Save Nigeria’s manufacturers from collapse

Nigeria’s manufacturing sector is under siege. The cruel combination of high energy costs, foreign exchange scarcity, rising inflation, insecurity, stratospheric interest rates, high logistics costs and a predatory regulatory environment that manufacturers have had to contend with in recent months is threatening their existence per sector representatives. Immediate steps must be taken to prevent the manufacturing sector from collapsing.

The realities are grim. According to data from the Manufacturers Association of Nigeria, at least 767 manufacturers shut down operations and 335 became distressed in 2023. Unsold inventories amounted to N350 billion during the same period.

Prominent pharmaceutical multinationals – GlaxoSmithKline (GSK) and Sanofi Nigeria Limited – exited the country in 2023, citing the forex crisis. On May 31, 2024, Kimberly-Clark, makers of Huggies, also announced its decision to stop local manufacturing and sale in Nigeria after 14 years of operation. PZ Cussons Plc is considering leaving Africa as a whole, partly due to its Nigeria woes that had resulted in a 48 percent drop in sales. This occurred against the backdrop of economic challenges that have worsened the investment climate.

Manufacturers are particularly concerned about rising operational costs imposed by recent government policy actions. Director-General of MAN, Segun Ajayi-Kadir, last week threatened that the association’s 2,500 members would shut operations to protest the 250 percent hike in electricity tariff after manufacturers were forcefully placed on the controversial Band A regardless of whether they operate round-the-clock shifts or not. Most industries were already buckling under the weight of high diesel costs before the electricity tariff hike that has seen energy accounting for between 40 and 50 percent of costs.
Manufacturers have also complained about their inability to access foreign exchange to import raw materials and machinery as well as ridiculous import tariffs calculated at parallel market rates by the Nigeria Customs Service. A slew of taxes and penalties imposed by all tiers of government contributes to manufacturers’ woes in an increasingly hostile regulatory environment.

Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, expressed concerns last week about “disturbing tendencies of overbearing regulatory dispositions, disproportionate sanctions, obstructionist actions, outrageous fines and penalties, intimidation and high-handedness”.

Significant transportation and logistics challenges, poor infrastructure, and climate issues resulting in flooding in some parts of the country are also taking a toll. Insecurity in several states has also denied manufacturers access to certain markets. It amounts to self-immolation for Nigeria if the sector’s vulnerabilities are not addressed urgently.
The manufacturing sector is crucial for job creation, productivity, and economic growth yet it has continued to decline. Nigeria’s manufacturing sector’s contribution to the Gross Domestic Product witnessed a significant contraction over the past two quarters, reflecting a decline of 20.95 per cent from the end of 2023 to the second quarter of 2024 per the National Bureau of Statistics.

Revitalising the manufacturing sector should be prioritised by the federal and state governments. A UNIDO working paper reaffirms that traditionally, manufacturing plays a key role in the economic growth of developing countries. Intensive investment in manufacturing was a significant game-changer in the economic transformation of the BRICS countries –Brazil, Russia, India, China, and South Africa – according to the IMF.

For the manufacturing sector to thrive, there is a need for improved stakeholder engagement to draw up measures targeted at mitigating the current challenges.

 A significant rebate or suspension of import tariffs is needed in critical sectors such as pharmaceuticals to lower costs and prices. The sweeping 250 per cent electricity tariff hike for manufacturing plants makes no economic sense and must be reversed. Manufacturers should not be punished for the gross inefficiencies of the power sector for which the government is largely to blame. It is a disgrace that Nigerian manufacturers and households are still struggling with barely 4,000MW of power distributed. Access to gas will also lower costs for factories.

 The overall business climate needs to improve and the tax regime must be streamlined quickly as planned in line with ease of doing business requirements. Road, rail, and port infrastructure and processes need to be enhanced to support manufacturers. Insecurity must be defeated.

 A government that claims to be business-friendly must focus on addressing manufacturers’ challenges. The sector needs to be healthy to create jobs, generate taxes and reduce Nigeria’s reliance on oil revenues for foreign exchange.