Except the government quickly addresses the challenges facing the manufacturing sector, the sector is bound to collapse imminently. Consequently, the Manufacturers Association of Nigeria (MAN) has raised the alarm that the size and tenor of loans given to the operators in the sector by commercial banks are grossly inadequate to boost productivity.

Even when the loans are available, the interest rate is usually short-term tenor that they do not support the medium to long-term gestation required to make the manufacturing sector contribute meaningfully to the economy. The combined effects of these challenges are low investment inflows into the economy, limited capacity utilisation and low production level.

According to MAN’s CEO Confidence Index, which is the benchmark in measuring quarterly changes in trends and pulse of the operators, as well as political and economic uncertainties in the country, challenges such as poor Ease of Doing Business (EoDB), scarcity of foreign exchange, naira depreciation, high energy cost and raw materials, inadequate power supply, infrastructure deficit, multiple taxation, importation of sub-standard  products among others, are adversely affecting the performance of the manufacturing sector.

As a result of these problems, many of the local manufacturing companies have either relocated to neighbouring countries or completely shut down. The operators in the sector are, therefore, demanding a better business environment devoid of multiple taxes and levies. The complaint by operators in the sector also comes amid reports that the federal government is contemplating fresh increase in excise duty on food and beverages, especially on alcoholic and non-alcoholic drinks and tobacco.   

We agree with the key stakeholders in the sector that a new operating model has become necessary and urgent to make the sector to continue to play its active role in the economy. For instance, in 2021, about 15 per cent of Nigeria’s Gross Domestic Product (GDP) came from the manufacturing sector. MAN says it is targeting raising the contribution of the sector to the GDP by 20 per cent this year. The largest contribution in the past few years had come from the food, beverage and tobacco sector, which accounted for about 5 per cent of the GDP.

Undoubtedly, the harsh economic environment has affected business operations and profit margins. Last year, the Minister of Finance, Budget and National Planning, Zainab Ahmed, hinted of plans to introduce new taxes and levies on essential foods and beverages as a way of generating more revenue. The government should urgently rescue the manufacturing sector.

The sector, which is critical to the economy, has suffered a steady decline in recent years. For example, from 2021 to Third Quarter (Q3 2022), the sector suffered a decline of 36 per cent in profit margins. In 2020, the contribution of the manufacturing sector declined to 13 per cent of the country’s total GDP of N152trillion (over $400bn) from 14.61 per cent in 2021, and 16.67 per cent in 2018. It could be worse by the time the figures for 2023 are out due to rising inflation, foreign exchange instability and high interest rate, cost of raw materials and others.

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The government should develop a comprehensive and integrated framework that will facilitate the easy movement of goods and services within and outside the country. However, the products should be of high quality to avoid rejection in the international markets. Few years ago, the World Trade Organisation (WTO) ranked Nigeria as the highest food market in Africa, with significant investment in the local industries. Addressing the challenges of the manufacturing sector will go a long way in reducing imports and enable the country produce a variety of products that can be exported to other countries and earn high foreign exchange.

This will lead to a multiplier effect that will benefit other sectors of the economy. Government should prioritise allocation of Forex to the manufacturing sector by the Central Bank of Nigeria. Besides, let government consider the removal of 7.5 per cent Value Added Tax (VAT) on diesel pending the normalisation of the international supply system. It   must also resolve the complexities surrounding the implementation of the Eligible Customer services programme, designed to enable manufacturers perform better.

It is also critical to address the issues associated with delay in clearing goods at the ports by removing demurrage charges and other bottlenecks. Over all, Nigeria needs an improved business environment that will make the manufacturing sector and others to thrive. The importance of the manufacturing sector in reviving the economy is critical. The sector needs to grow from its present 15 per cent of the GDP to about 25 per cent.

This will enable the economy reach the projected growth target of 6 per cent per annum. Currently, it is struggling to meet half of that estimate. The economy must grow faster than that level to achieve the much-needed productivity level that will take it away from over-reliance on oil revenue. Nigeria needs a break from consumption expenditure economy to production-based and export-oriented earning economy.