By Elvis Eromosele
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 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 Muhammadu
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 April 20,2023 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.
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. 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 programmes.
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 crowd-funding. 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.
*Eromosele, a corporate communication professional and public affairs analyst, wrote from Lagos.
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