macroafricaintel | Manufacturing in Nigeria (3)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Manufacturing in Nigeria is beset with quite a few challenges; chief among them is power supply. Most firms rely on “emergency” power generators to run seamless operations, adding to costs. There are also regulatory issues, a multiplicity of taxes, and trade facilitation issues, among others. The country’s infrastructural deficiencies are also a major constraint. Export processing zones and special economic zones are the government’s workaround towards removing or mitigating this constraint. The challenges faced by manufacturers are probably best put by Frank Jacobs, president of the Manufacturers’ Association of Nigeria, in remarks to the media in April 2018: “A situation where you generate your own power for production does not make you competitive, because whatever is produced in this country is produced at a higher cost when compared to other parts of the world. The same goes for the transportation system as we still move our good via roads, even the heavy duty goods. Such goods which should go by rail lack enough rail lines to carry them. There is need to develop the transportation sector to the point where it can support the manufacturing sector and also support the economy”.

For more light on these challenges, a report on the Nigerian manufacturing sector by the National Bureau of Statistics (NBS) in 2014 put them as follows: inadequate and epileptic power supply, high taxes, poor infrastructure, and supply variability of rain-dependent agricultural inputs. There are some strengths, the NBS observes, though; labour is cheap, domestic demand is buoyant, and some inputs are available and cheaper domestically.

Government initiatives
In the ERGP, the government highlights the following policies to boost manufacturing. It aims to “provide incentives to support industrial hubs, review local fiscal and regulatory incentives to support development of industrial cities, parks and clusters, especially around existing ports and transport corridors.” Furthermore, the government plans to “revitalize export processing zones by reviewing local fiscal and regulatory incentives, rationalize tariffs and waivers on the equipment and machinery imports required for agro-industry, establish special economic zones (SEZs) to provide dedicated infrastructure to support hub productivity and acquire suitable premises for SEZs.” Other highlights of the ERGP specifically targeted at the manufacturing sector around SEZs are as follows: The authorities would ensure connection to power and water infrastructure, facilitate technology acquisition and transfer in the SEZs by making available research output from local research institutes, ensure connection and access to critical ICT facilities.

Lekki Free Trade Zone in Lagos, Nigeria’s commercial capital, is perhaps the leading example of the efforts of the government in this regard. In its three years of existence thus far, more than $700 million worth of finished goods have been exported by the 18 manufacturing enterprises situated within it. Foreign direct investment to the tune of $500 million has also been recorded by the firms operating in the FTZ. To reduce the types of bottlenecks faced by firms at the ports, a customs processing centre is situated within the zone. And although finished goods for export still have to be transported to the Apapa port downtown at the moment, that would not be necessary in a few years’ time when the Lekki Deep Sea Port in the FTZ would have been completed. In fact, the authorities reckon the port should berth its first ship by the first quarter of 2020.

More broadly, the authorities desire to “build adequate transportation network (road, rail, ports), improve access to finance, expand the capabilities of the Bank of Industry to enable it to support manufacturing firms through low cost lending, enhance access to the N250 billion CBN MSME fund by reviewing its design and implementing enabling initiatives to encourage on-lending”, and the provision of micro-loans to women “through the Government Enterprise and Empowerment Programme (GEEP) and Women Empowerment Fund.

Launched in 2013, the central bank’s MSME development fund, provides long-term loans to micro, small and medium enterprises at a single-digit interest rate of 9 percent. To access it, interested MSMEs apply to participating banks. There have been reports of favouritism, secrecy and other malpractices related to the fund, however.

For GEEP, under the aegis of the Bank of Industry, its “MarketMoni” scheme has given out more than 350,000 micro credit loans thus far. And in mid-August 2018, bankers and the CBN agreed to provide 7-year fixed-rate loans of 9% (with a 2-year moratorium on principal payments) to firms in the agriculture and manufacturing sectors. There are also discriminatory foreign exchange policies by the Central Bank of Nigeria in favour of manufacturing firms.

Furthermore, the authorities’ Nigerian Industrial Policy and Competitiveness Advisory Council established in March 2017, with membership including leading African industrialist Aliko Dangote, assists “the government in formulating policies and strategies that would enhance the performance of the industrial sector.” The Presidential Enabling Business Environment Council established in July 2016 also monitors and assesses key sectors of the economy to ensure doing business in the country is easier; with tangible improvement in the country’s ranking in the World Bank Doing Business survey.

The Nigerian government is also promoting local content by encouraging the sourcing of raw materials and spare parts locally, “leveraging public procurement of locally manufactured goods (with targets for MSME participation), and via a “Made in Nigeria” campaign. For the promotion of innovation and technology-led industries, the government’s plan includes the provision of fiscal incentives for private investment in research and development (R&D), improvement of intellectual property enforcement procedures, promotion of science parks and innovation hubs, encouragement of private equity and venture capital players through an attractive fiscal and regulatory framework, and the promotion of youth entrepreneurship and innovation through the “You-Win-Connect” programme. Controversy recently trailed the YouWiN Connect programme, though, with participants complaining about not getting the funding that was promised for their businesses.

Clearly, manufacturing is challenging in Nigeria. But there is a clear desire by the government to encourage more of it through import bans, facilitation of cheaper funding, discriminatory foreign exchange policies, and so on. The government’s ERGP focus labs are also one of the ways the authorities are using to accelerate more investment in production. Interested companies, whether local or foreign, would do well to key into these government’s initiatives to ensure they get the support they are definitely going to need to succeed. A good place to start for any firm looking to invest in manufacturing is certainly the authorities’ imports prohibition list. And like the case of cement manufacturing earlier highlighted, there is clearly a strong correlation between the sector’s boom and protection measures by the government.

The author, Dr Rafiq Raji, is a consultant at the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. This article was specifically written for the NTU-SBF Centre for African Studies. This article was published on How We Made It In Africa on 27 September 2018.

Also published in my BusinessDay Nigeria newspaper column. See link viz.

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