Why manufacturing sector should be invigorated for optimum performance -MAN
The Nigeria’s industrial sector recorded a growth of 2.18 percent, according to a report on Monday by the Manufacturers Association of Nigeria (MAN) ,which noted that the figure is an improvement from the 0.46 percent recorded in the third quarter of 2023.
The report which is the position of MAN on the GDP report for the third quarter of 2024 ,as released by the National Bureau of Statistics (NBS), the growth achieved in the industrial sector was largely due to sectors other than manufacturing, including water supply, sewerage, waste management, and remediation; mining and quarrying; and electricity, gas, steam, and air conditioning supply, which grew by 12.73 percent, 8.75 percent, and 5.23 percent, respectively.
A further breakdown showed that the mining and quarrying sector was particularly boosted by the metal ores and crude petroleum and natural gas sub-sectors, which grew by 55.37 percent and 14.87 percent, respectively.
According to MAN , an in-depth examination of the report shows that the fastest-growing manufacturing sub-sectors were Chemical & Pharmaceutical Products (3.97%), Food, Beverage & Tobacco (1.76%), Wood & Wood Products (2.16%), Cement (2.30%), Pulp, Paper and Paper Products (2.09%), Electrical and Electronics (2.61%), and Non-Metallic Products (1.75%). Also, the top five contributors to manufacturing output were Food, Beverage & Tobacco (6.78%), Cement (3.73%), Electrical and Electronics (6.03%), Non-Metallic Products (2.87%) and Chemical & Pharmaceutical Products (6.92%).
Food, Beverage & Tobacco, Chemical & Pharmaceutical Products and Cement were the only sub-sectors that made the list of both the top five growing and contributing sub-sectors in the second quarter of 2024.
“In general, the report revealed that the growth of the manufacturing sector grew slowly year-on-year at 0.92 percent and decelerated quarter-on-quarter by 0.35 percent. Similarly, its contribution to GDP in the 2024 third quarter was 8.21%, lower than the 8.42% recorded in the third quarter of 2023 and lower than the 8.46% recorded in the second quarter of 2024.
“ Undoubtedly, this underperformance underscores the harsh effect of hostile economic policies which have largely constrained the country’s goal of rapid industrialisation and have left the economy struggling for survival. Unfortunately, the Nigerian government has been characterized by its passive response towards the countless challenges battling the Manufacturing Sector,” the report said.
MAN said that decline in the real growth of the manufacturing sector is a clear indication of the detrimental impact of the prevailing macroeconomic policies. This is further evidenced by the significant drop in nominal growth from 36.59 percent to 32.97 percent year-on-year, driven by high inflationary pressure and the exit of major multinational manufacturing companies. It is evident that inflation has been a significant factor in undermining the growth of the manufacturing sector, as the sector has been particularly vulnerable to the unstable macroeconomic environment, exacerbated by recent economic reforms.
“Agriculture plays a crucial role in fueling the growth of the manufacturing sector by ensuring a steady supply of affordable local raw materials. However, both the Agricultural and Manufacturing sectors failed to rank among the top five growing sectors during this period, primarily due to security challenges in farming areas and their subsequent negative impact on agro-allied industries. The limited growth in these sectors will lead to:
• The deteriorating state of the agricultural sector has led to increased costs for local raw materials.
• The high cost of living, characterized by high unemployment and inflation, has reduced consumer purchasing power, leading to increased unsold inventory for manufacturers.
• Manufacturers’ negative outlook on the economy has resulted in decreased production and employment.
• Foreign investors are hesitant to invest in a weak economy, and the scarcity of foreign exchange further hinders manufacturing operations.
In all, while the higher growth recorded in the reviewed period is laudable, it is still relatively modest. Given the prevalence of high unemployment and poverty, a double-digit GDP growth rate is necessary to achieve inclusive growth that benefits all segments of society.
A vibrant Manufacturing Sector is essential for driving economic growth and prosperity. However, the sector faces numerous challenges, including multiple taxation, limited access to credit, an unstable foreign exchange market, infrastructure deficits, and energy insecurity.
To address these challenges and unlock the potential of the manufacturing sector, the government must take decisive action. The Manufacturers Association of Nigeria recommends the following:
• Create special windows for providing single-digit interest rates to productive sectors and relax stringent conditions for SMEs to access funding.
• Recapitalize the Bank of Industry (BOI) to meet the growing credit demand of industries.
• Enhance credit information systems and broaden the scope of assets for collateral.
• Implement the recommendations of the Presidential Fiscal Policy and Tax Reforms Committee.
• Reduce the excessive increase in Environmental Impact Assessment (EIA) and Effluent Discharge (EMP) fees imposed by NESREA.
• Retain the current excise duty of N10 per liter on non-alcoholic beverages to avoid shutting down the industry.
• Direct the Central Bank of Nigeria to clear $2.4 billion outstanding dollar obligations on FX forward contracts to support manufacturers.
• Review import duty rates for production inputs, particularly those not locally available, and consider pegging the rate at N800.
• Implement measures to streamline customs procedures, including increased use of technology and decentralization of seaports.
• Prioritize budgetary allocation for infrastructure development, especially along strategic economic hubs.
• Encourage public-private partnerships for infrastructure development, including roads, railways, and port access roads.
• Direct the Nigerian Electricity Regulatory Commission (NERC) to review the excessive increase in electricity tariffs for Band A customers.
• Prioritize domestic gas supply to manufacturers and enforce Naira-denominated pricing.
• Ensure transparency in electricity tariff charges, invest in infrastructure and efficiency improvements by Distribution Companies, and introduce outage compensation mechanisms.
