Building strong manufacturing sector amid age-long challenges

Manufacturing remains the fulcrum on which the real sector revolves. No economy has ever experienced inclusive growth or what may really be regarded as development without a strong manufacturing sector.

China has today dominated the export trade world over, thanks to sustained long-term efforts in rebranding manufacturing. The country is now graduating from ‘’big country of manufacturing’’ to ‘’strong country of manufacturing,’’ according to Asia Trade Hub.  Value added contribution of the sector to the Gross Domestic Product (GDP) is over 30 percent today; 30.57 percent in 2011, and 32.3 percent in 2009. Data from the World Bank shows that the contribution of the sector to the GDP was always above 30 percent over the past decade, except in 2010 when it stood at 29.62 percent.

Brazil, jocularly regarded as ‘’country of the future’’ up to the late 1990s, now has a blueprint that focuses on manufacturing, thereby allowing the sector to make meaningful contributions to the GDP of the country. Its contribution in 2008 was 17 percent; that of 2009 was 17 percent; while that of 2010 stood at 16 percent, according to the World Bank.

South Africa’s manufacturing sector’s contribution to the GDP in 2003 was estimated at 19.38 percent. By 2008, it had nosedived to 19.63 percent, yet remained bright, according to industry watchers. In Ghana, contribution of the sector to the economy was 7.94 percent in 2008; 6.95 percent in 2009 and 6.85 percent in 2010.

In the case of Nigeria, the sector made 3.39 percent contribution in 2003; 3.06 percent in 2004 and 2.58 percent in 2006, the World Bank says.

Recent data from the National Bureau of Statistics (NBS) shows that in the first and second quarters of 2012, the sector contributed 1.12 percent and 3.96 percent to the GDP respectively. In the third and fourth quarters, the sector’s contribution stood at 3.53 percent and 7.12 percent respectively. On the average the sector made 4.20 percent contribution to the GDP, according to NBS. The CBN’s data disagrees with this, insisting that the sector only made1.9 percent.

In the first and second quarters of 2013, manufacturing only contributed 1.14 percent and 3.98 percent respectively. This cannot compare with agriculture which has made about 40 percent contribution within the year.

Manufacturers attribute this dismal performance of the sector to the problems of infrastructure, lack of access to credit, excesses of regulatory bodies, high interest rate, among others.

Goodie Ibru, president of Lagos Chamber of Commerce and Industry (LCCI) ascribed it to poor electricity supply and access roads, insecurity, lack of access to affordable credit, multiple taxation and regulatory excesses.

Henry Boyo, economist and manufacturer recently attributed the woes to faulty monetary policies of the Central Bank of Nigeria (CBN).

Sheriffdeen Tella, professor of economics at Olabisi Onabanjo University, Ago-Iwoye, blamed part of the problem on monetary policies which have, in recent times, ensured that credit to the government is increased in leaps and bounds, while squeezing out the private sector.

However, analysts say these complains have been with Nigeria for ages, insisting that what should occupy the minds of stakeholders now is riding through the rough paths to become triumphant.

Keith Richards, managing director, Promasidor Nigeria, said though there are challenges in the country, intrepid manufacturers still survive. He cited an example of resilience with what his firm, Promasidor, saying that every penny invested in the country is worth it.

‘’Just take Promasidor’s example. Twenty years ago, the founding shareholders set up modestly in Apapa and today we are a $300m-plus revenue business. It has not been plain sailing every day, for sure – but despite the security and other difficulties – this market will continue to offer opportunities like few others,’’ said Richards, in his article entitled ‘’For intrepid investors, ‘Naija’ is worth the risks,’’ posted in the Financial Times.

Analysts say what manufacturers need to find out is what has kept these firms afloat in the midst of these challenges.

An economist who prefers anonymity told Real Sector Watch that the reason many companies are still operating at a profit in the country may be attributed to external economies of scale. In his view, companies in different industries should combine resources in the areas of infrastructure, while those in the same industry need combination in terms of source of raw materials, in order to reduce costs. He, however, emphasized that for this to work, firms in the same industry should be located in the same area.

Furthermore, financial experts say inability of manufacturers to access funds from financial institutions is attributed to faulty business models and practices.

‘’There are certain requirements that must be met before they could enjoy bank finance. These are bank statement and proper record of the company’s activities,’’ said Ugochukwu Chris-Aladum, Lawanson Branch Manager, Stanbic IBTC Plc.

In spite of failure of many manufacturing companies owned by Nigerians, few owned by the Lebanese are still doing well. Why?  Few manufacturers such as Honeywell, Unilever, etc are second generation companies. Why are they still in business? To build a strong manufacturing sector, monetary and fiscal authorities must remove the lingering bottlenecks while manufacturers themselves must look for means of wading through the challenges, according to analysts.

By: ODINAKA ANUDU