The outgoing year was challenging for operators and stakeholders in the real sector, which comprises manufacturing and agriculture. The harsh operating environment caused by the dearth of infrastructure and faulty fiscal and monetary policies literarily forced the sector on its knees. The good news, however, is that some strategic policy responses by the Federal Government have set the stage for the sector’s dramatic turnaround in the coming year. Assistant Editor CHIKODI OKEREOCHA evaluates the critical events that shaped the sector this year and some of the signals that a new dawn is in the offing.
The outgoing year is a mixed bag of blessings for the real sector. It will probably go down as the most challenging year for the real sector, which comprises manufacturing and agriculture.
The sector was, perhaps, worst hit by the crisis triggered by the economy’s relapse into a debilitating recession following the crash in oil prices at the international market. For instance, the result of declining Foreign Exchange (forex) inflow caused by the sharp drop in oil prices and the activities of militants in the Niger Delta region was devastating.
For one, many real sector operators, especially manufacturers, were unable to source forex to import critical raw materials that were not available. Consequently, manufacturing capacities stagnated. Many manufacturers recorded huge financial losses. Those who could not weather the storm were either forced to shut or relocate to neighbouring West African countries. Those who managed to remain afloat trimmed their workforce; others slashed their workers’pay as part of a cost-cutting measure.
Manufacturers were also faced with high-lending rate, high cost of power generation and declining household consumption. Inflation and interest rates rose to as high as 18.3 per cent and 14 per cent. The exchange rate of the naira to the dollar was no less disturbing. At some point, it stood at N310/$1 at the official market and N475/$1 at the parallel market. At such exchange rate, it was almost impossible for manufacturers to sustain production, as inventory of raw materials dried up without sustainable means of sourcing forex for replenishment.
That was not all. The year, like the previous ones, was also signposted by the government’s policy inconsistencies, lack of supportive infrastructure particularly electricity supply and efficient road and rail networks, among others. While the lack of stable electricity supply hampered the growth of the Small and Medium Enterprises (SMEs), which further exacerbated the troubles of the manufacturing sector, the sudden scarcity and high cost of petroleum products towards the end of the year added to the sector’s litany of woes.
Expectedly, these challenges undermined the sector’s capacity to grow and contribute significantly to the nation’s Gross Domestic Product (GDP); particularly for the manufacturing sector, widely acknowledged as the engine of growth, wealth creation and sustainable platform for employment and development, it was a serious blow on the Federal Government’s economic diversification agenda.
A new dawn beckons
Although 2017 was challenging for most real sector operators, it was also perhaps, the most promising year. Indications to this emerged in the second quarter when the economy exited its worst recession in history, recording a positive growth rate of 0.5 per cent year-on-year (y/y). The recovery was in part due to a sharp recovery in the oil sector, driven by an improvement in oil prices and production volumes.
In addition, the non-oil sector recorded a positive growth for the second consecutive quarter, spurred by ongoing recovery in the manufacturing sector due to improved Foreign Exchange (FX) liquidity. Asides the improvement in real GDP, the performance across several other macro-indicators suggest that the economy was on track for a broad-based recovery.
Apart from recording positive growth in first quarter of last year, hitting 1.36 per cent, against -2.54 per cent it recorded in fourth quarter of the year, the manufacturing sector’s capacity utilisation also significantly increased. Describing this as “heart-warming,” Manufacturers Association of Nigeria (MAN) President Dr. Frank Udemba Jacobs attributed the growth recovery to better policy adjustments, particularly in forex management.
Jacobs added that this was followed by MAN’s various meetings and presentations to the Federal Government. He, however, noted that in line with the recovery momentum in the manufacturing sector, there was the need for more credible measures that would help sustain and strengthen the sector’s recovery. He expressed optimism that the government’s policies and guidelines aimed at addressing the challenges facing manufacturers will improve the operating environment in due course.
‘Executive Order’ to the rescue
One of the policies Jacobs referred to was the signing of three executive orders by Vice President Yemi Osinbajo aimed at compelling a systemic change in the way businesses are conducted, thereby eliminating the hurdles in the way of a bigger and more productive private sector.
The executive orders, signed at the State House, Abuja, sought to facilitate the ease of doing business in the country to save time and cost, promote transparency and efficiency in the business environment as well as promote Made-in-Nigeria products and services by supporting local contents in public procurement by the Federal Government.
It also sought to enthrone a regime of timely submission of yearly budgetary estimates by all statutory and non-statutory agencies, including companies owned by the Federal Government. The objective of the initiative was to stimulate a rebound of an economy severely battered by recession and also fast-track Nigeria’s transition to a non-oil economy.
The stipulation of sanctions and punitive measures meant to address violations of the executive orders was seen by some private sector operators as indication that a new dawn is, perhaps, in the offing. This is so, particularly, for manufacturers many of who believe that the aspect that encourages the ‘Made-in-Nigeria’ or ‘Buy Nigeria campaign’ by supporting local contents in public procurement by the Federal Government was necessary to revitalise the sector and boost its competitiveness.
Under the new order, at least 40 per cent of government procurement spending will be on made-in-Nigeria goods and services. As the Minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah, explained, all Ministries, Departments or Agencies (MDAs) shall give preference to local manufacturers of goods and services in their procurements.
The immediate past president of Lagos Chamber of Commerce & Industry (LCCI), Mrs. Nike Akande, said that the three main pillars of the executive orders have been key focus areas of LCCI’s advocacy campaign over the last few years. She expressed optimism that the executive orders will impact the ease of doing business, fast-track budgetary administration as well as promote made in Nigeria products.
She, therefore, urged the government to ensure that stipulated timelines were adhered to by all the parties affected by the orders. She asked for continued consultations and engagement with the business community and the bureaucracy in building understanding and buy-in of all stakeholders.
EGRP also
Last April, the Federal Government launched the Economic Recovery and Growth Plan (ERGP) 2017-2020, which lists 24 programmes made up of 60 strategies and 369 key activities.
The medium-term economic plan, which was launched by President Buhari, charts a course for the economy over the next four years (2017–2020).
The vision of the ERGP was to restore growth, invest in Nigerians, and to build a globally competitive economy. The plan aims to achieve these by focusing on five execution priorities namely, stabilising the macroeconomic environment and achieving agriculture and food security.
Others are ensuring energy efficiency (especially in power and petroleum products), improving transportation infrastructure and driving industrialisation primarily through SMEs.
The ERGP will return Nigeria’s economy to sustainable, inclusive and diversified growth, and to transform Nigeria from an import-dependent to a producing economy; a country that grows what it eats and consumes what it produces.
Alignment of monetary, fiscal and trade policies
The Federal Government also made progress with the alignment of monetary, fiscal and trade policies. For instance, the Central Bank of Nigeria (CBN’s) FX regime reforms led to increased stability in the FX market and increasing appetite for Nigerian stocks by foreign portfolio investors.
Some of the reforms that gladdened the real sector operators included the creation in April 2017 of a new FX window for investors and exporters. The new window attracted $1.4 billion in its first four weeks of operation, according to CBN’s data.
There was also the revision of the list of 41 items excluded from the CBN’s FX window, in line with the request from MAN as well as the introduction of a new, tariff-driven tomato policy to support domestic producers and production.
Ease of Doing Business, MSME clinic, others
The establishment of the Presidential Enabling Business Environment Council (PEBEC) also raised hopes of operators of a significant boost in the performance of the real sector.
PEBEC’s mandate is to improve the Ease of Doing Business (EODB) in the country. As Jacobs stated, “The performance score card of PEBEC indicates that its seven points objectives set in line with the World Bank Indices of EODB have been achieved.”
The MAN boss observed, for instance, that there has been visible improvement in the ease of company registration, which is now being facilitated through a web portal. Also, trade facilitation constraints have been removed. He also noted the implementation of some aspects of the single windows ports operations, among others.
He, however, said MAN will continue to encourage investors to take advantage of these initiatives while imploring government to extend the improvements to other areas that affect the Ease of Doing Business not currently captured in PEBEC framework to improve Nigeria’s competitiveness.
Other policy interventions that may have signalled a new dawn for the sector include the launch of the Micro, Small and Medium Enterprise (MSME) Clinic, the inauguration of the Nigerian Industrial Policy and Competitive Advisory Council, which has the mandate to drive Nigeria’s industrial agenda of which MAN is a strong member.
Reduced interest rate for manufacturers
The Federal Government as part of its commitment to supporting and encouraging local manufacturing industries, towards the end of the year, unveiled plans to begin the implementation of the reduction of interest rate for local manufacturers from the first quarter of next year.
The move, the government said, was aimed at tackling the issue of rising interest rate in the sector. It also followed the inauguration of the National Industrial Policy and Competitive Advisory Council by Vice President Osinbajo for the purpose of devising and supervising policies that will speed up Nigeria’s industrialisation.
The Minister of State for Industry, Trade and Investment, Hajia Aisha Abubakar, who made the plan known in Ota, Ogun State, said under the industrial council, sub-committees charged with tackle financing issues have made their presentations and interventions have been proposed that can be used to soften and ensure interest rates are reduced to encourage local industries.
“Everybody is talking about the interest rate and that funds that are coming are not good for the industry; it doesn’t work that way. There is a plan that we are trying to unfold definitely to see what we can do quickly to speed up the industrialisation process. By first quarter of 2018, definitely there will be something put down to tackle the issue of financing, hopefully first quarter of next year for implementation,” she said.
Heart-warming as these policies are for operators, the consensus is that their capacity to translate to a significant boost to the real sector will depend largely on the government’s political will and, of course, the collaboration of stakeholders.
