Monday, January 7, 2013

2012: The untold hardship of Nigeria's Manufacturing sector

Ayodele Samuel, Lagos

The Nigerian manufacturing sector performed 'poorly' in the out gone year, as experts say the manufacturing sector contributed only 5 per cent to the nation's Gross Domestic Product (GDP).

The Lagos Chamber of Commerce and Industry (LCCI), in its Business Environment Report 2012 disagreed with the Federal Government's claims of significant economic growth on the nation's economy, while the Nigerian Association of Chambers of Commerce, Industry Mines and Agriculture (NACCIMA) recently said  no fewer than 800 companies in Nigeria closed shop between 2009 and 2011 mainly due to harsh operating business environment.

  NACCIMA president, Dr. Herbert Ajayi said, "More than half of the surviving firms had been classified as ailing, which poses a serious threat to the survival of the manufacturing industry in the country. Capacity utilisation in industries hovered around 30 per cent and 45 per cent on the average, with 100 per cent overhead costs.

"Political and economic factors contribute greatly to the decline in the manufacturing sectors. For instance, poor infrastructure and epileptic power supply are also key impediments to the industry. The industry as a whole operates on more than 70 per cent of energy it generates, using generators and operating these generators greatly increases the cost of manufacturing goods in Nigeria", he stated.

"Other factors include increase in the prices of petroleum products used by industries, multiple taxation, unabated smuggling and inadequate access to finance, both local and abroad", he added.

Corroborating Ajayi's views, National President, Nigerian Association of Small Scale Industrialists (NASSI), Mr. Chuku Wachuku  told Peoples Daily that many companies operated  below capacity in 2012 because of unstable power supply, inadequate funds and high labour costs.

This, he said, has increased businesses' expenses, reduced productivity and hampered economic growth making many firms to shut down or relocated to neighbouring countries.

He said the manufacturing sector is facing challenges in the face of the economic crisis that has accentuated the loss of competitiveness against manufactured products from China.

The blackouts are negatively impacting the economy, which is grappling with a combination of slow growth, a weak currency, high inflation and the effect of flooding that is expected to drive up food prices.

While the Manufacturers Association of Nigeria (MAN) has not released its official position for 2012,  its President, Dr. Kola Jamodu, in  September 2012 said there was an increased investment as well as improved turnover for the industrial sector of the economy within the last one year. His view however drawn conflicting reactions from other stakeholders.

According to data obtained from the office of the Director-General, West African Institute of Financial and Economic Management, "In developed countries where the real sectors are thriving, manufacturing contribute as much as between 35 and 40 per cent to the GDP. For instance, in Malaysia, the manufacturing sector contributes about 45 per cent to the GDP. Our manufacturing sector must function optimally to generate more jobs if we are to realise the Vision 20:20:20 target.

According to the data,"At present, about 30million youths are unemployed in Nigeria . The economy is growing at  almost 8 per cent, but we still have rising level of poverty of about 70 per cent. The rate of unemployment stands at about 24 per cent, which is about 35 percent among the youth.  Though increasing unemployment rate is a global phenomenon, we must tackle it in Nigeria".

"The inflation rate is 12.8 per cent. So, what we are experiencing as economic growth rate is only marginal increase. Every year, government prepares the entire budget depending on income from crude oil. So, the economy is still heavily dependent on oil, while the manufacturing sector, which has the potentials to create jobs and generate more revenue, is not given the required attention. The rate of unemployment is growing faster than the growth of the economy. Increase in rural unemployment is also disturbing" the data stated.

 Small and Medium Scale enterprises (SMEs), according to experts, contribute nearly half of the nation's GDP and accounts for over 25 percent of employment in the country. Also, the recent release from the Enterprise Baseline Survey 2012 stated that there are 17 million SMEs in Nigeria , employing 32.41 million persons and making a contribution of about 46.54 per cent to the GDP.

Also, the CBN has been in the forefront of building a synergy between the financial and real sector of the economy, in order to enhance accessibility to capital for operators of SMEs in the country.

The initiative is to ensure that the operators of SMEs have access to low cost funds to boost their operations and for start-ups to enhance expansion of smaller units of businesses across the country. This will bring about long-term benefit of boosting domestic production capacity for local manufacturers, such that they are able to carry out operations with reduced cost.

In April 2009, the Central Bank of Nigeria (CBN) created the N200 billion Commercial Agriculture Credit Scheme Fund to stimulate growth in the SMEs sub-sector, with subsequent approval of N500 billion Intervention Fund in 2010 for the manufacturing industry.

According to the LCCI report, major challenges faced by the  manufacturing sector was rising cost of production due to high cost of capital and alternative source of power as well as  increasing cost of labour due to scarcity of required skills and new minimum wage legislation expansion, leading to importation of technical skills required by the industries.

The report however urge the Federal Government to ensure that SMEs and manufactures get loan at single digit and eliminate delays associated with loan processing, stressing the urgent need to responsibly check the influx of fake, imitation and sub-standard goods into the Nigerian market.


http://peoplesdaily-online.com/index.php/business/business/commerce-industry/10775-2012-a-dismal-year-for-nigerian-manufacturing-sector

published in Peoples Daily Newspaper August 16 2012, Page 20

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