With over 400 manufacturing firms forced to close production and job cuts in hundreds of thousands in the last one year, according to the Manufacturers Association of Nigeria (MAN), the ravaging Covid-19 pandemic has continued to disrupt businesses, reports Ibrahim Apekhade Yusuf
Bad times for businesses
Businesses are seriously hemorrhaging, especially in the last 12 months since the ravaging Covid-19 pandemic, according to the latest report of the Manufacturers Association of Nigeria (MAN).
Speaking at a public forum to mark MAN’s 50th-anniversary recently, the Director-General, MAN, Segun Ajayi-Kadir said COVID-19 pandemic impacted over 415 industries as many of them actually went under.
While noting that some of the manufacturers have resumed production, the continued scarcity of foreign exchange (FX) and supply-side constraints are the two biggest hiccups facing industries in the country.
“After Central Bank restricted forex for 41 items and with the impact of COVID-19, we had a tremendous downturn in 415 industries and many of them actually went under,” Ajayi-Kadir explained.
“The supply-side constraints include such traffic logjam at the ports, difficulty accessing imported raw materials remains a big the challenge,” he added.
The DG also pointed out that infrastructure deficit, power, transportation acquisition of lands, the multiplicity of taxes and levies from different tiers of government, and inconsistent government policies were other challenges faced by players in the sector.
“The implication of these challenges highlighted is that it impedes the growth and development of the manufacturing sector, thereby affecting the attainment of the sector’s full potential of massive job and wealth creation,” he said.
The MAN boss during his discussion with journalists also advocated for legislation on the patronage of made-in-Nigeria products especially from the government.
“There is no reason why ministers, and to even start with the National Assembly, should not be driving made-in-Nigeria cars. We have cars that are assembled here.”
“Despite we are doing a lot to improve the bottom line of our members linking up with manufacturers across Africa so that we can create a cross-border value chain to develop areas where we have a comparative and competitive advantage, the government actions remain key to unlocking the huge potential the sector holds.”
“We have signed a memorandum of understanding (MoU) with parastatals of government like SON and NAFDAC. All of these are to improve the quality and delivery of our members’ products,” he stated.
Like 2020 like 2019
It may be recalled that after a profitable 2019 for the Norway based Chinese-backed OPay, the company has announced that several of its subsidiaries will be exiting Nigeria or temporarily stopping operations. In 2018, Chinese investors backed the startup with $180 million to take over the mobile money space in Nigeria.
By June 2019 Opay diversified its offering to launch a bike-hailing service, a bus transport service, a food delivery company, an investment arm and a loan service to Nigerian customers served through one app.
Despite having less visibility in Lagos, which is seen as a huge and major market for fintech players, OPay in 2019 claimed to process $5m worth of transactions daily.
But when the government of Lagos announced a ban on passenger motorcycles in regions in Nigeria – effectively shutting down its bike-hailing service – rival ride-hailing companies blamed OPay for the ban, saying the company did not fully comply with the set down regulation on bike engines as well as not doing security checks on its bikers.
“We are in a market where food consumption is 56.5% of consumer spending, an indication of chronic poverty. Until Nigeria is able to build a large, stable and growing middle class, it would be hard to make the case for certain investments,” says Adedayo Bakare, a Lagos-based economist.
“A business can’t grow faster than the environment it operates in”, tweeted analyst Ovigue Eguegu. “There are core systemic issues stifling rapid growth in African countries, particularly in tech. Transsion (Itel, Infinix, and Tecno) now seems like the exception.”
According to the company, “It is important to clarify that ride-sharing had always been only one part, and not a major part of OPay’s diversified business in Nigeria. In fact, OPay had been investing more and seeing accelerated growth in its commitment to Nigeria’s financial and technology inclusion.”
OPay was initially touted to create a mobile money service to rival the spread and usage of M-Pesa in Kenya for the Nigerian market.
But with several rival players already present in the market, such as like Paga and Paystack, many say the market is already saturated.
Due to the COVID-19 pandemic, several countries have seen the economies slow down or grind to a halt. The IMF estimated that Nigeria’s economy will shrink by at least 3.4% but local experts have predicted that the recession is expected to hit harder.
“COVID-19 has only made a bad situation worse, the economy was already fragile and barely growing prior to the pandemic. It’s tough for investors to deliver quality risk-adjusted returns on external capital in an operating environment where poverty is high, incomes are weakening and the currency is always losing value”, Adedayo noted.
Mr Price, a South African retailer, reportedly closed four of its fives stores and will quit Nigeria in the recently.
Two other South African retailers — Woolworths and Truworths had earlier exited Nigeria in 2013 and 2016 respectively.
The sharp fall in exports due to weak oil prices and higher capital outflows due to elevated risk have prompted the weakening of the currency and invariably the economy. Nigeria received a $3.4bn emergency financial assistance from the IMF to help the federal government fund its 2020 budget and support the economy, including the healthcare sector.
According to Olabinjo Adeniran, a growth marketing expert for technology companies and the co-founder of Future Africa, running a conglomerate internet company is extremely difficult with only a few companies having the scope and ability to deliver.
Food businesses also impacted
Writing on the impacts of COVID-19 on food systems and poverty in Nigeria, Kwaw Andam, Hyacinth Edeh, Victor Oboh, Karl Pauw, and James Thurlow all experts in finance and economics, recalled that most countries exempted agri-food systems from “lockdown” policies introduced in early 2020 to curb the COVID-19 outbreak. Yet these policies had economy wide implications, implying that even exempted sectors were indirectly affected by disruptions to supply chains and falling consumer demand.
Going down memory lane, the said, “After its first confirmed case, Nigeria’s federal and state governments implemented lockdowns across most cities and states. This included closing all borders and many non-essential businesses. Nigeria also faced declining remittances and export demand caused by the global recession.
“We estimate the economy wide impacts of these lockdown policies and global shocks using a multiplier model of Nigeria calibrated to a 2018 social accounting matrix. We simulate Nigeria’s 8-week lockdown (March–June), as well as “recovery” scenarios until the end of 2020. Simulations draw on information from official data, policy announcements, and interviews with government agencies and private sector and industry groups.”
Findings indicate that total GDP fell 23% during the lockdown with agri-food system GDP dropping at 11%, primarily due to restrictions on food services. Household incomes also fell by a quarter, leading a 9% points increase in the national poverty rate.
According to these experts, given the scale of these economic losses, our recovery scenarios indicate that, even with a rapid easing of restrictions and global recovery, Nigeria is unlikely to escape a deep economic recession. “We conclude that, while food systems were exempt, they were not immune to the effects of Covid-19. Protecting food supplies should be a priority alongside government efforts to address the health consequences of the pandemic.”
How Nigeria fared in the ease of doing business in 2020 report
In a related development, the status report on businesses for the intervening period also showed that ease of doing business was impacted.
For instance, the World Bank Ease of Doing Business 2020 Report that compared business regulation for local firms in 190 economies showed Nigeria’s ranking jumped from 146 to 131; representing its second-highest annual progress of 11.45% in a decade.
The highest annual growth remains at 14.2%. Furthermore, the annual report looks at 10 parameters. Dealing with construction permits (14.6%) and trading across borders (6.1%) had the best growth. The country improved its rank in five parameters while moving closer to global best practices in two parameters. WB also recognised Nigeria as the ten most improved economies, thanks to six distinct reforms from the Presidential Enabling Business Environment Council (PEBEC).
Nigeria enhanced its land administration process through a geographic information system. Yet, the time for registering property increased a little to 92 days (2019: 91.7 days). Moreover, Indonesia introduced no reform and registering property took a long time of 31 days (2019: 27.6 days).
By introducing an electronic payment of fees, the time for complying with documentary and border regulations in Nigeria reduced very much to 564 hours (2019: 662.1 hours). The reforms were cost-effective and time-efficient. Indonesia also enhanced the online processing of export customs declarations. However, the total compliance hours in Indonesia dropped a bit to 322 hours (2019: 320.2 hours).
Licensed engineers inspected new connections in Nigeria. Residents, thus, got a faster power supply in 110 days (2019: 115.3 days). Indonesia also repaired its electrical grid which lessened the time to get new electrical connections. This reform lowered the time to get electricity to 32 days (2019: 34 days).
During the reporting period of 2018/2019, a taxable person in Nigeria paid taxes in 343 hours (2019: 347.4 hours). In comparison, Indonesia automated the process for tax payment and filing. A taxable person in Indonesia paid taxes in a shorter period of 191 hours (2019: 207.5 hours).
According to analysts, based on the 2020 report, Nigeria only restored to its earlier position in 2013 of 131st. To rank as the top 100 economies in 2023, experts concede that the government needs to give urgent intervention to the above four parameters. PEBEC also needs to introduce massive reforms to property law, international trade, electricity and tax laws.
