Despite the challenge of unbridled importation of cheap and substandard textile materials and the infrastructural deficit in the country, the Federal Government went ahead disbursing the N100b Cotton, Textile and Garment (CTG) Revival Fund. Stakeholders say the government may have put the cart before the horse thus nailing the coffin of the ailing textile industry, reports Assist. Editor CHIKODI OKEREOCHA.
It a generous interest rate of six per cent and a repayment period of five years, operators in the textile industry ought to be falling over themselves to access the N100 billion Cotton, Textile, and Garment (CTG) Revival Fund. But this has not been the case. Rather than scramble for the loan, most textile companies are said to be avoiding it like plague. Only about 20 textile firms have so far accessed the loan, according to the Director General, Nigeria Textile Manufacturers Association (NTMA), Mr. Jaiyeola Olarewaju. He also disclosed that very few cotton and garment firms have taken the loan, which sought to revitalise the CTG industry along the entire value chain, including textile, cotton, and garment production.
Olarewaju told The Nation that the fund introduced in 2010, and currently managed by Bank of Industry (BoI), recorded some noticeable improvements in the fortunes of the CTG industry such as the re-opening of United Nigeria Textiles Limited in Kaduna, and Arewa Textiles, which indicated interest to come back. Besides, the industry, he said, recorded relatively less factory closures and redundancies, as some of the 20 textile companies who took the loan deployed it either as working capital or used it to refurbish their machines.
Olarewaju however, expressed regrets that those who took the loan got their fingers burnt when they discovered, shortly after accessing the loan, that over 80 per cent of the market has been taken over by cheap imports from Asian countries. According to him, the influx of foreign textiles into the country made locally produced textiles less competitive, as they are often costlier than imported or smuggled ones. The result, he said, was that other companies yet to access the loan chose to avoid it. Most of them became afraid that they may not be able to repay the loan considering the prevailing unfriendly operating environment particularly with regards to lack of infrastructure.
As far as the textile firms are concerned, government put the wrong foot forward when it failed to first reduce smuggling and address the more fundamental challenge of lack of infrastructure particularly power supply before coming out with the bailout fund. Because of Nigeria’s huge infrastructure deficit particularly, inadequate and unreliable electricity supply, manufacturers, including textile companies, are forced to rely on generators at huge cost, resulting in rising cost of production.
Cost of manufacturing textiles in Nigeria is considered too high partly because of high energy cost. For instance, the price of gas was increased by 15 per cent from January 2014 and price of black oil, which is an important input in the production process, remains high due to scarcity. In textile production, companies either use gas or black oil. But in a state like Kaduna, there is complete absence of gas. What is found is black oil, which is often in low quantity. Besides, the insecurity situation in the country especially in the Northeast made nonsense of the intervention fund, as most textile companies in that part of the country could not operate.
“We are stagnated now; the problem goes beyond money,” says President, National Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWN), Comrade Oladele Hunsu. Hunsu toldThe Nation that although, there was a significant improvement in the industry, as 1, 500 jobs have been saved through the intervention, efforts to put the industry back on track have been frustrated by government’s policy inconsistency. He said before the introduction of the fund, government had banned the importation of textiles into the country, which was why operators hailed the initiative and also embraced it. He however, lamented that the same government pulled the rug off the feet of operators when it again unbanned the importation of textiles, thus opening the floodgate for cheaper textiles to come in from Asia.
Comrade Hunsu lamented that the situation is regrettable considering the fact that the real sector rather than the service sector remains the real growth diver. He said the textile industry is the second largest employer of labour after government, which is why government must put necessary measures and policies in place to salvage the industry. His position was in line with the communiqué issued at the end of a three-day workshop for union organisers and self-employed tailors and small scale garment makers organised recently by his union in collaboration with Friedrich Ebert Stiftung in Ilorin, Kwara State.
The communiqué noted, for instance, that the performance of the Nigerian textile industry remained at low ebb in the first half of 2014 due to lack of an enabling environment and inconsistency in government policy. NUTGTWN observed that there are 25 textile mills employing about 24,000 workers, while capacity utilisation in the industry remains below 50 per cent, with growth remaining stagnant since 2012. The communiqué noted that government had talked about a new textile policy in February 2013, but regretted that there has been no progress. It therefore, argued that unless government takes effective steps to revive the industry, gains achieved in 2010 when the revival fund came on stream would be lost, resulting in job losses, which would aggravate the unemployment situation.
One of the effective steps the union is canvassing to breathe life into the comatose textile industry is to immediately checkmate the influx of smuggled goods, which the union insistsoccupy over 90 per cent of the market. “It is estimated that Nigeria ‘imports’ N300 billion worth of textiles and garments annually, most of which are illegally imported without paying any duties and taxes. The total amount of revenue loss on account of Customs duty and Value Added Tax (VAT) on this volume is estimated at N75 billion. Such rampant evasion of taxes lost to smuggling when the government is running from pillar to post to mobilise revenue should be an eye opener,” the communiqué read.
The communiqué further noted that the huge backlog of Negotiable Duty Credit certificates (NDCCs) accumulated over last two yearsunder the Export Expansion Grant (EEG) has thrown the CTG industry into serious financial crisis, which the N100 billion funds has so far failed to resolve. “This has been caused by an arbitrary suspension imposed by the Federal Ministry of Finance on utilisation of the certificates, issued by the same ministry, for duty payment. Textile manufacturers who exported their goods by factoring the grant in their price are facing a severe liquidity crisis,” the union observed.
However, textile companies are not the only ones lamenting over liquidity crisis induced by the backlog of unutilised NDCC. Earlier, manufacturers under their umbrella association, Manufacturers Association of Nigeria (MAN) had cried out that the same issue had virtually paralysed their operations and simultaneously affected their image as reliable international partners. MAN said the shoddy implementation of the EEG, a Federal Government’s incentive introduced to help manufacturers for export compete favourably with their counterparts in the international market, created continued reluctance in the acceptance of NDCC for duty payment since 2010.
The Nation learnt that under the EEG, benefitting exporters are entitled to some claims based on the value of export proceeds received, duly certified by the Central Bank of Nigeria (CBN), while the approved claims are paid to them by government through the use of a negotiable instrument known as the NDCC, which entitles the exporter to offset part or whole of subsequent Customs and Excise duties payable to the government.
But members of MAN and NUTGTWN have been expressing concern over the administration of the EEG scheme, which they say created challenges for their members who are actively involved in the export business. They associations therefore, called for timely policy pronouncement on rendering the backlog of unutilised NDCC by the Federal Government. “This will go a long way to stem the frustrations of majority of the genuine exporters who are desirous of growing their businesses and creating value addition in the economy. It will also address the issue of leakages in government revenue and bring sanity into the administration of the scheme,” MAN argued, for instance.
In the case of textile companies, the liquidity crisis caused by the backlog of NDCCs made it extremely difficult for them to pay the interests on the loan from BOI due to low capacity utilisation. The tenure of the loan matures in 2016. Already, the textile companies, in the communiqué, jointly signed by Hunsu and General Secretary of NUTGTWN, Comrade Issa Aremu,appealed to BOI to extend the repayment period of the loan by 10 years. They also requested flexibility to redeem the EEG certificates in lieu of loan instalment.
These, NUTGTWN noted, became necessary due partly to the havoc wreaked on the industry by smuggling and partly due to lack of patronage of made in Nigeria textiles as a result of lack of effective policy enforcement. The union observed that most government ministries, departments and agencies (MDAs) such as police, customs, immigration and army still prefer to use imported fabrics rather than those locally made.
While emphasising that there is need for some sort of protection for the CTG industry, Hunsu told The Nation that Nigeria should borrow a leaf from developed countries of the world including some African countries that have been highly supportive of their textile industry to improve their competitiveness. He cited the United States of America, which he said dished out a whopping $75 million to bail out General Motors. Also, while Ghana has three large textile mills and allows import of all raw materials, dyes & chemicals and spare parts at zero per cent duty, Kenya continues to be a hub for readymade garment exports.
Curiously, while textile manufacturers are groaning that the N100 billion CTG revival fund has not significantly improved their lot, BOI’s records appear to paint a picture of an industry on its way to recovery. For instance, BOI says that over 60 per cent of the fund has been committed to 52 companies in the CTG industry as at March, 2013. The bank cited the re-opening of United Nigeria Textiles Limited in Kaduna as one of the numerous positive impacts of the scheme.
BoI also said that a mid-term evaluation of the CTG industry commissioned by BOI/UNIDO to evaluate the impact of the scheme reveals that over 8,070 jobs had been saved through the intervention, while capacity utilisation for most beneficiaries increased from below 40 per cent to about 61 per cent. Besides, over 50 per cent of those making losses has started reporting profits.
But the textile companies are not swayed by BOI’s statistics. While saying that “BOI must be commended for the way it has so far managed the fund, Hunsu however, pointed out that the figures churned out by the bank indicating the success of the fund do not reflect the reality on ground. He said while only about 1, 500 jobs have been saved through the intervention, capacity utilisation remained very low. He reiterated that financing is just one out of the numerous challenges facing the textile industry in particular and manufacturing industries in general.
The textile industry was once the bride of the nation’s industrial sector. In its heyday, around the1980s, the textile market was acknowledged as third largest in Africa, with over 160 vibrant textile mills and over 500,000 direct and indirect jobs. By 1985, the number of textile mills had increased to about 180, engaging about one million workers. The country’s textile capacity accounted for 60 per cent in West Africa.
However, the fortunes of the industry started nose-diving in early 1994 when most of the textile firms started caving in under the weight of smuggling, unstable business and political climate, and high production costs due to poor infrastructure. By 1995, government, according to experts, plunged the industry into deeper crisis when it pushed the country into the World Trade Organisation (WTO).
The WTO adopted Agreements on Textile and Clothing, which states that all quotas on textile and clothing will be removed among WTO member countries. For Nigeria whose industrial base was considered as very weak, the agreement was seen by many as a fundamental error, as it opened the floodgate for the importation of inferior and cheap textiles in Nigeria.
