Frank Udemba Jacobs is the President, Manufacturers Association of Nigeria (MAN). Here, he discusses Nigeria’s manufacturing sector in the last twenty years. Excerpts:
What progress have we made as a nation in the manufacturing sub-sector in the last twenty years?
The manufacturing sector made significant positive headways within the period 1998 to 2018. However, this progress appears to oscillate due to macroeconomic exigencies and policy changes by the government at that time. During the period also, manufacturing capacity utilization averaged 48.04 per cent from year 2002 to 2013 and rose to 49.35 per cent in 2014; 52.9 per cent in 2015 before declining slightly to 51.7 per cent in 2016, following the acute shortage of forex for importation raw-materials and machinery parts that were not available locally.
The sector became the driver of the Nigerian economy in 2013 with a growth rate of 21 per cent and a contribution of 9.2 per cent to national output. However, following the forex challenge that began in late 2014, the growth of the sector declined to 14.7 per cent in that year but still contributed a higher 10 per cent to national output in the same year. Since 2015 however, as the forex challenge intensified, the performance of the sector became unstable. We hope that it will bounce back ultimately.
Export of non-oil exports including manufactured products improved significantly within this period and contributed greatly to the Nigerian economy. This is evidenced by the 197 per cent increase in Nigeria’s non-oil export from $1billion in 2006 to $2.97billion in 2013. There was also visible industrial expansion and market penetration of made-in-Nigeria goods as well as employment of about 11 million persons in the non-oil sector, according to NEPC. Unfortunately, all these waned within one year of the suspension of Export Expansion Grant scheme (EEG) and resulted in the decline of Nigeria’s non-oil export by 8 per cent from $2.97billion in 2013 to $2.71billion by 2014, according to figures from NEPC. Fortunately, EEG has been resuscitated by the current government and I hope it will yield the desired result.
The manufacturing sector witnessed significant improvement within the period following the backward integration policy of the government. With this policy, cement production increased tremendously from about 2,000 metric tons in year 2000 to about 28 to 33 million metric tons annually, thus shifting the country from being an importer to net exporter of cement. Similar success was recorded in tomato production. Fresh tomato production increased to 6 million metric tons per annum as against an average of 150,000 metric tons hitherto imported. Similarly, the Auto-Industry Policy revolutionized auto-assembly in the country through the enhancement of local auto components. These achievements and many more have corroborated the need for further backward integration in the country on some other key products as well as consistency in Government policies.
Any landmark achievements you can pin-point in the sector within this period?
There are many sectors like food and beverages, furniture, bags and suit cases, etc.
What major issues have impeded progress within this period?
The challenges of the manufacturing sector are hydra-headed. Inconsistency in government policies has been a major concern. For instance, during the implementation of EGG, manufacturing exports increased significantly but this policy was short-lived with the suspension of the scheme in 2014, although it was reintroduced in 2017. Access to foreign exchange was a major challenge to the sector. The implication of this is the difficulty of the sector to import raw-materials and spare parts that are not locally available, for production. However, since February 2017 when the Central Bank of Nigeria (CBN) began intervention in the foreign exchange market, forex has moderately stabilized as the premium between the Inter-bank rate and that of the BDCs has narrowed significantly.
Apart from these challenges, there are the issues of infrastructure deficit, especially electricity which is a major bottle-neck in production, dilapidated road network and other infrastructural challenges that affect the manufacturing sector. The gridlock on roads leading to national seaports, particularly in Lagos with its implication on the cost of moving raw-materials from the ports to the factory. Other major recurrent challenges include high cost of borrowable credit; high cost of gas supply to manufacturers; smuggling, faking/counterfeiting and cloning of well selling Nigerian manufactured products; multiple taxation/levy and many more.
In what ways can we overcome these identified issues?
The major obstacle of Nigeria has been the impact of over-dependence on oil revenue leading to the over susceptibility of the country to external shocks. Therefore the drive for the diversification of the economy is a step in the right direction as this would insulate the economy, to some extent, from the present ugly experience and future external shocks. All efforts to increase non-oil revenue should be pursued vigorously through intensification of the resource-based industrialization programme adopted by the Federal Government and which MAN has also been championing. This involves the utilization of the country’s abundant natural resources in producing the goods that the country needs. This is a more sustainable and enduring form of industrialization, compared with the import-dependent industrialization which has been practised in Nigeria for long.
This would also save the country a lot of foreign exchange currently used in importing raw materials and free funds for government development projects as well. Intensification and aggressive development of key selected mineral resources through backward integration, especially those with high inter-industry linkages such as iron ore, zinc-led, bitumen, lime stone and coal. Government should intensify backward integration in the agricultural sector to catalyse more industrial input supply from the sector. Fully recapitalize the Bank of Industry (BOI) and operationalize the Development Bank of Nigeria to provide more development funds to the industrial and manufacturing sectors. Development of support infrastructure so as to facilitate the country’s industrialization efforts. The current infrastructure deficit is not helpful to the industrialisation efforts as well as proper deregulation of the downstream petroleum sector to encourage private investment in domestic refining. I am glad that the Petroleum Industry Governance Bill is addressing that. Government should consider privatizing the four national refineries to make them fully functional and save money for other purposes.
Since 1999 efforts have been geared towards diversifying the economy, with manufacturing sector playing a lead. Has it succeeded?
Not quite. The under-lying factors hindering the process have not been fully addressed. However, industrial production in the Nigerian economy and the manufacturing sector are already diversified. This is evidenced by the huge contribution of non-oil sector to national output as against the paltry contribution of oil sector. What is important at the moment is to support industrialists and manufacturers to enable them produce competitively. In that way, they will export the diverse products and earn more forex for the country.
At what point within this period did we miss it?
Well, we have had several policy changes that decreasingly affected the momentum of industrial production and revenue diversification of the economy. I think the most critical period was the oil boom.
Has the Ministry of Trade, Industry and Investment lived up to expectation?
Generally, the government has been accessible and this has significantly improved its relationship with the private sector. The Federal Government’s quarterly meeting with the private sector has been helpful as issues germane to the real sector, including manufacturing sector, are discussed. This method of approach has greatly consolidated the Government-private sector bond which is needed for the growth and development of the economy, including the manufacturing sector. The Federal Ministry of Industry, Trade & Investment is instrumental to the creation of this quarterly engagement with the Government and has implemented and supported policies that are manufacturing friendly.
What options are available to our economy?
Government is committed to the industrialization agenda of Nigeria, having adopted the Nigerian Industrial Revolution Plan (NIRP). I feel that a credible option for the economy is to continue to pursue this agenda so as to improve the industrial base of the country. To achieve this, Government should be cautious with going into, or supporting any trade agreement that would truncate the processes of industrialization already laid down. It is important that Nigeria is consistent with increasing domestic production and employment and not, at a point, supporting trade moves that would counter domestic production or de-industrialize the economy.
Have the financial institutions lived up to expectations?
Borrowing is a major challenge to the manufacturing sector. The commercial bank lending rate has remained at double digits which constitutes a huge disincentive for borrowing. The Bank of Industry (BOI) has been doing fairly well in terms of lending to industrialists for importation of machinery. However, the volume of lending by the bank is constrained by the size of its portfolio. This explains why MAN has made several presentations on the need for the government to fully increase the capital base of the Bank and help establish new sources of liberal funds for lending by BOI. We have also stressed the need to fully operationalize the Development Bank of Nigeria (DBN) and establish more development banks to lend at single-digit interest rate to the manufacturing sector.
