until it was ready. India and the United States closed their economies until they were ready. Nigeria can do the same.