Manufacturing In Nigeria: Why Brand Owners Are At A Crossroad
By Azeez Disu
The recent announcement of GlaxoSmithKline (GSK), a British multinational pharmaceutical and biotechnology company, exit from Nigeria after 51 years of operations is a source of concern for stakeholders in the manufacturing sector, considering that many other businesses in recent times have had to shut down due to harsh operating environment in the country.
According to the National Bureau of Statistics (NBS) between 2018 and 2020, 1.9 million micro, small and medium enterprises shut down operations leading to the rise of unemployment. The unemployment rate had increased to 37.7per cent in 2022 and KPMG, a global audit firm, in its recent report tagged ‘KPMG Global Economy Outlook report, H1 2023’ said that it would further rise to 40.6per cent in 2023 due to the inability of the economy to absorb the 4-5 million new entrants into the Nigerian job market every year.
Industry experts fear that more manufacturing companies may soon shut down if something is not done urgently even as the issues of forex, rising cost of transportation, power, raw materials, multiple taxation, and others still lingers.
The removal of fuel subsidy by the federal government and the Premium Motor Spirit (PMS) hike has further worsened the cost of living of consumers whose purchasing power has declined. Manufacturers and service providers have had to increase their prices to meet up with rising costs of production, distribution, and declining profit.
The President of the Manufacturers Association of Nigeria (MAN), Francis Meshioye said, “Manufacturers provide almost every infrastructure by themselves. Outside the major roads, you find out that manufacturers provide water, power, security, etc. So, when you look at it, you find out that the cost of doing business is so huge.”
Buttressing the point, the Lagos Chamber of Commerce and Industry (LCCI) said that the “Factor cost, as an integral element of the profit equation, is viewed with utmost seriousness by businesspeople. In the face of rising costs, businesspeople will likely search for cost-friendlier locations”
Given the challenges, NBS in its capital importation report for 2023 Q1 revealed that foreign investments to the manufacturing sector dropped by 35 percent from $392.5m in the fourth quarter of 2022 to $256m in the first quarter of 2022.
Despite the challenges the sector is facing, it still contributes significantly to the growth of the economy. In the first quarter of 2023, NBS reported that the Company Income Tax that manufacturers paid rose by 29 percent to N62bn from N44bn in the same period of 2022.
Government Plan
President Bola Tinubu disclosed recently that his administration will provide financial support to manufacturers to cushion the effects of the petrol subsidy removal and naira devaluation.
In his words, “We are going to spend N75 billion between July 2023 and March 2024. Our objective is to fund 75 enterprises with great potential to kick-start sustainable economic growth, accelerate structural transformation and improve productivity.
“Each of the 75 manufacturing enterprises will be able to access N1 billion credit at 9.0 percent per annum with a maximum of 60 months repayment for long-term loans and 12 months for working capital.
“Our administration recognises the importance of micro, small, and medium-sized enterprises and the informal sector as drivers of growth. We are going to energise this very important sector with N125 billion.”
Recommendations
Industry stakeholders have applauded the federal government’s decision to support the sector to actualise its potential. Director General of MAN, Segun Ajayi-Kadir however called for proper implementation of the initiative, he said “It is, however, very important and critical that the vehicles for the delivery of these loans should be carefully selected and the implementation diligently monitored. The Bank of Industry has shown excellent performance as an appropriate transaction structure for such facilities.”
In another vein, MAN tasked the government to promote the use of local content by mandating the patronage of Made-in-Nigeria products by all government parastatals, agencies, and ministries; revisit executive orders 003 and 004; create a special window for forex allocation to the manufacturing sector; and identify and break the powerbroker militating against the completion of the Ajaokuta steel complex to make available raw materials for the steel and automobile industries.
LCCI on its part tasked the government to put measures in place to help businesses grow. “The Chamber is inclined to suggest the government take a holistic view or review of the business environment and take steps to make the nation’s business clime more competitive for growth.”
Beyond government support, manufacturers need to constantly innovate to survive in the highly competitive and changing manufacturing industry.