10 key sector challenges facing incoming government

The outgoing administration of President Goodluck Jonathan has, no doubt, laid a good foundation for industrial take-off in the country. The National Industrial Revolution Plan (NIRP) launched by the administration has boosted the cement industry, raising its capacity to over 40 million metric tons. Through the automotive policy, the government has brought in over 21 automobile firms that have made commitments with foreign technical partners to set up assembly operations in the country.

The administration has also made giant strides on sugarcane plantation and sugar production by attracting over $2.6 billion investments into the sector.

However, like all outgoing governments, Jonathan’s administration has left some manufacturing sector issues either unresolved or partially resolved.

This, therefore, means that the incoming administration of Muhammadu Buhari will also contend with a number of issues dogging the manufacturing sector, ranging from electricity to raw materials sourcing.

Real Sector Watch has outlined 10 of these challenges and believes that successful approaches to them will determine, to a great extent, how diversified the Nigerian economy will be and how the country will fair in jobs creation, export expansion, foreign exchange earnings, investments and capacity utilisation, post May 29, 2015.

First among these challenges is poor electricity supply to industrial estates. A survey on the website of the Manufacturers Association of Nigeria (MAN) shows that 78 percent of manufacturers see power as biggest impediment to their businesses. Cumulatively, local manufacturers spend 40 percent of their revenue on energy, owing to poor power supply in the country.

MAN’s January to June 2014 Economic Review shows that average hours of electricity supply to industrial zones in the country within the period was four, while the average number of outages per day was six.

Consequently, manufacturers use gas and diesel to generate energy for their operations. Some multinationals also have captive power plants for this purpose as they cannot rely on external power supply, which is infrequent. Many multinationals do not rely on public power supply at all because power outages can lead to total damage and disruption in their production processes.

Currently, manufacturers generate 13,223.67 megawatts (MW) of electricity themselves, according to the latest survey carried out by the Nigerian Energy Support Programme and Deutsche Zusammenarbeit (GZ).

Nigerian manufacturers are also protesting the introduction of Multi-Year Tariff Order (MYTO 2.1) by the Nigerian Electricity Regulatory Commission (NERC), saying the commission failed to adhere to stipulations before revising MYTO 2.0, which was previously in place.

“We are asking the NERC to revert to MYTO 2.0, which started in 2012 and is still subsisting till 2017. It has a five-year order. MYTO specifies that in making changes, you must carry consumers along. You have to hold public sessions where you have to interact with consumers and agree on a position. Even though some discos claimed they did, as far as we are concerned, they never did,” Frank S. Udemba Jacobs, president, MAN, told Real Sector Watch.

The incoming administration will have to revisit power privatisation and encourage the passage of the Petroleum Industry Bill (PIB) to encourage oil companies to move into investment in deepwater in order to get sufficient gas for industrialisation, according to analysts.

Following the energy challenge is cost of funds, which has continued to rise. According to MAN, the average lending rate to manufacturers in the first half of 2014 was 22 percent. Generally, most manufacturers need to expand operations and/or export their products to other markets. But this has remained a mirage for many as banks prefer to lend to importers rather than real sector players. MAN summarises what the incoming administration needs to do in this direction.

“We are of the opinion that the Federal Government’s plan to initiate the establishment of a development finance institution that will take care of the real sector credit demand should be given a top priority attention,” says MAN.

Still on finance, experts say government borrowing crowds out the private sector as the former borrow much more than the latter. This leaves the private sector with little funds for expansion. Banks prefer to lend to the government, owing to factors such as repayment and identity, among others. Currently, there are many gaps between the financial and the real sectors, which need to be bridged.

Moreover, manufacturers are frustrated by multiple taxes and charges levied on them by government agencies. A chairman of a multinational diary firm in Lagos complained that in just one month in 2014, 21 agencies of various tiers of government visited the company, demanding payment of phantom taxes and charges.

Also, areas of convergence between the Consumer Protection Council (CPC) and the Standards Organisation of Nigeria (SON) should also be clearly defined to avoid conflict of interest.

There have also been allegations that the outgoing administration unfairly granted import waivers to certain individual firms. When a firm or an individual is granted a waiver on import of its input at the expense of others, those who have not got this become automatically disadvantaged, given that they are in the same market. Manufacturers who spoke with Real Sector Watch say waivers should be granted to sectors rather than individual firms.

“We tell government that anything they want to do should be sectoral. If it is sectoral, everybody will be able to survive. But someone will go back to the same government to get a letter for the Customs. It does not work that way. If you do that, you are killing others,” Oluyinka Kufile, chairman and managing director, Qualitec Industries Limited, told Real Sector Watch, in an earlier interview.

Manufacturers also call for protection. They say allowing products from Asia, notably China, to move into the country in droves without commensurate tariffs stifle local industries that produce similar products.

“There are so many manipulations at the ports by the Nigeria Customs Service. It is either they do not actually understand government policy or they have a different HS Code or something else. Government will make laws to protect certain products and say: ‘pay 20 or 35 percent on imports.’ Some people will go behind, look for loopholes and pay 5 percent. Even sometimes, they do not pay anything,” Kufile said.

Apart from cement, automotive and sugar, other 74 sub-sectors still suffer neglect. Fruit juice, electronics, aluminium, iron and steel, paints and vanishes, toiletries and cosmetics, rubber and foam, domestic/industrial plastics, nail and wire, packaging, printing, carpet and rug, furniture and plywood, among others, have suffered neglect owing to absence of strong policies to drive them.

This prompted Robin Neville, managing director, First Aluminium plc, to ask: “What type of manufacturing policy does your government have? Does your government care about manufacturing?” Diversification of the manufacturing sector is a task that must be taken seriously by the incoming administration.

Also, the poor quality of many raw materials forces manufacturers to look outside the country for the inputs. The outcry from manufacturers after the closure of the official foreign exchange window is a testament that many firms rely more on import of inputs than they claim. Manufacturers say there is the need to improve availability and quality of local raw materials, including solid minerals.

Manufacturers need efficient intra- and inter-country transportation services. Manufacturing exporters, for instance, need an effective railway system across West Africa. The new government is expected to continue to steer the West and Central Africa maritime shipping operating company called Sealink, which is being driven by Nigerian Export-Import (NEXIM) Bank, the Federation of West African Chambers of Commerce and Industry (FEWACCI), Sealink Promotional Company Limited, Transimex and FBN Capital Limited.

Apart from continuous delays in ports, which cripple exports and movement of inputs to factories, local manufacturers have a big issue with patronage, emanating from poor perception of Nigerian consumers.

This negative perception of made-in-Nigeria products need to be corrected as this has forced many producers to brand their products ‘made in Asia’ so as to attract buyers.

“We need to get over this inferiority complex among our citizens. We should be proud and see a product made in the country as our own,” said Rasheed Olaoluwa, MD/CEO, Bank of Industry (BoI), during a visit to firms supported by the bank in Ogun State.

According to Olaoluwa, the blame should be shared by Nigerian marketers who put pressure on manufacturers to change the labels of their products from local to foreign as they complain that goods with local labels are often rejected in preference for imported ones with foreign insignia.

 

ODINAKA ANUDU