The National Bureau of Statistics (NBS) recently published a report showing the contraction of the Gross Domestic Product (GDP) of the manufacturing sector. The report revealed that the sector in 2020 contracted by -2.75%.
There are about thirteen areas of the manufacturing sector which includes Oil Refining; Cement; Food, Beverages, and Tobacco; Textile, Apparel, and Footwear; Wood and Wood Products; Pulp Paper and Paper products; Chemical and Pharmaceutical products; Non-metallic Products, Plastic and Rubber products; Electrical and Electronic, Basic Metal and Iron and Steel; Motor Vehicles and Assembly; and Other Manufacturing.
While speaking on the inflationary surge, the Manufacturers Association of Nigeria (MAN) stated that the high inflation rate for January coupled with the high-interest rates and scarce/ high rate of forex has contributed to the decline in the country’s manufacturing sector.
The manufacturing sector has experienced a hard hit for almost a decade. In 2009, there was a huge drop in manufacturing activities following the global economic meltdown. This also led to the shutdown of some industries. The agencies revealed that the decline of the industry was due to the poor supply of energy, increased cost of funding, and drop in output of manufactured goods as some manufacturers relocated to Ghana.
Paterson Zochonis (PZ) and Unilever Plc were some of the companies that moved to Ghana as a result of the high overhead cost of power supply. Nestle Nigeria Plc transferred its research unit and regional head office to Ghana as the company also disclosed that the huge production cost from power outages was consuming a larger part of their finances.
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The once buoyant textile industry is almost non-existent. The industry was then Africa’s largest with about 180 and annual growth of 67 percent in 1985 and 1991. The cotton, textile, and garment (CTG) sub-sector also had the largest employment rate closely coming behind the public sector. This made up about 25 percent of the manufacturing workforce. About 600,000 local farmers were into the production of cotton.
Mr. Segun Ajayi-Kadir, Director-General, MAN, disclosed during an interview last week Tuesday with NAN that the sector has been experiencing the challenge of constraint, especially in the previous four quarters due to the COVID-19, deteriorating infrastructure, high regulatory compliance cost, and tax obligations.
He added that ‘the concerted efforts of the government to recover the economy will have to address the aforementioned challenges.
The Senate has also expressed a need for the improvement of the manufacturing sector appealing that the 36 States of the Federation set aside a particular sum in their annual budgets to help establish cottage industries in some Local Government Areas in their states.
The red chamber made this known via its Twitter handle last week Tuesday. The tweet stated that ‘there is urgent need to promote the establishment and sustainable development of Cottage industries in the 774 LGAs of the country for the creation of job opportunities, reduction of poverty and rural-urban drift.’
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Dr. John Isemede, former Director-General of the National Association of Chamber of Commerce, Industry, Mines, and Agriculture (NACCIMA) gave a proposal for a national trade fair in Abuja for just Made-in-Nigeria products. According to him, this is to test if the country is export-ready or not.
With the commencement of the Africa Continental Free Trade Area (AfCFTA) in January and the low level of manufacturing in the country, it is hard to ascertain how active Nigeria will be in the exportation of goods with the manufacturing sector on shaky grounds.
‘The hope is on the SMEs, like the ‘Asian Tigers.’ If we are serious on this matter, we should avoid going the way of AGOA and other trade agreements in the past, and there should be a proper alignment of trade agreements signed by the Federal Government, as well as a synergy between Ministries, Departments, and Agencies (MDAs) for proper coordination and communication,’ Isemede added.
The former director believes this will give Nigeria the opportunity to maximize profits for the economy especially with the commencement of AfCFTA.
Isemede spoke on the contribution of SMEs and the need to create linkages in the value chain of trade, beginning from production to logistics, and then packaging, processing, and marketing as the SME’s would be needed in some of these areas.
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There have been experts suggestions on backward integration. Aliko Dangote, during a CBN roundtable last year April directed during his keynote address that backward integration was a certain means to speed up the earnestly desired diversification of the economy.
There was an agreement that backward integration would need the support of the government. This is by providing financial assistance and creating an enabling environment through regulatory policies.
The MAN president disclosed that the CBN would invest in the sector. The investment is to assist manufacturers to go into backward integration. Although the Federal Government expressed the need for the country to produce what it consumes, this is yet to be attained in the country.
With the manufacturing sector contributing less than 10% to the GDP, there is a need to scale up its potential reviving the once stable and thriving sector. This manufacturing industry can contribute more than 25% to the country’s GDP if well harnessed.
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‘Government should assist manufacturing productivity with credit at a competitive price,’ Ajayi-Kadir stated. He added that this could be in the form of concessions and enhancing existing special credit windows or creating additional ones for this important sector of the Nigerian economy.’
A vibrant manufacturing sector is a requisite for national development. No real progress can be obtained when industrial production is sinking. The government can encourage local production by restructuring its policies to attract investors. This also includes the improvement of the power sector which was one of the major reasons for the migration of large industries. Local industries must be revived. This is imperative and goes a long way in depicting a country’s productivity.