Last year was arguably the toughest so far for real sector operators, especially manufacturers. Apart from being hit by the ripple effects of the global economic downturn caused by tumbling oil prices, the year, characterised by hash monetary and trade policies, eroded manufacturers’ productivity and competitiveness. The glitches of last year may have also set the stage for more turbulence for manufacturers this year, going by the government’s policy and utterances in the twilight of the year. CHIKODI OKEREOCHA and OKWY IROEGBU-CHIKEZIE report.
It was a year real sector operators would not forget in a hurry. For manufacturers in particular, 2015 was not only challenging, it was turbulent as it was characterised by a downturn in the economy. No thanks to the unprecedented crash in oil prices at the international market. Not a few manufacturers gasped for breath from the devastating effects of the crisis in the oil market, the government’s monetary, fiscal and trade policies. Their woes were compounded by the nation’s huge infrastructure deficit.
Many of the manufacturers feel the Foreign Exchange (forex) and Treasury Single Account (TSA) policies of the Central Bank of Nigeria (CBN) dealt deadly blows to their businesses. They recall how the forex policy, which barred importers of 41 items that could be sourced locally from having access to CBN’s official forex window, imposed a heavy burden on their operations and the economy generally.
To them, the forex restriction was a serious disincentive to the manufacturing sector as any operator who required any of the 41 items on the restricted list as a primary raw material may close shop after exhausting his existing stock.
The policy also caused serious decline in the fortunes of manufacturers and other operators in key sectors, as getting forex from alternative sources became exorbitant.
Other operators, especially those in the fast-moving consumer goods sector and newspaper organisations felt the heat as they found it expensive to settle outstanding obligations to foreign suppliers.
The implementation of the Federal Government’s directive that all Ministries Departments and Agencies (MDAs) remit generated revenues into a TSA, did not go down well with real sector operators.
Although, the TSA policy was aimed at stemming corruption and enhancing transparency, it triggered a serious liquidity crisis in the banking sector as the MDAs, in compliance with the directive, made huge remittances out of commercial banks to the CBN.
The effect of such huge remittances was that commercial banks’ balances with the CBN usually earmarked for foreign exchange or bond purchases plunged. Interest rates rose, forcing investments to ebb.
Many foreign investors also reportedly divested from the Nigerian Stock Exchange (NSE). The Nation learnt that in the heat of the TSA implementation, about 20, 000 accounts were closed, a development that sent jitters down the spine of bank workers, over possible job losses.
Manufacturers Association of Nigeria (MAN) President Frank Udemba Jacobs said the negative impacts of the CBN’s monetary policies on the manufacturing sector can be gleaned from National Bureau of Statistics (NBS) figures.
The figures show that the sector performed abysmally low in the second quarter of last year in terms of output and contributions to the Gross Domestic product (GDP).
According to Dr. Jacobs, manufacturing output grew by 3.82 per cent in the second quarter of 2015, from 14.01 per cent of the corresponding period in 2014. This, according to him, indicated a 17.83 percent decline over the period.
Besides, the NBS figure shows that the manufacturing sector’s contribution to nominal GDP in the second quarter of last year fell to 9.29 per cent as against 9.77 per cent of the corresponding period in 2014.
This, Jacobs said, clearly showed a 0.48 percent decline over the period, lamenting the clash of all manufacturing indices.
The capacity utilisation, production value and manufacturing investment, he noted, declined throughout last year.
Highlighting the impacts of the various policies on real sector operators, the Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said the restriction on the use of export proceeds by exporters made it difficult to settle import bills.
According to him, it also caused a decline in banks’ revenue due to loss of transactions from businesses, as operators patronised the alternative market at high costs, a development that further eroded their already shrunk margins.
After an appraisal of the ripples effect of the policies on businesses, the Director-General, Enugu Chamber of Commerce, Industry, Mines and Agriculture (ECCIMA), Sir Emeka Okereke, concluded that the harsh policies are unsustainable for the manufacturing sector.
The policies, which according to him are panicky measures, could cause incalculable damage to the economy, if not relaxed.
Okereke told The Nation, the withdrawal of public sector funds from commercial banks by the CBN was a panic policy that cannot be sustained.
“The policy is not sustainable. It is a panic policy capable of wrecking the economy. We need to revisit,” he said, adding that it could kill the economy as businesses are already feeling its impact.
Stressing that the apex bank took some policies, particularly those aimed at saving the naira, in a hurry, Okereke believed the weakness of the local currency against the dollar was triggered by the monolithic product and import-dependent nature of the economy.
“We need to take our time before coming out with some of these policies,” the NACCIMA chief cautioned.
Impacts of tumbling oil prices
The free fall of oil prices, which began mid June 2014, triggered sharp drops in accruals to the foreign exchange reserves, a development that forced the apex bank to devalue the naira. Because of the bank’s measure, manufacturers, who import raw materials in dollars, have been groaning.
Specifically, manufacturers have been paying more naira for each unit of raw materials they import, including machineries, spare parts and other import-dependent procurements.
Those who rely on banks’credit facilities to import raw materials are the worst hit. They do so at higher interest rates, sometimes, between 25-30 per cent. Many manufacturers still find it extremely difficult to finance their import bills. Those and those who manage to do so, contend with dwindling profit margins.
Operators in the Small and Medium Enterprises (SMEs) are crumbling under the inclement business climate.
The slump in oil prices and the subsequent depreciation of the naira is slowing down economic activities and thus causing a decline in economic growth rate.
For instance, the economy, which recorded a GDP growth of 6.54 per cent in the second quarter of 2014, dropped to 2.35 per cent last year, going by the NBS figure.
The 2.35 per cent GDP growth in the second quarter of last year, which ended in June, was the second quarter in a row that the economy would record below budgeted performance. According to experts, the 2.35 per cent growth when the population continues to grow at close to 2.85 per cent meant that the average Nigerian was getting poorer.
Trade policies are pain in manufacturers’ neck
At the turn of 2015, the European Union (EU) intensified the push to boost its trade with Nigeria and widen the scope of its investment in Africa’s largest economy by getting Nigeria to endorse the contentious Economic Partnership Agreement (EPA). But, manufacturers opposed the deal’s endorsement, insisting that the EPA, which seeks to eliminate barriers to free movement of goods, services and investment between EU and Nigeria, would hurt economy.
The EPA is an EU-sponsored Free Trade Agreement (FTA) designed to create a free trade area among EU and Africa, Caribbean and Pacific (ACP) countries, in which duties on goods imported and exported between the parties are reduced and eventually removed. It seeks to promote economic growth and development, reduce poverty in the partnering nations, diversify trade and increase domestic and foreign investment.
Under the deal, EU would immediately offer the 15-member Economic Community of West African States (ECOWAS) countries (including Nigeria) and non-member state (Mauritania), unrestricted access to its market of 500 million people.
In return, Nigeria and other members of ECOWAS would gradually open up 75 per cent of their markets – with their 300 million consumers – to Europe over a 20-year period.
However, citing Nigeria’s weak manufacturing base caused by lack of supportive infrastructure and hash operating environment, manufacturers insist that the deal would leave Nigeria holding the short end of the stick, considering that Nigeria and indeed, most members of ECOWAS, have little finished goods to successfully sell to Europe.
According to them, signing the agreement would amount to economic suicide, as many industries will shut down because local manufacturers cannot match with goods from Europe and other developed economies.
Manufacturers expressed fears that EPA could lead to de-industrialisation in West Africa, with dire economic and employment consequences for Nigeria because of her 60 per cent share of the regional market and GDP.
“The EPA will confine the Nigerian economy to a mere market extension of the EU since we cannot operate with Europe on all grounds. It is on this ground that we believe that Nigeria does not need EPA now until it has been adequately industrialised and is able to trade industrial goods competitively,” Dr. Jacobs, said. He was making a reference to EPA’s provision where the EU wants Nigeria to open its market by 75 per cent over a 20-year period.
Although, MAN members, who have been kicking against the ratification of EPA by the Federal Government, said they will keep their advocacy task very strong with regards to the agreement. But, the issue may remain on the front burner of national discourse this year.
Manufacturers fret over ECOWAS CET
The implementation of a Common External Tariff (CET) by ECOWAS allows goods from member states into Nigeria without the imposition of any tax, import duty or levy. But, the the Organised Private Sector (OPS) is uncomfortable with the arrangement.
The First Deputy National President of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Chief Bassey Edem, articulated the concern of members of the OPS over the ECOWAS CET.
Edem, who identified ECOWAS CET as another major challenge that local business will grapple with this year, said: “This (ECOWAS CET) is another challenge to our growing industries that are currently battling with the devaluation of the naira amongst other challenges.”
He said although, NACCIMA appreciates the need for the ECOWAS CET, but that the body cannot overlook the fact that the nation’s borders will be thrown open to influx of goods from within the West African region following the implementation of ECOWAS CET.
“The need to ensure compliance with all protocol signed by ECOWAS to eliminate dumping of goods in the region is of great importance for our growing industries to survive with the implementation of ECOWAS CET and for the realisation of the Nigeria Industrial Revolution Plan (NIRP),” the NACCIMA chief said.
He has an ally in renowned economist and industrialist, Mr. Henry Boyo, who argued: “You can’t have an industrial growth in this kind of environment with a CET that exposes local industries and products to unequal competition.”
Infrastructure deficit, multiple taxation, others as sore points
The huge infrastructure gap, particularly in the area of power supply, remains a thorn in the flesh of manufacturers. The consensus is that the power sector reforms embarked upon by the immediate past administration failed to give manufacturers the needed relief. The crisis in the energy sector has refused to abate. The privatisation of the generation and distribution aspects of the sector has not yielded any significant improvement in electricity supply to residential and industrial consumers.
“The emergence of electricity distribution companies (DISCOs) nationwide did not seem to provide the anticipated reprieve. We are still contending with inadequate and poor supply; high tariff, arbitrary and startling increase in tariff and unwarranted disconnections among others,” Jacobs said at the Annual
General Meeting (AGM) of MAN’s local chapter in Ikeja, Lagos.
MAN’s Economic Policy Committee (EPC) Reginald Ike Odiah, painted a grim picture of the huge toll erratic power supply is taking on manufacturers.
“A situation where manufacturers spend a whopping N500 billion annually on in-house power plants along with other added costs of providing other infrastructural deficiencies is certainly out of the equation,” Odiah lamented.
Poor infrastructure, particularly power supply, which has been pushing up production cost, is also believed to be partly responsible for lack of competitiveness of the manufacturing sector, especially the SMEs.
Compounding the situation is the challenge of multiple taxation by different tiers of government and agencies.
AGOA extension aspositive development
The United States (U.S.) recent reauthorisation of the African Growth and Opportunities Act (AGOA) for 10 more years has opened a fresh window of opportunity for Nigeria to drive her non-oil export business.
AGOA is a trade policy that seeks to increase market access to Nigeria and 38 other eligible sub-Saharan African countries to export about 7, 000 product line tariff and quota-free to the U.S. market.
The Act initially covered eight years (October 2000 to September 2008), but with the amendments signed by former President George Bush in July 2004, AGOA was extended to September 2015. Although, Nigeria failed to maximize the opportunities under the U.S. trade policy within the last 15 years, a second chance came when the U.S. Congress, on June 11, 2015, renewed the Act for another 10 years.
With the extension, the programme, which would have expired on September 30, 2015, would now end in 2025. The extension has been signed by President Barack Obama.
Experts say that the trade policy bodes well for the Federal Government’s plan to diversify the economy with the promotion of non-oil exports like agriculture.
Budget 2016 as elixir for manufacturing
The presentation of the 2016 Budget proposal by President Muhammadu Buhari to the National Assembly offers a flicker of hope that the sector may be revived.
Identifying the manufacturing sector as the most affected by CBN’s policies to salvage the economy from going into recession, the President said the unending slide in oil prices at the international market had hurt the economy negatively.
Buhari said: “By June 2014, oil prices averaged $112 per barrel. But as at today, the price is under $39 per barrel. We believe that this budget, while helping industry, commerce and investment to pick up, will as a matter of urgency, address the immediate problems of youth unemployment and the terrible living conditions of the extremely poor and vulnerable Nigerians.”
