Nigeria’s manufacturing sector: Beyond the numbers
A lot of positive numbers have emanated from Nigeria’s manufacturing sector in recent times.
The September 2018 Manufacturing Purchasing Managers Index (PMI) released by the Central Bank of Nigeria stood at 56.2 points. This was a decline from 57.1 points reported in August.
A PMI above 50 points indicates that the manufacturing sector is expanding, while one below 50 points is a pointer that there is little or low expansion happening in the sector.
One may not appreciate this number until one factors in how South Africa, Africa’s second largest economy, ranks.
South Africa’s seasonally adjusted Purchasing Managers’ Index (PMI) stood at 43.4 points in August, a 13-month low from 51.5 in July.
For Nigeria, capacity utilisation in the manufacturing sector averaged 57.13 percent in 2017, according to the manufacturers Association of Nigeria (MAN).
Similarly, Local input preference, which measures the rate at which manufacturers source locally available raw materials, averaged 63.2 percent in 2017, according to MAN data.
Again, nominal Gross Domestic Product (GDP) growth of manufacturing in the third quarter of 2017 was 10.32 percent(year-on-year), 13.25 percent points higher than growth recorded in the corresponding period of 2016 (-2.93 percent), but -5.65 percent points lower than the preceding quarter growth of 15.97 percent, , according to the National Bureau of Statistics (NBS).
Quarter on quarter growth of the sector was 3.21 percent, while the contribution of manufacturing to nominal GDP in the third quarter stood at 8.55 percent.
Despite these good numbers, checks show that things are not significantly improving in the sector as is being reported and age-old problems have refused to go.
First, power sector expenditure in the manufacturing sector has been on the rise since 2014/15. Manufacturers spent N51.35 billion on alternative energy sources in the second quarter (H2) of 2017; N66.03 billion in the first half (H1) of 2017; N62.96 billion in H1 of 2016, and N69.99 billion in H2 of 2016, according to MAN.
Average daily electricity supply in H1 of 2017 declined to five hours, from seven hours supplied in the corresponding period of 2016 and eight hours in the H2 of 2016. There was, however, a nine-hour average power supply in the second half of 2017.
“It is no more news that manufacturers in Nigeria currently self-generate as much as 13,000MW through alternative sources of energy in order to stay afloat. In fact, members of MAN expended over N129billion on alternative energy generation in 2016 and the cost of alternative electricity generation alone constitutes about 40 percent of production cost. With such high costs, made-in-Nigeria products will hardly be competitive,” Frank Jacobs, immediate past president of MAN, said at a special interactive forum on Eligible Customer Regulation of the Nigeria Electricity Regulatory Commission (NERC) in June 2018.
In fact, manufacturers have given up on power distribution companies (DisCos), prompting them to form a corporation known as MAN Power Development Company to cater to their energy needs.
Results of survey conducted by MAN shows that the average interest rate banks charged manufacturers in H2 of 2017 was 23.05 percent as against 22.65 percent in H1 of 2017 and 21.4 percent in H1 of 2016.
Infrastructure-wise, Nigerian roads are still in bad shape, and only Abuja –Kaduna Railway has been completed, which is not even a major economic rail. Lagos to Kano, and Kano to Kaduna, among others, which can help manufacturers cut logistics costs, are still at the inchoate stage. Today, manufacturers’ 20 to 40 percent expenditure goes to logistics.
Also, manufacturers in various states pay 54 types of taxes and levies as against 38 in 2013-14.
“These taxes need to be amalgamated into one or a few, since the whole tax cycle is a multiple chain of taxes on the same income stream,” said Vivian Chigozie-Nmonwu, tax expert and lead partner of Vi-M Professional Solution in a recent interview with Real Sector Watch.
Ajaokuta Steel Complex is yet to be revived as has been the case, prompting manufacturers to seek steel inputs from abroad. The Federal Government is still dithering on privatising it.
“Currently, I am not sure those technologies at Ajaokuta are competitive in steel making. The world has moved on. What is required now is for the private sector to get more and more involved in the downstream and the upstream segments in the steel business,” Raj Gupta, chairman, African Industries Group, a consortium of 12 companies, including six steel plants, told BusinessDay recently.
Africa’s biggest economy’s petrochemical industry is struggling, pushing pharmaceutical firms to scramble for dollars to import raw materials.
Foreign exchange crises of 2016 exposed Nigerian manufacturers as import-dependent, as even the CBN had to devote 60 percent of the entire FX market to ensure they stayed afloat. Even at that, 54 firms that could not cope went under, according to Jacobs.
Today, the tomato industry is in crisis as many players are either shut down or operating at less than 20 percent capacity. More so, the only brakepads manufacturer—Star Auto Industries Limited—is shut down.
“We could not continue because we could not compete,” Chidi Ukachukwu, CEO, told BusinessDay after the closure.
The automotive industry is struggling, as over 40 firms which planned to set up plants did not do so, owing to an incoherent government policy and harsh business environment.
The textile industry today is in terrible shape as almost all the mills are moribund, except for two.
Most of what is called textile firms today and numbers emerging from international agencies about the industry focus on fashion and design, which does not constitute full-fledged manufacturing.
“What we need is the enabling environment. We cannot compete with the level of smuggling and counterfeiting going on now. We used to have about 127 textile firms in Nigeria but that has come down to two or three now,” said Grace Adereti, president of the Nigerian Textile Manufacturers Association (NTMA) in Lagos, at a Made-in-Nigeria stakeholders’ meeting in 2017.
Nigerian exporters are increasingly losing millions of dollars every now and again at the global market, due to compromise to standards and quality, poor product packaging, engagement of fraudulent freight forwarders, inability to get certification on time from regulatory agencies and Apapa gridlock, experts say.
The state of Apapa roads and Nigerian ports are also big hiccups. Exporters shipping 1,700 tons of commodities per day when Apapa road was in good condition now manage to only ship between 100 and 250 tons, Tola Faseru, president of the National Cashew Association of Nigeria said.
Out of N4.69 trillion export done in the first half of 2018, crude oil export stood at N3.58 trillion, accounting for 76.3 per cent of the total exports. Non-oil exports amounted to N1.1 trillion, according to data from the NBS.
The European Food Safety Authority rejected beans from Nigeria in 2015 because it contained between 0.03mg per kg and 4.6mg/kg of dichlorvos pesticide, when the acceptable maximum residue limit was 0.01mg/kg. The ban has been extended to 2019.
“Nigerian exporters thank God whenever they are paid at all for their products. This is because products from Nigeria are always downgraded,” Fred Uwheraka, CEO of Frijay Consult Limited, an export firm, said at a recent Lagos Chamber of Commerce and Industry (LCCI) symposium held in Lagos.
ODINAKA ANUDU