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EDIDIONG IKPOTO looks at how policy inconsistencies and failed promises have put players in the manufacturing industry on the edge
During an interactive session with journalists in Lagos recently, the Director-General of the Manufacturers Association of Nigeria, Segun Ajayi-Kadir described manufacturing as one walk of life that was fast becoming an “endangered profession.”
The numerous challenges manufacturers in the country have been battling over the years have made players in the productive sector adopt different survival tactics to remain in business.
The challenges manufacturers are facing are obvious. A vast majority of them have been highlighted at various fora many times as offshoots of poor government policies that have been counterproductive due to a lack of adequate infrastructure to support these policies. Also, a significant fraction of these challenges are linked to the fiscal recklessness and misplaced priority of successive governments that have failed to identify the importance of a vibrant manufacturing sector.
For instance, foreign exchange volatility has been an albatross for manufacturers for many years.
The Director-General of MAN, during an interaction with newsmen, lamented the difficulties many producers face with regard to accessing foreign exchange to import basic raw materials needed for production purposes.
He said, “When we do exports and repatriate our profits, it goes through the CBN. So, they know every kobo that is coming into your account. When they get it, you can only get your money back at the official rate. The painful thing is that once you are subjected to all the processes and have gotten your money at the official rate including the little encouragement they give if you bring it through the I and E window. When you now want to import raw materials, spare parts or machines to produce again, you go to the money deposit banks. What they are able to give you, if you are lucky, is about five per cent of what you want. You would now have to go to the bureau de change, and we know their rates. So, we are shortchanged and this is why the sector’s performance is decreasing.”
Many players in Nigeria’s organised private sector have been lamenting how the management of the country’s forex has been hampering their operations, calling on the government to look into this issue before they are forced out of business due to the inability to import inputs.
The forex crisis began in June 2015 when the Central Bank of Bank declared that 41 items were not eligible to access forex from the official window, before later adding three more items to make them 44. It explained that it took the decision due to the scarcity of forex in the country and the need to allocate forex for only things that have no local substitutes.
Many manufacturers argued that some of the items listed in the forex ban list were inputs for their production. But the apex stuck to its gun and advised them to patronise the black market if they must import these items.
In reaction, the players in the organised private sector wonder why the CBN would declare their inputs ineligible for forex at the official window while it is spending huge sums of dollars importing petroleum products which could be refined locally.
The government, on its part, had insisted that it had become necessary to restrict forex access for certain products in order to drive its backward integration policy which encourages local production.
However, there are a lot of hurdles that would make achieving backward integration a tall order. The country still has a huge infrastructural gap, such as poor electricity supply, road networks, etc. Also, insecurity in some parts of the country has been a major challenge for those who rely on agricultural products for their inputs.
Following the outcry that trailed the forex restriction policy, the government moved to calm frayed nerves with loads of promises on how it would remove the bottlenecks hampering the optimal performance of the manufacturing sector. However, many of these promises have turned out to be mere platitudes as manufacturers the challenges bedevilling the productive sector persist.
While speaking at the 44th Annual General Meeting of the Manufacturers Association of Nigeria in 2016, the president, Major Gen Muhammadu Buhari (retd) assured members of the association that the Federal Government would remove bottlenecks and create a more business-friendly environment to enable the private sector to contribute its quota towards the recovery of the economy.
Buhari said his administration was convinced that the key to economic diversification and the country’s survival lies in agriculture and the manufacturing sector.
“A strong manufacturing sector will create more jobs and wealth for our people. It will usher in sustainable economic prosperity because we will produce what we consume as a nation and generate foreign exchange by exporting any surplus,” the president said.
Seven years down the line, the bottlenecks have proliferated and the noose around manufacturers’ necks has continued to choke and whisk many industry players out of business.
Similarly, last year, following pleas by exporting manufacturers that the Federal Government should support the sector by allowing operators to access forex through a special window to be created by the Central Bank of Nigeria, Minister of Trade and Investment, Niyi Adebayo, promised the Federal Government would begin steps that would create a separate and special foreign exchange window for exporting manufacturers.
Adebayo said, “MANEG is a formidable group. Write to me. I will see how I can use that as a reference to engaging the CBN. As you know, the CBN is a monster of its own.
“I like the idea that you came up with, having a different window for manufacturers. The president just set up an economic team, and we have been meeting. Write to me, and we will see what we can do.”
Meanwhile, up till now, the promise of a special window for manufacturers by the minister of trade and investment has not seen the light of day.
Access to forex had been the major bane of manufacturers under the present administration. However, with the outbreak of Covid-19 in 2020 and the Russia-Ukraine war in 2022, more cracks emerged to comprehensively compound problems faced by manufacturers.
Manufacturers have argued that with better government policies, the productive sector could have been shielded from the devastating effects that resulted due to these issues.
One such policy that has been heavily criticised was the re-introduction of excise duties on carbonated drinks, especially at a time many of these companies were fighting on many fronts to keep their businesses afloat.
The implementation of this policy came despite pleas by the Manufacturers Association of Nigeria and some related stakeholders, who asked the government to halt the policy introduced in the Finance Act, signed into law by President Muhammadu Buhari on December 31, 2021.
Recently, in its Manufacturers CEOs Confidence Index, a quarterly research and advocacy publication of the Manufacturers Association of Nigeria, which measures changes in the pulse of operators and trends in the manufacturing sector on a quarterly basis, MAN said that the aggregate Index Score of the MCCI declined to 55.0 points down from 55.4 points recorded in the third quarter of the year, which pointed to manufacturers’ increasing loss of confidence in the economy.
It said the fourth quarter of 2022 appeared to be more difficult for manufacturers than the level of hardship experienced in the preceding quarter.
It linked this to the continued rise in inflation, high cost of energy, unabated erosion in naira value and difficulty in sourcing forex as well as the harsh effect of the Russian-Ukrainian war.
Across sectoral groups, activities in the pulp, paper, printing and publishing with a low index score of 49.6 points and motor vehicle and miscellaneous assembly (48.4 points) were negatively affected by the harsh operating environment in the quarter under review as their index scores fell below the 50 base points.
On its part, the motor vehicle and miscellaneous assembly sectoral group blamed bad policies for its poor performance.
“Particularly, the motorcycle sub-group of the motor vehicle and miscellaneous assembly has been facing difficulty following the banning of motorcycles by various states government in some metropolises,” the report read in part.
Also, the Lagos Chamber of Commerce and Industry, in a recent statement expressed concern about policy inconsistency on the part of the Federal Government said that policy summersault had remained one of the most damaging factors to investors’ confidence.
In a report titled “Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual,” the World Bank also expressed worry that amid heightened risks, the government had kept a “business-as-usual” policy stance that hindered prospects for economic growth and job creation.
According to the global lender, “Multiple exchange rates, trade restrictions, and financing of the public deficit by the Central Bank of Nigeria continue to undermine the business environment. These policies augment long-standing weaknesses in revenue mobilisation, foreign investment, human capital development, infrastructure investment, and governance.”
The bank said Nigeria lost a key moment that would have been prime for subsidy removal.
It stated, “Notably, during 2020 and 2021, when oil prices were much lower, the government lost an opportunity to address one of the primary sources of fiscal vulnerability by choosing to maintain the subsidy for the premium motor spirit – more commonly known as petrol — a subsidy that is unique, opaque, costly, unsustainable, harmful, and unfair.”
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