Business

Manufacturing sector still work in progress

As Nigeria marks 60th independence anniversary, members of the organised private sector (OPS) have affirmed that the country’s manufacturing sector performance could be rated as work in progress as challenges confront its growth and development. Taiwo Hassan reports.

In the last 60 years, the Nigerian economy has transformed from basically agrarian to one driven largely by resources from oil and gas. According to the country’s GDP data, the non-oil sector accounts for 90.9 per cent of the GDP while the non-oil sector accounts for 9.1 per cent. However, the oil sector accounts for over 50 per cent of the nation’s revenue and over 80 per cent of the foreign exchange earnings. This reflects the mounting imbalance in the structure of the economy since independence. Hitherto, it also underscores the growing decline in the non-oil sector productivity over the past 59 years. This remains the major failing of the Nigerian economy at 60. It makes the economy very vulnerable to global shocks; and weak in economic inclusion at a time of the COVID-19 crisis. However, one thing that cannot be ruled out is that the 60 years of independence have earned the country enormous goodwill as one of the few stable democracies in Africa. Indeed, core democratic values and ideals are yet to take firm root, especially in the areas of transparency in the management of public finance, rule of law, separation of powers and the inherent checks and balances in the economy.

Economic performance

Economic growth trend, mea- The power situation remains a major burden on businesses sured by the performance of the GDP, has been generally positive over the last two decades. This is good compared to growth conditions in most economies around the world. However, it remains a major worry that the economy is still structurally defective as it is too dependent on the oil and gas sector, creating serious vulnerability risks. In addition, the lack of political will to reform the oil and gas sector remains a major shortcoming of governance over the past decades until the present administration under President Muhammadu Buhari took a bold step to remove fuel subsidy by fully deregulating the country’s downstream sector of the economy. In short, the oil and gas reform policy did not come with ease as Nigerians are already feeling the pains.

Services sector

In the 60 years of independence, the transformation in the telecommunications sector is the only one that stands out as the most successful reform story in the economy. Many sectors have leveraged the transformation in telecoms to make significant progress through the use of ICT, especially in the services sector.

Enabling business environment

Indeed, the quality of the business environment remains a source of concern to investors, especially in the real sector in the last 60 years. For instance, weak infrastructure, policy environment and institutions had adverse effects on efficiency, productivity and competitiveness of many enterprises in the economy. These conditions pose a major risk to job creation in and economic inclusion across sectors. Also, the issue of multiple taxation is the biggest challenge contributing to the failure of many SMEs in Nigeria. According to the Managing Director of Top Up And Get Reward Limited, a fintech service provider firm, Shayo Babatunde, the multiple taxes SMEs pay in Nigeria is eating deep into business owners profit making in this country. “Also, tax relief is needed to encourage MSMEs to thrive in this country because of the way multiple taxes are killing micro businesses in Nigeria,” he said.

Electricity

The power situation remains a major burden on businesses in the last 60 years of independence day celebration in Nigeria. It is one area in which the trend since independence has been that of progressive decline. Power supply has consistently lagged behind the pace of the economic activities and population growth. This development impacted negatively on investment over the past few decades with increased expenditure on diesel and petrol by enterprises. This also comes with the consequences of declining productivity and competitiveness. President, Manufacturers Association of Nigeria, MAN, Engr. MansurAhmed, said: “We need an enabling environment to operate smoothly in this country because where there is difficulty in getting prompt power supply to operate that one alone discourages investors to come into this country due to the instability in the power supply to the economy and we depend on electricity to run our businesses here.”

Insecurity

The security situation in the country deteriorated in the last decade. It impacted on investment risk and worsened the country’s perception and image by the global investing community. Access to markets in the troubled parts of the country has reduced for many enterprises with negative consequences for investors’ confidence.

Real sector activities

However, over the last few decades, the challenges of production in the economy, especially in the manufacturing sector, had grown progressively largely because of the quality of infrastructure; which is why the risk of industrial investment is high and continues to increase. The various policy interventions have not had the desired impact on the sector. Unless there is an effective and sustained protection and support for the sector, and a dramatic improvement in infrastructure, the outlook for the sector will remain gloomy, particularly for the small-scale industries. It is impossible to have a vibrant manufacturing sector in the face of cheap imports into the country, and high production and operating cost in the domestic economy. Some of these imports are landing at 50 per cent of the cost of products produced locally. Besides, manufacturers have to worry about high energy cost; they have to worry about high interest rates – 20 per cent and above; they have to worry about a multitude of regulatory agencies making different demands on them; they have to worry about massive smuggling and under invoicing of imports, they worry about trade facilitation issues at the sea ports and many more. For most manufacturing SMEs, it is a nightmare. Yet production is critical to an enduring economic and social stability.

Productivity decline

The reality is that job losses have been on the increase over the decades as productivity declined on the back of the difficult operating environment. However, the multinationals and conglomerates have shown some positive trend in performance and resilience, especially in the foods and beverage sector and other resource-based industries such as the cement industry. Even then, they would do much better if the operating environment were better.

Last line

The way forward is to address the fundamental constraints to manufacturing competitiveness in the Nigerian economy in the last 60 years.

 

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