FG’s import-substitution, job creation policies to push manufacturing recovery  

President Muhammadu Buhari’s key policies of import substitution and job creation have the capacity to force the recovery of Nigeria’s struggling manufacturing sector, analysts say.

The manufacturing sector of Africa’s largest economy went into recession by the second quarter of 2015, consequently contracting by -1.8 percent year-on-year in the third quarter of 2015, compared with -3.8 percent in the second quarter. The sector has shed hundreds of jobs in the last twelve months, suffered lower capacity utilisation (now less than 50 percent) and declining output.

Lack of clarity in policy direction of the present administration is seen as one major cause of the declining fortune of the sector. The exchange control policy of the government, which makes access to foreign exchange for the import of raw materials difficult, is the biggest industry drawback.

However, analysts project that the import-substitution policy of Buhari has the capacity to protect and encourage the local industry and investments from unbridled importation, while the sector will inevitably be carried along in the government’s job creation drive.

“In time, a recovery (of manufacturing sector) could be driven by the new administration’s policies favouring import substitution and job creation,” said  FBN Quest’s Gregory Kronsten and Chinwe Egwim in the latest Purchasing Managers Index (PMI), which aggregates the views of purchasing managers of manufacturing companies in Nigeria each month.

Import substitution is a trade policy which involves replacing imports with local production. It mostly involves shutting one’s borders against certain products and taking steps that will encourage local production.

Many developed economies such as Europe, the Asian Tigers, China and the United States adopted this measure in the early stage of their industrialisation and development.

But this has not been the case for Nigeria, which has been a major market and dumping ground for cheap and sometimes sub-standard Asian products.

“Other countries closed their economies before they opened them. Why can’t we do this in Nigeria?,” asked Okey Akpa, chairman, Pharmaceutical Group of the Manufacturers Association of Nigeria (PMG-MAN), in reference to the Common External Tariff (CET), which Nigeria hurriedly began its implementation in June, 2015.

The Federal Government under Buhari is paying particular attention to ensuring that Africa’s largest economy begins to produce what it imports. The administration has only made its intention known, but it is yet to outline clear-cut measures with which to achieve this.

The PMI earlier cited expects manufacturing to remain under pressure, given its huge appetite for imported inputs and the current question marks over forex availability..

The PMI assertion aligns with that of local manufacturers who say that it is impossible for the present administration to spike the real sector when domestic producers cannot find raw materials with which to produce.

Frank Udemba Jacobs, president, Manufacturers Association of Nigeria (MAN), in an interview with Real Sector Watch, sees that as one big risk factor that will shut down a number of firms in the country, thereby derailing the government’s objectives of import substitution industrialisation and job creation.

Real Sector Watch understands that the forex challenge has overshadowed other key real sector challenges such as poor infrastructure, logistics bottlenecks, multiple taxation, difficult land tenure system, power inconsistency,smuggling, lack of sophisticated and modern machinery, suspension of the Export Expansion Grant (EEG) as well as corruption and bureaucracy at the ports.

ODINAKA ANUDU