Nigeria’s local manufacturers suggest how government can mitigate dwindling growth of the sector

Fearing that the diminishing growth of the manufacturing sector being witnessed across the global may affect their fortunes, local manufacturers in Nigeria are calling on the government to act fast in order to save the sector from the looming disaster.  The manufacturing sector is expected to play greater role in Africa’s Agenda 2063.

Chris Uba

Against the backdrop of the dwindling growth of the manufacturing sector across the world, the beginning of the first two quarters of 2024 may not be the best of time for the Nigerian manufacturing sector which for some time has been struggling to register any meaningful growth as against what obtains in other parts of the globe.

A quick examination of the trajectory of manufacturing globally portrays a struggling sector that is now more than ever challenged by key macroeconomic variables and externalities, leading to dwindling growth. This is evidenced by the manufacturing growth rates in China, USA, and South Africa.

The World Bank reported that the manufacturing sector in China declined from 8.7 per cent in 2021 to 4.8 per cent in Q3 2023; in USA, the sector performance dwindled to -0.9 per cent in Q3 2023 from the 6.8 per cent recorded in 2021 while South Africa also recorded a decline to -0.17 in Q3 2023 from 6.7percent of 2021. The trend is similar to what obtains all over Africa.

Of course, Nigeria is not exempted, as the manufacturing growth rate nosedived to 0.48 per cent in Q3 2023 as against 2.4 in 2021. Judging from the observed trend, it is obvious that the outlook for the manufacturing sector in 2024 may not be a positive one, at least in the first two halves of the year. The period will be challenging, with a subtle possibility of recovery from the third quarter.

 Analysts say “the envisaged recovery will however, be highly dependent on the deployment of policy stimulus supported with a synthesis of domestic growth driven, export focused and offensive trade strategies. This will promote resilience, steady growth and ensure that the sector gains meaningful traction in the later part of the year.”

On account of this unpalatable situation, the Manufacturers Association of Nigeria (MAN) which is the umbrella body of manufacturers in Nigeria has called on the government to take proactive measures to address the envisaged challenges that the sector may face this year.

This sector is expected to compete in the African Continental Free Trade Area (AfCFTA) which was launched in 2021. It should, therefore, be invigorated to enable it play key role in the Africa’s economy that has been integrated to compete in the global arena.   

Reacting to the envisaged problems in a statement on Thursday, Segun Ajayi-Kadir, the Director General of MAN, made some suggestions as to what the government must do to arrest the unappetizing development that industry experts say may further hamstring the government’s diversification effort designed to reduce dependence on the oil sector which the country currently depends on for revenues to fund its budget.

 MAN says “drawing from likely economic dynamics and in the light of the aforementioned, our projections for the manufacturing sector in 2024 are as follows: There will be clarity on the actual and specific policy direction and priority areas of the current administration, especially around deepening industrialization. We look forward to engaging Government in this regard.

“Hopefully, the Government will see the manufacturing sector as the key driver of sustained economic growth and will give the sector the priority that it deserves.

“ In 2024, sectoral real growth is expected to hit about 3.2 per cent; contribution to the economy will most likely exceed 10 per cent and the Manufacturers’ CEOs Confidence Index is predicted to rise above 55 points thresholds by the end of Q4 2023.

“Average capacity utilization will still hover around the 50 per cent threshold as the forex-related challenges and high inflation rate limiting manufacturing performance may linger until mid-year.

“The sector may experience a meagre improvement in manufacturing output as forex and interest rates-related challenges are expected to subside from the third quarter.”

Furthermore, the association asserted that “higher manufacturing output is envisaged from the beginning of the third quarter of the year as the government disburses capital provisions of the budget to abandoned, ongoing and new capital projects with expected special preference for locally made products.

 It noted that “the ongoing concessions of seaports, airports and roads may also provide opportunities for the cement sub-sector and contribute to infrastructure upgrade needed to enhance manufacturing productivity.

“Reasonable stability in the monetary policy ambience as the apex bank reverts to playing its conventional roles and deliberately improves forex supply to the productive sector for import of inputs not available locally. 

“The results of the emerging upward surge in global oil prices, domestic oil and gas production, local refining of petroleum products and projected gains of exchange rate unification will promote stability in the forex market and impact manufacturing positively from the second half of the year. This will lead to reduction in the pressure on demand for forex and improve the inflow of export proceeds from oil and gas.

The association believes that the ongoing tax reforms and the envisaged bank recapitalization will frontally address the challenges of multiple taxation and poor access to credit that have continued to limit manufacturing sector performance, if successfully implemented.

 It expects that the dynamic implementation of the Electricity Act 2023 will increase private investment in renewable energy, enhance energy efficiency and improve electricity supply to the manufacturing sector.

This improved electricity supply, it said, will ameliorate the issue of inadequacy, reduce the disruptions occasioned by frequent outages and in turn improve energy security.

In broad terms, the year 2024 may start on a tough note for manufacturing but may end with some measured improvements because the envisaged policy reforms, improved commitment to domestic production and general positive outlook seams favourable for the sector.

For this to happen, the local manufacturers, through  MAN,  have  recommended  to the government on the need to expend cost saving from fuel subsidy to deploy a bouquet of production focused policies, backed with more structural measures to combat the peculiar inflationary pressures from insecurity, energy and transport cost.

They also want the government to overhaul the power sector and incentive investment in renewables to boost electricity generation and promote energy-cost efficiency.

 The government is also urged to  lead by example and give priority to patronage of made-in-Nigeria product in all its purchases and for all government contracts and projects. It should mandatorily upscale patronage of made-in-Nigeria products by deliberately reducing the excessive reliance of the country on imported products. The three tiers of government should enforce the implementation of the Executive Order 003 in same for their ministries, departments and agencies.

 Local sourcing of raw materials through comprehensive and integrated incentives should be encouraged in order to address the challenges of low productivity and imported inflation, while   the 2024 budget should be utilized to sustain effort at improving infrastructural developments, especially in strategic industrial hubs to reduce operation and logistics cost and promote competitiveness.

The local manufacturers want sub-national governments and private investors to leverage the opportunities provided by the Electricity Act 2023 to improve energy security in Nigeria.

 The government, through the Central Bank of Nigeria (CBN), should maintain all measures to boost the level of liquidity and degree of transparency in the official forex window even as the backlog of $7 billion forex obligations is being cleared.

They also want the government “to manage the floating exchange rate system within an acceptable lower and upper bound, pending the actualization of a net-exporting economy aspirations just as they called for prioritization of forex and credit allocation to the manufacturers and reduce the number of BDCs into large and well-established operators to curb their excesses and untowards operations through effective management and supervision.”

 They also stressed the need to encourage inflow of foreign direct investment into pre-determined and domestic production-enhancing businesses and should intentionally guide diaspora remittances into non-oil sectors, especially manufacturing to aid forex inflows and curb rising inflation.

“The CBN should intensify its collaboration with the fiscal authority; Federal Ministry of Finance and by extension the Tariff Technical Committee (TTC) for proper policy alignment on the appropriate HS Codes for items that Nigeria has sufficient capacity to discourage importation and save scarce foreign exchange.

“The apex bank should allow forex access for importation of vital industrial inputs that are currently not available locally and subject them to backward integration policy that gives priority to a predictable sunset clause. MAN offers to be part of a monitoring and evaluation team to ensure that government gets value for incentives offered to achieve this objective.

“The CBN to develop a sustainable framework to channel credit interventions into the manufacturing sector, outside the direct intervention. Additionally, it should mobilize commercial banks to intentionally provide long term single digit interest loans to the manufacturing sector to fast-track the actualization of a $1 trillion dollar economy.”