The manufacturing industry is crucial to a nation’s economy. It plays a significant role in generating employment, increasing productivity, and driving economic growth. In Nigeria, the manufacturing industry is a critical sector that contributes significantly to the country’s gross domestic product (GDP) through job creation, wealth creation, and increased tax revenue for the government.
It has equally been identified as a key sector in the nation’s quest for diversification away from oil dependency. It can enable a country to reduce its reliance on imports, improve its trade balance, and increase its overall competitiveness. Manufacturing is almost all things good.
Unfortunately, the nation’s manufacturing industry has long struggled with a host of challenges that have prevented it from achieving its full potential. Some of these challenges have intensified in the last decade.
Today, one of the biggest obstacles facing Nigerian manufacturers is the lack of reliable infrastructure. Power shortages, poor road networks, and limited access to ports and airports make it difficult for companies to move goods and raw materials around, in and out of the country. This leads to higher costs, longer lead times, and reduced competitiveness. While the General Buhari administration has invested in rail, there is still no horizontal rail in the country. There is no single track connecting the west to the east, not in the south or north.
Another major challenge is the difficulty in accessing finance. Many Nigerian manufacturers struggle to obtain the capital they need to invest in new equipment, upgrade facilities, or expand their operations. This is partly due to the high cost of borrowing, as well as the reluctance of banks to lend to the manufacturing sector due to perceived risks.
Closely related is the volatility of the foreign exchange market, difficulty in accessing forex and currency depreciation. To understand the devastating impact of this issue, consider this: Unilever, one of the oldest surviving fast-moving consumer goods (FMCG) companies, is cutting down production in Nigeria which may lead to the demise of otherwise popular brands such as Sunlight, Omo, Closeup, LifeBuoy, Vaseline, Dove, or Knorr.
According to news reports, the firm, which is one hundred years old in Nigeria this year, cites the naira’s continued devaluation, a high rate of exchange for the US dollar, and a chronic cash crunch as reasons for its decision. There is no prize for guessing that jobs have been and will be lost. Unilever has joined the growing list of companies scaling down or else shutting down operations in Nigeria.
Skilled labour is also in short supply, with many manufacturers struggling to find workers with the necessary technical expertise. This is partly due to the poor state of the country’s education system, which fails to provide young people with the skills they need to succeed in the modern workplace. As a result, many manufacturers have to rely on expensive expatriate labour, further increasing their costs.
The manufacturing industry, like other sectors, has also had to contend with rising taxes and levies. In the last decade Value Added Tax (VAT), excise duty, utility tariff and petrol all rose significantly. Now the President Buhari’s administration has gone ahead and introduced, what Taiwo Oyedele, Tax Expert, PWC, called a parting tax gift via the new Fiscal Policy Measures (FPM) for 2023 through a Circular dated 20 April 2023 signed by the Minister of Finance, Budget and National Planning.
Under the new FPM, Revised Excise Duty Rates – additional excise taxes ranging from 20 per cent to 100 per cent increases on previously approved rates for alcoholic beverages, tobacco, wines and spirits have been introduced effective from 1 June 2023. while the excise duty rate on non-alcoholic beverages is retained at the rate of N10 per litre.
There is also now Green Taxes. The introduction of a Green Tax by way of excise duty on Single Use Plastics (SUPs) including plastic containers, films and bags at the rate of 10 per cent.
This excise duty increment is baffling. Is the government eager to run the brewing sector out of business and boost unemployment? The whole manufacturing sector is on life support as we speak, tax increases should be the last item on the table.
Furthermore, Nigerian manufacturers also face intense competition from cheaper imports, particularly from Asia. This puts pressure on local producers to keep their prices low, even as they struggle with high costs and limited resources. It is a sad picture.
Despite these challenges, there are several steps that Nigerian manufacturers and the government can take to improve their prospects:
The government can intervene by providing foreign exchange to manufacturers at preferential rates or through the targeted allocation of forex to manufacturers that import raw materials and equipment. This will help reduce the cost of production and improve the competitiveness of local manufacturers.
The government can also improve the ease of doing business by reducing the bureaucratic bottlenecks that hamper manufacturing activities in Nigeria. This can be achieved by simplifying registration processes, reducing the time it takes to obtain licenses and permits, and improving access to credit. It includes addressing the inefficiencies at ports and customs by implementing reforms that improve cargo clearance processes, reduce corruption, and enhance the transparency of operations. This will reduce the cost and time associated with importing raw materials and exporting finished products, and improve the overall efficiency of the manufacturing sector.
The government can, in addition, invest in critical infrastructure such as power, transportation, and telecommunications, which are essential for manufacturing activities. This will help reduce the cost of doing business and improve the efficiency of operations. It must equally look to invest in, begin and complete a west-east rail line.
The government can also invest in research and development (R&D) to encourage innovation and improve the quality of locally produced goods. This can be achieved through partnerships with universities and research institutions, and the establishment of government-backed R&D programs.
Moreover, good corporate governance practices can help manufacturers remain sustainable by improving transparency, accountability, and risk management. Manufacturers can establish effective board structures, implement strong ethical standards, and prioritize stakeholder engagement. They can also adopt sustainability reporting frameworks to demonstrate their commitment to environmental, social, and governance (ESG) practices.
To improve access to finance manufacturers can explore various financing options such as equity financing, debt financing, and alternative financing such as crowdfunding.
Capacity building is essential for manufacturers to remain competitive and sustainable. Manufacturers can invest in training programs for their staff, adopt best practices from other industries, and collaborate with universities and research institutions to develop new technologies and improve their product offerings. Manufacturers need to work closely with universities and vocational schools to ensure that young people are equipped with the skills they need to succeed in the industry. This can help address the skills gap and reduce reliance on expensive expatriate labour.
Finally, policymakers can play a role in supporting the sector by providing incentives for local production, such as tax breaks or preferential treatment in government procurement. This can help level the playing field and make it easier for local manufacturers to compete with imports.
The government must be deliberate if it truly wants to create an enabling environment for the manufacturing sector to thrive and contribute to the overall development of the Nigerian economy. And it must begin immediately.
Elvis Eromosele, a Corporate Communication professional and public affairs analyst lives in Lagos.