The performance of the manufacturing sector, widely regarded as the economy’s growth engine because of its job creation potential, has been woeful in the last eight years. However, some policy initiatives put in place by the outgoing administration of President Muhammadu Buhari, if sustained by the incoming administration, could be the much-needed tonic to galvanise the manufacturing sector and re-position the economy on the path of sustainable growth. Assistant Editor CHIKODI OKEREOCHA reports
If all President Muhammadu Buhari’s campaign promises, none resonated more with the aspirations of the vast majority of Nigerians, particularly operators in the real sector, than those that verged on building a vibrant and globally competitive manufacturing sector. This was understandable, considering the fact that the real sector, particularly manufacturing, is widely acknowledged as a priority sector because of its job creation potential.
So, when President Buhari, on the strength of such sentiment, promised to leverage a robust manufacturing sector to build one of the fastest-growing emerging economies in the world with a real Gross Domestic Product (GDP) growth averaging 10 per cent annually, manufacturers and, indeed, Nigerians in virtually all the sectors, were ecstatic. To them, a new dawn was in the offing, one that would birth a vibrant and competitive manufacturing sector to reset the economy.
Perhaps, the icing on the cake was his mouth-watering promise to break the age-long jinx in the nation’s power sector. Specifically, the President and his All Progressives Congress (APC) promised to generate, transmit, and distribute at least 20, 000 Megawatts (MW) of electricity within four years and increase the capacity to 50, 000 MW – with a view to achieving 24/7 uninterrupted power supply within 10 years. Expectedly, such promises were particularly music in the ears of manufacturers, who are heavy users of electricity in Nigeria, and whose capacity to help propel and position the economy as one of the fastest-growing emerging economies in the world was being hampered by inadequate infrastructure, particularly electricity supply.
That was not all. Also, on the strength of a reinvigorated manufacturing sector, Buhari promised to push back the ravaging monster of employment by creating three million jobs per year, which should have culminated in 24 million jobs in eight years. His promise to employ 740,000 graduates across the 36 states and the Federal Capital Territory (FCT) also buoyed hopes of taming the unemployment monster. The President also went a notch higher, committing his administration to creating 720,000 jobs per annum by the 36 states in the federation, which is equivalent to 20,000 jobs per state. His promise to pay allowances to the discharged but unemployed National Youth Service Corps members for 12 months while in the skills and entrepreneurial development programme, among others, also endeared him to not a few Nigerians.
However, a cursory appraisal of the impact of Buhari’s eight years administration on the productive or real sector, from the context of micro and macroeconomic perspectives, showed that most of his promises to Nigerians remained largely unfulfilled, even though some modest gains were achieved. One of the areas that appeared to have blighted Buhari’s eight years’ administration, at least from the perspective of real sector operators and other concerned Nigerians, was his failure to provide stable electricity supply. Despite being a major component of his promise of economic prosperity for Nigerians, his administration evidently failed to turn around the fortunes of the power sector.
For instance, before his assumption of office in 2015, Nigeria generated approximately 4,000 – 5,000 MW of electricity. Now, eight years after, electricity distribution in Africa’s largest and most populous economy stood at a mere 4,000 MW. Expectedly, this has been taking a huge toll on manufacturers and other business operators across sectors, manifesting in rising cost of production. While power takes only about 10 per cent of production cost in some countries, it gulps between 40 to 50 per cent of Nigerian manufacturers’ cost of production, and this has forced many factories to curtail output or even shut down. The Manufacturers Association of Nigeria (MAN) brought this reality nearer home when it lamented that as at the second half of 2022, expenditure on alternative energy source stood at N76.7 billion. According to the Association, the N76.7 billion spent on alternative energy source increased from the N45.04 billion recorded in the corresponding half of 2021, indicating N31.66 billion or 70 per cent increase over the period. It also increased by N8.9 billion or 13 per cent when compared with N67.8 billion recorded in the preceding half. MAN’s
A survey of the manufacturing sector by MAN for the second half of 2022 indicated that the huge expenditure was incurred on procurement of diesel, gas, generators and spare parts, inverters and UPS, etc. The survey, which was signed by MAN DG, Mr. Segun Ajayi-Kadir, and made available to The Nation, was designed to monitor changes in the sector’s performance indicators viz-a-viz the behaviours of macroeconomic and policy environments during the period of the survey. Domestic households were not spared of the devastating impact of inadequate and unstable electricity supply. For instance, only 45 per cent of Nigeria’s population is currently connected to the energy grid whilst power supply difficulties are experienced around 85 per cent of the time and almost non-existent in certain areas. At best, average daily power supply is estimated at four hours, although several days go by without any power at all.
Ajayi-Kadir said the high operating cost environment forced largely by inadequate electricity supply and the high cost of alternative sources as well as other familiar challenges caused a sharp reduction in the number of industries in Nigeria, with industrial hubs in many parts of the country converted to warehouses of imported goods and event centers. Apart from high energy cost, other challenges that confronted manufacturers in the past eight years included rising inflation, exchange rate volatility, and pervasive insecurity. Other challenges were excessive regulation and taxation, declining consumer purchasing power, high cost of credit and inadequacy of loanable funds and inadequate supply of Foreign Exchange (forex) for importation of raw materials, spare parts and machinery that are not locally available, etc.
Indeed, under Buhari’s eight years, manufacturers never stopped agonising over the depressing impact of shortage of forex and the huge depreciation in the value of the local currency, the naira, viz-a-viz other convertible currencies, especially the dollar.
Apart from limiting manufacturers’ ability to import foreign raw materials as inputs needed to complement local raw materials, the situation, they complained, consistently pushed most manufacturing sector performance indicators such as capacity utilisation, production value, inventory of unsold goods, and employment to the downward trend. In fact, the consensus is that the manufacturing sector and by extension, the economy, wobbled under Buhari’s supervision. His promise of making Nigeria one of the fastest-growing emerging economies with a real GDP growth rate of at least 10 per cent annually did not come through. Rather than hit the 10 per cent target, Nigeria’s GDP growth rate averaged 1.1 per cent between 2015 and 2021, according to the National Bureau of Statistics (NBS). The economy witnessed the worst decline ever, with Nigeria slipping into recession twice – in 2016 and 2020.
No significant dent on unemployment, poverty
Despite the administration’s strong commitment to bringing down the rate of unemployment across the country through vocational training, mass decent work and enterprise development, and by so doing, make good the President’s pledge to lift 100 million Nigerians out of poverty, the reality on the ground suggests that the administration failed woefully in these regards. The Minister of Labour and Employment, Dr. Chris Ngige, admitted this much when he recently said Nigeria’s unemployment has more than quadrupled since 2015.
“The triple issues of unemployment, poverty and economic disempowerment have remained a disturbing feature of Nigerian life. The unemployment rate in the country has more than quadrupled since the economy slipped into recession, first in 2015 and later in 2020. The unemployment rate in Nigeria rose to 9.9 per cent in 2015 as the current administration came on board,” Ngige said, at the recent 68th session of the inter-ministerial briefing organised by the Presidential Communications Team at the Presidential Villa, Abuja.
At the advent of civilian rule in 1999, Nigeria’s rate of unemployment stood at about eight (8) per cent. It rose to 9.9 per cent in the third quarter (July-September) of 2015, from 8.2 per cent in the second quarter, according to the NBS. Today, eight years after, NBS said unemployment rate stands at 33.3 per cent as at fourth quarter (Q4) 2020. However, the 33.3 per cent unemployment rate ascribed to Nigeria by the National Bureau of Statistics (NBS) is even being contested by the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA). NACCIMA’s immediate past National President, Ide John C Udeagbala, said the statistic was almost three years old and does not take into full consideration the impact of the COVID-19 pandemic and the conflict in Europe on the Nigerian labour market. Udeagbala was emphatic that the 33.3 per cent unemployment rate dished out by the NBS was “misleading.” According to him, the impact of the COVID-19 pandemic, and more recently, the Russia-Ukraine war, has been particularly serious for developing nations, including Nigeria that experienced higher levels of inequality, more divergent working conditions and weaker social protection systems even before the pandemic and the war in Europe.
The Nigerian Economic Summit Group (NESG) was also concerned by the high unemployment rate under Buhari’s watch, pointing out that the country’s unemployment rate may rise to 37 per cent this year. The private sector-led think-tank made the projection in its latest 2023 macroeconomic outlook report titled, ‘Nigeria in transition: recipes for shared prosperity.’
Poverty walks on all fours
With rising unemployment, Nigeria has maintained her unenviable record as ‘World Poverty Capital’ since 2016, according to the World Bank. Highlights of the 2022 Multi-dimensional Poverty Index survey revealed that 63 per cent of persons living within Nigeria (133 million people) are currently multi-dimensionally poor. Of the total, 105.98 million poor Nigerians are located in rural areas compared to 16.97 million in urban areas.
Recall that in August 2019, President Buhari committed to empowering an additional 100 million people to escape extreme poverty by 2030. This implied that on average, 10 million people must be lifted out of poverty each year, starting in 2020. However, with the adverse impact of the COVID-19 pandemic on livelihoods, and unemployment, this could not be achieved.
The effects of the rising spate of unemployment in Nigeria, particularly among the youths, have been telling. For instance, the crisis in the nation’s labour market and the attendant multi-dimensional poverty are blamed for the various vices that plagued the country under Buhari’s watch. They include rising crime wave (kidnapping for ransom, robbery, cultism, prostitution, advanced fee fraud, otherwise called ‘419’), civil unrest, and reduced wages for the employed, among others.
Heartache over soaring inflation
Throughout the eight years of Buhari’s administration, the NBS repeatedly assailed manufacturers and other private sector operators and indeed, Nigerians with scary figures of Nigeria’s soaring Consumer Price Index (CPI), which measures the rate of change in prices of goods and services. For instance, Nigeria’s inflation rate in December 2015, shortly after Buhari came on board, was 9.6 per cent, rising from 9.4 per cent in November same year. Eight years after, precisely last month, inflation rate rose to 22.22 per cent, up from 22.04 per cent in the previous month, according to data contained in the latest CPI report released this week by the NBS.
Last month’s increase was the fourth consecutive surge in the country’s inflation figure since the year began. “Looking at the movement, the April 2023 inflation rate showed an increase of 0.18 per cent points when compared to March 2023 headline inflation rate. Similarly, on a year-on-year basis, the headline inflation rate was 5.40 per cent points higher compared to the rate recorded in April 2022, which was 16.82 per cent. This shows that the headline inflation rate on a year-on-year basis increased in April 2023 when compared to the same month in the preceding year (that is April 2022),” the report stated, adding that items such as food and non-alcoholic beverages; housing, water, electricity, gas and other fuel contributed largely on the divisional level to the increase in the headline index.
For the CEO, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, Nigeria’s inflationary pressures remained a significant macro-economic risk in the economy. According to him, it was, and still is, a major concern to both businesses and the citizens as food inflation, which is the biggest worry for the poor, was on the rise. The implications of the nation’s soaring inflation are not lost on Dr. Yusuf. “It led to the escalation of production and operating costs for businesses, leading to erosion of profit margins, drop in sales, decline in turnover and weak manufacturing capacity utilization,” he said, for instance.
Dr. Yusuf, who was former Director General of Lagos Chamber of Commerce and Industry (LCCI), added that “It also led to high food prices, which impact adversely on citizens’ welfare and aggravates poverty, weak purchasing power, which poses significant risk to business sustainability and price volatility which undermines investors’ confidence.”
According to the economist, some of the major drivers of inflation include exchange rate depreciation, which has a significant impact on headline inflation, especially the core sub index, liquidity challenges in the forex market impacting adversely on manufacturing output and security concerns affecting agricultural output. Others, according to Yusuf, are climate change effects on agricultural production, increasing cases of flooding, desertification in many parts of the country and structural constraints affecting productivity in the agricultural value chain. “High transportation costs affecting distribution costs across the country also reflected in the huge differential between farm gate prices and market prices,” he added. The CPPE boss also said high transaction cost at the nation’s ports increases production and operating costs of businesses through high energy cost, high import duty on intermediate goods and raw materials.
Economy hobbled by bouts of recession
Instead of propelling Nigeria into the league of fast-growing emerging economies in the world, the economy slipped into recessions and has since been struggling amidst high inflation, high-interest rate and depleting foreign reserves. The first one was in 2016 when the economy slipped into recession in the second quarter (Q2), as the GDP shrank by 2.1 per cent after falling by 0.4 per cent in the first quarter (Q1), according to the Nigerian Bureau of Statistics (NBS).
The 2016 recession was the first time in over 20 years, and it came on the back of the steep fall in global crude oil prices on the world market and the country’s production volumes. The situation was, however, worsened by renewed insurgency in the oil-rich Niger Delta region, as attacks on oil installations disrupted production of oil in the region. Economists consider two consecutive quarters of shrinking GDP as the technical definition of a recession. And historically, Nigeria has experienced eight economic recessions, with the its GDP plunging to negative growth rate for three consecutive quarters in 1967, 1975, 1978, 1981, 1982, 1983, 2016 and 2020.
While the last two recessions occurred under Buhari’s administration, the economy exited the 2016 recession in Q2 2017 when it posted a 0.7 per cent growth. It was helped by various economic recovery strategies by the Federal Government prominent among which was the Economic Recovery and Growth Plan (ERGP). Although, the economy continued its slow recovery since then, the COVID-19 crisis made things worse. The collapse in oil prices coupled with the COVID-19 pandemic plunged the economy into another severe economic recession in 2020. It was the second recession in five years, and was the worst in 36 years.
The NBS, in its GDP report for Q3 2020, said the GDP, which is the broadest measure of economic prosperity, fell by 3.62 per cent in the three months up till September. For the first time in more than three years, the Nigerian economy shrank in Q2 as the GDP fell by 6.10 per cent, compared with a growth of 1.87 per cent in Q1.
Counting the gains
But it was not entirely a tale of woes for real sector operators. Some modest gains were achieved under the administration’s watch. For instance, even those critical of Buhari’s stewardship would not deny the fact that shortly after assumption of office in 2015, he launched the Anchor Borrower Programme (ABP). The intervention resulted in the establishment of rice processing mills, foreign investment and employment generation in states like Kebbi and Kano.
The President’s decision to revive the Backward Integration Policy (BIP) also gladdened the hearts of operators in the manufacturing sector. The initiative helped ensure easy access to raw materials locally for operators and in a way boosted production. Also, in June 2015, his administration, as part of efforts in encouraging local production, banned forex access to importers of key food items like rice, poultry and tomato paste, and this led to significant investment in the production of those food items. Many non-food items were also included in the forex access ban for imports such as cement, textile, Indian incense, roofing sheets and furniture.
On the strength of the policy, the National Horticultural Research Institute (NIHORT) estimated that Nigeria’s tomato supply gap now stands at 700,000 metric tonnes. Nigeria now produces 2.3 million metric tonnes of tomato per annum, representing a 27.8 per cent growth.
Other policy reforms by the Buhari-led administration included the 24-hour online registration of businesses, digitalisation of legacy records and partial automation of post-incorporation filings from state offices to reduce turnaround time and reduce costs. In the area of Ease of Doing Business, which was one of the pain points for manufacturers and other business operators, the government, in July 2016, set up the Presidential Enabling Business Environment Council (PEBEC). The policy, The Nation learnt, simplified the processes for business registration in Nigeria. At some point, it also propelled Nigeria 15 places on the World Bank ease of doing business index. From 146th position in 2018, Nigeria moved to 131th position in 2019, for instance.
Under Buhari’s charge, operators in the textile industry also heaved a sigh of relief. This followed the Central Bank of Nigeria (CBN) approval of a loan of N19.18 billion, in 2019, to nine cotton-producing firms so as to guarantee steady off-take and processing of cotton lint and cotton seeds. He also went a notch higher by directing the Ministry of Industry, Trade and Investment to establish agro-allied industries in all the 36 states to further enhance growth of the textile industry.
The President’s biggest achievement in the real sector was perhaps, the signing of the African Continental Free Trade Area (AfCFTA) agreement in 2019, after consultations with relevant stakeholders. The Finance Bill 2019 was also a key policy for the real sector’s survival, especially for Small and Medium Enterprises (SMEs). The bill indicates zero Company Income Tax (CIT) for SMEs with less than N25 million and only 20 per cent CIT for businesses below N100 million, but above N25 million.
