2015: Locust year for Nigeria’s manufacturers
The outgoing 2015 has been one of the toughest years for most sectors of the economy. It is one year all economic players in Nigeria will never forget in a hurry, as it began with a continuous crash in the price of crude oil inherited from the previous year, and is ending with high level of uncertainties in almost all the sectors, resulting from near absence of economic direction by the Muhammadu Buhari-led government.
Amid the crude oil lows in the early part of the year were fierce election tussles, exchanges of banters and fisticuffs by politicians from Nigeria’s two major parties—the Peoples Democratic Party (PDP) and the All Progressives Congress (APC). Elections in the first four months of the year shifted the attention of policy makers away from economy and governance, to politics.
The economy obviously bore the brunt, with unfulfilled promises to many players by the Goodluck Jonathan administration.
“Until the election is over, there is nothing we can do now,” one of Nigeria’s ministers told some chief executive officers, who were asking for an incentive, in January.
The most important of them—presidential election—was eventually lost by the then ruling Jonathan, to the disappointment of all his supporters. Muhammadu Buhari incidentally won and became the president on May 29 with high expectations from the private sector.
Unfortunately, Buhari waited for six months before making critical economic appointments. Analysts saw this delay in appointment as one reason why for seven months, investors are still groping in darkness over Buhari’s economic direction.
The falling oil prices brought naira and foreign reserves to their knees, forcing the Central Bank of Nigeria (CBN) to put measures in place to check the dwindling state of the two economic determinants.
In February, the CBN announced the closure of the Retail and Wholesale Dutch Auction System (official) foreign exchange windows, saying that it was targeting sanity in an exchange market struck by speculative demand and round-tripping. With this pronouncement, importers were only allowed to access dollar then at an upward of $/N198, rather than $/N168.
The apex bank subsequently restricted importers of 41 items from accessing foreign exchange from the Nigerian markets. The move was meant to encourage domestic production and create jobs, according to the CBN. However, the restricted imports also included iron rods, cold rolled sheets, wire rods, reinforcing bars and polypropylene granules, among others, which serve as inputs for many manufacturing firms.
These monetary moves hurt and are still hurting Nigerian manufacturers, given that most of their inputs are imported. Thus, they made imported raw materials much more expensive as manufacturers would often resort to parallel and black markets to get dollars, often between N220/$ and N260/$.
“Many manufacturing firms will simply close down,” Frank Udemba Jacobs, president, Manufacturers Association of Nigeria (MAN), told this writer on the telephone in reaction to CBN’s restriction policy.
“Is it that the CBN does not know that a lot of manufacturers get the foreign exchange from the market?” Jacobs querried.
“We often say there is the need to diversify the economy. But how can you diversify without manufacturing. How can you diversify the economy by doing things that will rather destroy the sector,” Jacobs added.
In its reaction, the Lagos Chamber of Commerce and Industry (LCCI) said the move was already raising the cost of production, leading to retrenchment in many firms.
“This development will put several investments at risk with implications for job losses, quality of loan assets in the banking system and the welfare of citizens,” Remi Bello, the then president of LCCI, said.
“A painstaking gap analysis to determine the domestic capacity for production vis a vis the demand should have preceded the policy decision by the CBN,” Bello added, advocating that the policy should be put on hold pending a proper study of the demand and supply gaps in the various sectors affected by this policy.
Whether it was the monetary policy or a combination of it with other fiscal and structural issues within the economy, firms responded by retrenching a number of workers.
From iron & steel to food and beverages, down to rubber and plastics, jobs running into thousands were lost.
The implementation of the Common External Tariff (CET) across the Economic Community of West African States (ECOWAS) region from June threw up a number of issues, one of which was a provision in the agreement allowing importers of finished drugs to bring in medicines without any duty while manufacturers importing raw and packaging materials would do so at between five and twenty percent duty.
This, since then, has continued to threaten over N300 billion investments made by local drug makers.
Reacting to this, Okey Akpa, chairman, Pharmaceutical Group of the Manufacturers Association of Nigeria (PMG-MAN), said within the year that the issue at stake was that of life and death. Akpa, who is also the chief executive of SKG Pharma Limited, said no country had ever succeeded in international economics unless it first put its house in order.
“China closed its economy until it was ready. India and the United States closed their economies until they were ready. Why can’t we do the same here?” Akpa asked.
There challenges were worsened by poor infrastructure, tougher business environment characterised by uncertainty in the number of taxes, as well as insecurity.
Concerning insecurity, this year presented a huge challenge for manufacturers who had to abandon their plants in the north-eastern states of Adamawa, Borno and Yobe for more secure environments. Theft and logistics challenges were also key issues manufacturers contended with in 2015.
The power challenge was not left out. Blackouts characterised major industrial clusters, prompting the Manufacturers Association of Nigeria (MAN) to mull resuscitating the Independent Power Project.
However, there was an uptick in power supply two months after Buhari was sworn in, a situation attributed to the no-nonsense stance of the president and high water levels.
The issue of waivers was also prominently discussed among manufacturers, especially those who felt that they were being unfairly treated. Some manufacturers accused the government of Jonathan of granting waivers to those who were sabotaging the economy by doing more of importation rather than local production.
It must be mentioned that these challenges pushed the sector into recession by the second quarter of this year. Even though no data have been released on manufacturing output and investments this year, industry players told Real Sector Watch that only few investments were made this year. This, according to them, would negatively impact output, employment and inventory.
Despite these challenges, there were still positives within the year. Eric Umeofia, chief executive officer of Erisco Foods Limited, told BusinessDay that the CBN forex restriction raised his firm’s production capacity from five to 25 percent.
“Most of the companies have abandoned the backward integration policy of the government so that they can still be importing tomato pastes into the country,” Umeofia said.
“Though the CBN policy is tough on companies importing tomato concentrates now, but in the long run, everything will be for the benefit of the entire country. It will force the manufacturers of tomato pastes in the country to adopt the backward integration policy and embark on large-scale tomato farming. Raw materials imported from overseas have 85 percent of the jobs in the countries where they are being imported from, with only 15 percent coming into the country through processing of the raw materials. But with backward integration, 100 percent of the jobs would be created in the country,” he added.
Fidson Healthcare plc sealed a partnership with three United States’ firms for the marketing and distribution of LodonalTM, a patent-protected product meant for the management of patients with immune-compromising diseases.
Dangote Cement established several cement plants across African countries.