Manufacturers continue to groan in pain under the yoke of unfavourable business environment, inconsistent and uncoordinated government policies
When Olusegun Aganga, minister of trade and investment, disclosed recently that government was considering a policy to ban importation of all goods that are produced in the country, many thought there would be celebration in many quarters especially in the manufacturing sector, which has since become comatose due to a myriad of challenges in its operating environment, including unbridled importation. But the manufacturers whom the proposed policy is expected to protect received the news with a pinch of salt majorly because of their past experience with government’s policy inconsistency.
But Aganga had assured that the move was part of the national industrial revolution plan of the Federal Ministry of Trade and Investment, aimed at repositioning the manufacturing sector, in line with President Goodluck Jonathan’s Transformation Agenda. Many believe that if such a policy is formulated and implemented effectively, the productivity of the local manufacturers would receive a boost and this would lead to massive employment opportunities and growth of the economy. “As a country, we have a large market comprising 167 million people. We are the gateway to ECOWAS, (Economic Community of West African States), which is about 300 million people. What this means is that local patronage is very important to us as a country because we must take advantage of our large market to drive our industrial revolution plan. In fact, local patronage is key to President Jonathan’s Transformation Agenda because it will help us to increase the productivity of our local companies, reduce foreign exchange spent on importation of goods from other countries and create more jobs for our people,” noted Aganga.
Rather than applaud the policy pronouncement, sector operators appear to have adopted the position of ‘let’s wait and see’, mainly because they have been victims of uncoordinated and inconsistent policies over the years. About two years ago, the federal government bowed to pressure from importers and freight forwarders and lifted the ban on the importation of cassava, furniture, textile and toothpicks and also raised the age limit on imported cars from eight to 15 years. This came after government had provided bailout funds for the manufacturing sector particularly the textile industry, which many believe has the potential of not only growing the economy in real terms but generating millions of direct and indirect job opportunities.
For a country striving to diversify its economic base and become less dependent on importation, there was no logical reason for the import regime. Curiously, the circular announcing the unbanning of the products was issued by Aganga who was then minister of finance and the reason given was that these items were still being smuggled into the country, an admission of the porosity of the country’s borders and failure on the part of the Nigeria customs. Jubril Martins-Kuye, then minister of commerce and industry, had explained that policy was in line with what operates in other West African countries like Republic of Benin, Togo and Ghana and that it would increase the revenue generated by customs. “We are not surrendering to the will and wish of World Trade Organisation. We are just doing what is right, proper and appropriate to our economy and for our people. By reviewing the ban list, goods can come in and duty and levy will be paid which can be used to develop other sectors of the economy,” said Martins-Kuye, leaving Nigerians wondering how a government of a country with then over 140 million people could be adopting the economic development model of countries whose population could not match up to that of one of its states. Martins-Kuye had declared that government was committed to industrial revolution as the sector has the capacity to generate employment more than any other sector, but the import regime indicated otherwise.
The administration of former President Olusegun Obasanjo had placed a blanket ban on importation of some items to protect local manufacturers and revitalise the productive sector of the economy. It was reasoned then that Nigeria would not be able to achieve its vision of becoming one of the 20 largest economies in the world by 2020 if its industrial base remains stunted. The import regime thus drew flaks from many quarters. Babatunde Fashola, Lagos State governor, for instance, could not comprehend the unbanning of textiles only a few months after government approved N50 billion to revamp the sector, which used to be the largest employer of labour after government. He also expressed worry that such policy somersault would only worsen the unemployment situation in the country. Expectedly, manufacturers also criticised the economic policy as they maintained it would counter growth in the economy. Issa Aremu, general secretary, National Union of Textile, Garment and Tailoring Workers of Nigeria, described the development as tragic for the local industry and a complete somersault from the thrust of growing the non-oil sector in general and manufacturing in particular. There were also worries that the policy would endanger the repayment of loans taken under the Textile Cotton Revival Fund as some of the beneficiaries had started utilising the funds.
To Sola Obadimu, director-general, Nigeria-British Chambers of Commerce, “Issues of banning or unbanning are usually, in seriously planned economies, tied to specific goals meant to be realised within specific periods of time, with government agencies and departments keyed in, and institutions such as Bank of Industry, BoI, also keyed in to support investments in particular areas as a part of a larger goal.” Obadimu predicted that, “the same government may wake up tomorrow and decide to place a ban again.”
That prediction has now come to pass as government considers placing a blanket ban on all goods produced in the country. Good as the policy sounds, it may not offer hope to the sector as the right environment required for profitable manufacturing is yet to be put in place. Adebisi Anjorin, a sector analyst, said during the many years the ban on textile remained, the local textile industry remained in comatose while the markets were flooded with smuggled textiles especially from Asia. The textile factories could not get on their feet because of the absence of relevant infrastructure, particularly electricity, which contributes heavily to the high cost of production. “Each time they place a ban on products, manufacturers and investors are cautious; they would say if we go and put our money into machines now, the policy may change even before the factory is commissioned,” said Anjorin. Kola Jamodu, president, Manufacturers Association of Nigeria, MAN, recently identified the problems of the manufacturing sector as institutional and policy challenges, chief among which are poor power supply, dilapidated infrastructure, inconsistency of policies, multiple taxation and inadequate incentives for new businesses, among others. “A situation, where the manufacturer is the government onto himself; providing power, water, roads and other infrastructure, and at the same time, paying a plethora of taxes and levies that are not coordinated, is enough to kill any business,” he said adding that the problem is often compounded by frequent policy reversals, which put a lot of strain on manufacturing firms.
Jude Okpala, managing director, Cliche Limited, Lagos, has been a victim of unstable government policy. Okpala who manufactures metal components, uniform accessories for military and paramilitary forces and security companies, and also packaging seals for security printing and packaging industries, planned to invest in metal finishing and colouring, taking advantage of the high tariff on the items. He invested in machinery considered to be the latest technology for metal finishing and colouring. However, the downward review of tariff on the items in 2010 destabilised his investment plans as it made importation much cheaper and his product uncompetitive. The machinery has since been left idle.
John Aluya, chairman, MAN, Apapa branch, also identified multiple taxation and levies as the bane of businesses in the country. “In most cases, the organised private sector, OPS, becomes the target for myriad of taxes and levies that are inimical to its survival. More worrisome are the activities of the local government revenue agents, who in spite of state governments approval of collectable taxes and levies, have continued to flout this directive and gone ahead to continue intimidating our members for payment of illegal levies and taxes, ” Aluya said.
Goddie Ibru, president, Lagos Chamber of Commerce and Industry, LCCI, expressed similar views. Ibru, who noted that most firms rely entirely on generating sets to power their factories, with diesel cost ranging between N155 and N165 per litre, said the burden has become unbearable. “Our per capita energy consumption is one of the lowest in the world, about 12 watts, as against that of South Africa which is 478 watts; Cameroun, 29 watts; Gabon, 124; Ghana, 27; and Mauritius, 198 watts. This clearly is the greatest obstacle to our economic development, job creation and poverty alleviation,” he said. He identified other factors stunting growth in the sector as dumping of substandard products, weak consumer demand, high cost of fund and unethical practices in the importation processes, adding that if the trend persists, the country may not have an industrial sector in a few years to come.
Alarming as it sounds, the reality is that large manufacturing firms and small and medium-sized ones are fast disappearing from the country’s industrial landscape. In the automotive sector, the two major tyre manufacturing companies, Michelin and Dunlop Nigeria have since shut down their operations. The auto assembly and the textile industries are completely paralysed as well as other major manufacturing concerns. The existing ones are maintaining skeletal operations. A survey conducted by MAN in 2010 indicated that about 834 manufacturing companies were shut in 2009. The South-west zone comprising Oyo, Ogun, Ondo, Ekiti, Kogi and Kwara states lost 225 companies while 214 companies closed shop in the Lagos area, which comprised Ikeja, Apapa, Ikorodu and other industrial divisions in the state. The South-east and the North lost 178 and 176 companies, respectively. Analysts say these figures must have increased considerably. All these companies succumbed to the harsh operating environment in the country, throwing thousands of workers into the already saturated labour market.
Some of the ones still hanging precariously on the precipice are begging for government attention. Such is the case of industrialists and investors in Agbara, Ogun State, who have now threatened to shut down their factories and businesses in the state due to the poor state of infrastructure, which they say is hindering their operation. If this threat is carried out, about 10,000 jobs would be lost. Their factories located in Ogijo in Sagamu, Igbesa and Agbara in Ado-Odo/Ota local government areas of the state are threatened by poor infrastructure like roads and water, they said. Nigeria has been rated poorly in all world economic indices such as Ease of Doing Business where it is ranked 133 out of 134; Global Competitiveness, 127 out of 132; and Corruption Index where it is ranked 142. It is thus difficult for businesses to thrive under this unfavourable condition.
The country’s large population thus depend on imported products. The ban on these imported products would provide a breath of life for the local industries only if the other challenges are addressed and the policy effectively enforced. This is the view of Anjorin. According to him, the banning of a product is a signal to local investors that any investment in that area would enjoy protection. But the negative fallout would be an increase in smuggling activities that would be occasioned by the scarcity and the resultant high price, he said, adding that “if there is transparency in governance, smuggling would be contained. If South Africa bans a product, it cannot enter the country, but here, corruption has taken roots.” He urged government to first do an inventory of what is obtainable in the country and the capacity of the local industries, as well as determine the strength and capability of the country’s security agencies like customs and the police, to be able to plan effectively. “If you ban an item and the local capacity cannot meet demand, scarcity will ensue, leading to rise in prices. Smugglers will take advantage of the situation to fill the gap,” he argued, stressing that if there is a demand-supply gap, the manufacturers of such items should be the ones given licence to import subject to an approval of their investment plan on how they would increase their local capacity to meet future demand.
Over the years, successive governments have used the instruments of banning and unbanning of imported products to promote interests that are anything but national, thus disrupting the production plans of many companies across the country and discouraging investments in the sector. Obasanjo brought the issue to the fore at the recent annual general meeting of MAN, when he declared that policy inconsistency and lack of coordination is the bane of the manufacturing sector. Obasanjo who also called for a ban on imported products cited the ban on importation of cement and fruit juices during his administration, which eventually led to a revival of local manufacturing of the products. “There has been lack of vision and sustained mission in pursuing growth and development in the manufacturing sector. Since independence, policies, programmes and ideas of government have been lopsided. They have not been consistent. There must be coordination at all levels. Vision 20:2020 will be a hopeless and unfulfilled dream without all actors working together in ensuring acceleration of growth in the manufacturing sector,” he said.
Indeed Obasanjo’s regime has been reputed to have taken a bold move to curb the trend through the introduction of an industrial policy with short, medium and long-term objectives, designed to launch the country into the league of industrialised countries. Jamodu, then minister of industry who made the announcement said the then new policy would see Nigeria, within 10 years, producing enough finished goods to at least meet local demand. That was in 2002. However, 2012 is the 10th year and government is still singing the same song while the manufacturing sector is still on its knees. Would the proposed policy save the manufacturing sector? The sector operators prefer to wait and see.