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Tag: manufacturers

  • Economy: More troubles ahead for manufacturers

    Economy: More troubles ahead for manufacturers

    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.”

  • ‘Forex restriction is affecting manufacturers’

    ‘Forex restriction is affecting manufacturers’

    Mr. Taiwo Adeniyi, Group Managing Director/Chief Executive, Vitafoam Nigeria Plc, in this interview with Ibrahim Apekhade Yusuf, speaks on the downsides of the CBN policy regime restricting foreign exchange to businesses. Excerpts:

    How is the new policy on forex restrictions affecting your company?

    For us in Vitafoam, I can tell you 80 per cent of the materials that we use are not in this environment again because they are byproducts of petrochemicals. We do not have then being refined here yet neither are they being produced here yet. So they are being imported into this country. But what has happened today is that the government policy on forex is having a toll on us because now, forex is not available. And yet we need to establish LCs (Letters of Credit). As such, we have to source forex outside of the CBN platform. And when you’re going to source forex outside of the CBN platform that means you just have to source it in the parallel market. But again, the parallel market is also being controlled. So, for you to be able to have access, it is tough. In fact, the latest one that is causing us serious challenge is the fact that before you can service an LC, 48 hours before the bank can go and bid, the cash must be made available in the bank. The reverse used to be the case before now. Before now, the bank goes to make a bid on your behalf based on document evidence and the CBN gives its authorisation, that is approval and the bank makes the funds available once your bid is successful.

    But right now, the CBN is saying 48 hours before you bid, the funds must be made available and even when that is done, it would not guarantee that you will get what you have ask for. So, it’s a tough one. But again, as it is with every policy, it might be rough initially but as we go on, it sure will get better.

    As a member of the manufacturing sector have you made entreaties to the government to give you more allowance as it were?

    Of course, representation is being made by the Manufacturers Association of Nigeria (MAN) to the CBN to say that you can’t shut out industries because the kind of forex that we require is not the kind you can get from one bureau de change and you think it would be sufficient. Agreed the policy has been made and they need to see it run. But we expect people to come up with better options because if we don’t try you won’t know whether it will work.

  • EPA deal: Why manufacturers are kicking

    EPA deal: Why manufacturers are kicking

    If pushed through, the Economic Partnership Agreement (EPA) will eliminate barriers to free movement of goods, services and investment between the European Union (EU) and Nigeria. The  EU is promoting the deal to boost its trade and expand its investment in  the country.  But, manufacturers are opposed to the deal’s endorsement. They fear it would hurt the manufacturing sector and the economy, report CHIKODI OKEREOCHA and OKWY IROEGBU-CHIKEZIE. 

    As at 2014, the trade volume between Nigeria and the European Union (EU) stood at 40 billion Euros. The size of EU’s Foreign Direct Investment (FDI) in the country also grew from 25 billion Euros in 2011 to 30 billion Euros in 2013, underscoring the robust economic relations between Nigeria – arguably Africa’s largest economy – and the 28-member EU.

    But, a recent push by EU to further expand the frontiers of its economic relations with Nigeria through the implementation of the Economic Partnership Agreement (EPA) is being resisted by real sector operators, particularly manufacturers.

    EPA is an EU-sponsored Free Trade Agreement (FTA) designed to create a free trade zone between Europe and Africa, Caribbean and Pacific (ACP) countries. Under the new deal, 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 participating countries, 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) and non-member state, Mauritania, full access to its market of 500 million people. In return, Nigeria and other ECOWAS members would gradually open up 75 per cent of their markets – with their 300 million consumers – to Europe over a 20-year period.

    But, manufacturers would have none of the terms. To them, the deal is a pill too bitter to swallow and any attempt to do so, would hurt the economy, especially and the manufacturing sector. Citing Nigeria’s weak manufacturing base, caused by infrastructural deficit and inclement operating environment, manufacturers insist that the deal would leave the country holding the short end of the stick. They argue that Nigeria, and indeed, most ECOWAS members have little finished goods to successfully make an inroad to the European market.

    The manufacturers have also hinged their opposition on the fact that from all parameters, West African states, including Nigeria, are not on the same economic page with any European country in terms of development to warrant the conclusion of a reciprocal trade relationship as espoused in the trade agreement with EU.

    They have, therefore, dug their heels in, insisting that the agreement must not be endorsed. According to them, signing the agreement amounts to economic suicide, as many industries will close down, while locally-made products would not compete with goods from Europe and other developed economies. The manufacturers, who are now literarily up in arms, at different fora, express fears that the agreement would lead to de-industrialisation in West Africa, with economic and employment consequences for Nigeria which control 60 per cent share of the regional market and Gross Domestic Product (GDP).

    President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, articulated his members’ position on the controversial deal when he said: “The EPA will confine the Nigerian economy to a mere market extension of the EU since we cannot compete with Europe on all grounds. It is on this ground that we believe that Nigeria does not need EPA now until we have been adequately industrialised and able to trade industrial goods competitively.”

    One of the provisions of the agreement that raised the blood pressure of real sector operators, The Nation learnt, was the 75 per cent market access offer over a 20-year period. To them, such provision endangers local production and exports. Former Industry, Trade & Investment Minister Olusegun Aganga, is one of those who have raised eyebrow over this provision.

    He said the provision where the EU wants Nigeria to open its market by 75 per cent over a 20-year period would not be in the overall interest of the local economy on the long run. Aganga pointed out that although, the deal appears harmless, because over the first five years, there will be no major impact because they – EU-member countries – will open all their doors for Nigeria export to Europe. However, the problem here, he observed, is that “currently, we are not exporting much to Europe and so the benefit will not be significant.”

    Besides, the offer, observers insist, liberalises tariff lines in which the country is not competitive. Some of the items include bottled water, agricultural products including palm oil, vehicles, oil derivatives and chemical products such as fertilisers, worked wood, paper products and light industrial products.

    Some of these concerns must have prompted manufacturers’ insistence that there is need for more studies to determine the potential impacts of EPA on West African economy in the light of current realities.

    Noting that Nigerian and other West African countries stand to lose more from the deal, they argue that the gains are at best speculative.

    Rather than the EPA, the Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said real sector operators have been concentrating on promoting competitiveness on a sustainable basis.

    He spoke of the need to put in place the right policies and infrastructure either in the context of EPA or ECOWAS to achieve this.

    Former South African President Thabo Mbeki had at the 43rd Annual General Meeting (AGM) of MAN in October set the tone for the sustained agitation against the EPA. Echoing the fears and apprehensions of real sector operators, especially manufacturers over the deal, he drew the attention to the fact that “…..the EPA will allow Europe to achieve its single-minded objective of leaving a weaker, more disadvantaged and more exploited continent in its wake….”

    He urged the Federal Government to apply caution in signing international agreements. According to him, such protocols and agreements should be screened to ensure that they are not in any way detrimental to the nation’s growth and economic well-being.

    Mbeki stressed that no foreigner can develop another country conscientiously but the owners to their benefit. His position may have opened a floodgate of criticism and opposition against the deal as many industrialists and members of the organised private sector have been advocating its jettisoning or modification.

    Apparently aligning with Mbeki, the Apapa chapter Chairman of MAN, Mr. Babatunde Odunayo, expressed optimism that MAN leadership will succeed in ensuring “the Federal Government, in association with other West African Heads of State, find a way to have the agreement modified, cancelled or at the least, made politically inoperable.”

    Odunayo, who spoke at the 44th AGM of Apapa branch of MAN in Lagos penultimate week, with the theme: “The Nigerian manufacturing sector: What future for capacity utilisation and growth under a new economic situation?” said manufacturers will keep their advocacy task very strong with regards to EPA.

    Belated opposition

    To some experts and analysts, the groundswell of opposition by manufacturers against the endorsement of the EPA deal raises a number of pertinent questions. They include:

    • Where was Nigeria when negotiations for the deal were made?
    • Why did Nigeria wait till now when the deal is supposed to be ratified before raising objections?
    • To what extent can Nigeria push its argument for protectionism at a time globalisation can no longer be wished away?

    Emeritus professor of Economics, University of Ibadan, Ademola Oyejide, brought these questions to the front burner at the AGM. Prof. Oyejide, who doubles as Chairman, Centre for Trade and Development Initiative (CTDI), Ibadan, Oyo State, queried Nigeria’s continued policy of protectionism, especially for infant industries.

    His words: “You can’t have protection permanently; we must liberalise, but there has to be a transition period so that industries can adjust.”

    The university don also described manufacturers’ opposition to the deal as belated. According to him, Nigeria shot itself in the foot when it failed to raise such objections during the EPA negotiations. Stating that the noise over perceived negative effects of the agreement is self-inflicted, Profe Oyejide said: “The negative impacts were known prior to negotiations, but there were gaps in Nigeria’s preparations for and actual negotiation of the EPA.”

    Oyejide further said the negative effects of the EPA that manufacturers are complaining about were well known prior to the EPA negotiations in 2004. He also added that despite the fact that several studies commissioned by the EU showed the negative effects of the partnership agreement, Nigeria never raised any issues regarding them until Ghana and Cote d’Ivoire ratified the deal.

    The EPA negotiations between EU and ECOWAS took off in August 2004, but the most important milestone was the adoption by ECOWAS of a Common External Tariff (CET) on October 25, 2013. After only one round of post-CET discussions, negotiations were concluded in February 2014 in Ghana.

    All 28 EU member states and 13 of the 16 ECOWAS member states signed the EPA in December 2014. The Gambia, Mauritania and Nigeria have not yet signed. All countries must sign before ratification can begin. EPA can only come into force only after ratification (not signature).

  • Electricity tariffs cannot remain at current level – Osinbajo

    Electricity tariffs cannot remain at current level – Osinbajo

    Until there is stability in the power sector, electricity tariffs cannot remain at the levels they are currently, according to Vice President Prof. Yemi Osinbajo, SAN.

    Speaking Thursday afternoon at the Annual General Meeting of the Manufacturers Association of Nigeria, MAN, the Vice President who represented President Muhammadu Buhari as the Special Guest of Honor said truth of the matter regarding electricity tariffs is that “at this point, if we wanted to have a cost effective tariff, the only way is to service that core value chain, the only way is to ensure that we are paying and compensating the value chain -from generation down to distribution- a cost effective tariff.”

    In a similar vein, the Vice President also made it clear at the meeting that a review of the CBN restrictions on foreign currency is not imminent.

    His words:  “I want to make it absolutely clear that the position is not that a review of the CBN restrictions on foreign exchange is imminent. It is a short term measure, not a policy, and as things improve, we will have a discussion about what to do. But certainly not that a review is about to take place.”

    Osinbajo spoke further on the electricity tariffs:

    “Power is of course crucial and as the president said in his inaugural address, to which President Mbeki referred, the question of power is one that is absolutely crucial to manufacturing and practically everything else and we shouldn’t be rejoicing at 4000 Megawatts of power. But the problems are historical and several of those problems will need tackling head on, on a day-by-day basis.

    “One aspect of the problem that i want to speak about, because this also affects manufacturing, is the whole idea of the tariffs. Of course the president of MAN just said that we have one of the most expensive electricity in the world.

    “Now, the truth of the matter is that at this point, if we wanted to have a cost effective tariff, the only way is to service that core value chain, the only way is to ensure that we are paying and compensating the value chain -from generation down to distribution- a cost effective tariff.

    You cannot have that cost effective tariff without some pay.  At the moment, (when you compare) how much it costs to produce power, and the amount of power that is generated, the losses on account of distribution are significant. In some cases you have up to 40% losses in distribution, and of course it is the DisCos that have to take that burden.

    The GenCos (generating companies) are producing power but they expect to be paid for all the power that they produce. Now, if 40% of this is lost, it means the DisCos cannot collect 40%, but they have to pay for it somehow. So government has to come in and play some kind of role in order to ensure that the whole value chain is paid for.

    “But the most important thing is that the cost of power is reflective of costs that have to be borrowed at every stage of the value chain and today the cost of power, if it’s going to be reflective in any way is simply what it is. It will be very difficult indeed, except if we are going introduce yet another subsidy and by the way, a fair amount of that goes on already in the way that government supports the GenCos and the DisCos.

    “But i think that we must be ready to accept that for a while, until things stabilize somewhat, tariffs cannot remain at the levels at which they are today, they cannot remain at that level, and that just simply is the truth of the matter.

    “It certainly means that there may be higher costs, but I don’t think that a option of not having power is really what we want. The real issue of course is that at the end of the day, some of the cost goes to the consumer, but a cost reflective tariff is an absolute necessity, otherwise, privatization and all of that simply doesn’t make sense.”

     

  • Manufacturers seek clarifications on power supply operations

    • MAN commends Fed Govt for dropping planned VAT increase

    Manufacturers have called for clarification on the role of the Nigerian Bulk Electricity Trading Plc and the Transitional Electricity Marketing Company. To them, it will ensure a lasting panacea to the challenge of erratic power supply stifling their operations. They made the call on the heels of firms suffering from epileptic distribution of power.

    Chairman, Manufacturers Association of Nigeria (MAN), Apapa Chapter, Mr. BabatundeOdunayo also joined on the call for government to be committed to investment  in power generation and supply to aid efficient management of the various sectors of the value chain.

    Speaking at the 6th business luncheon of the association, Odunayo lamented the hiccups in the sector, noting that the high cost of production of alternative energy source negatively affects the profitability of manufacturing operations and competitiveness of their products.

    He regretted that the chunk of indigenous Nigerian businesses are into retailing as against manufacturing, which they are meant to do, as a result of the unhealthy operating system occasioned by high infrastructure deficit.

    He stressed that for meaningful growth in the manufacturing sector the current challenges in energy and other infrastructural deficits must be effectively addressed.

    “Until now, the Nigerian industry has clearly not been efficient in meeting the needs of consumers. The irregular energy service being provided and its rising high cost have weakened the manufacturing sector over the years. This weakening emanated from heavy investment in own-generators, full complement of spare parts, use of expensive diesel and the investment in full complement of staff for the maintenance of generators.”

    Despite her stand as the largest country in Africa, accounting for almost 15 per cent of the continent’s population, Odunayo noted that Nigeria has the lowest per capita energy consumption (40Kw/000 inhabitants) when placed side by side to South Africa’s 270Kw/000 inhabitants and Indonesia’s 120Kw/000.

    He also expressed disenchantment in the transformation agenda wrought by the previous government, saying it planned to achieve 12 Gigawatts capacity in 2014, 14 Gigawatts in 2015, and 20.3 Gigawatts by 2016, but failed to meet the projections. He added that Nigeria still struggles with 4 Gigawatts.

    He urged government to provide a financially enabling ambience to revamp the sector. He said: “Unfortunately in an era where the country is financially crippled, so much investment is yet to be made in the transformation in regards to power sector. A lot of money is required and if investment is not made, you cannot expect magic to happen. We have the right transformation agenda, which are very clear with, but the financial capability to invest and expand capacity remains something that is eluding us.”

    Deputy Managing Director, Eko Distribution Company Plc, Mr. Ramesh Narayanan, said certain factors constrain the supply chain at the level of power generation, transmission and distribution. Some of the impediments, according to him, include inefficient cum outdated technology and dearth of national grid. “This is responsible for the bottleneck hindering access from power source to the point of use, hence resulting in poor quality of supply,” he said.

    He called for substantial investment and upgrade of facilities in the power sector and further  advised that plants with improved generation capacity should be situated in proximity to power sources such as pipe lines to reduce cost of operation and enhance efficiency.

    “Users should support the efficiency cause by using light-emitting diodes (LEDs) in lieu of fluorescent lamps, install capacitors when using inductive load, switching devices off when not in use and avoid illegal abstraction of energy,” he said.

    Governor AkinwunmiAmbode, who was represented by the Permanent Secretary, Ministry of Commerce, Industry and Cooperatives, Mr. Olalekan Akodu, reassured MAN of its commitment to ease the process of doing business by removing all bottlenecks associated with business operations in the state.

    Praising MAN, he described the association as a front line stakeholder in the resuscitation of the manufacturing sector, noting that its official input is vital to the development and growth of the economy. He added that the government will seamlessly support their operations.

    In a related development, MAN has commended the Federal Government for dropping the planned increase in the Value Added Tax (VAT). Acknowledging the cancellation, the association said it was a timely move as the manufacturing environment remains unfriendly. “Increasing the VAT rate will, therefore, only exacerbate the challenges of the manufacturing sector as well as the cost of production and make local products even less competitive,” the association said.

    It continued: “Nigeria is a high cost environment with many challenges that have lingered on for decades. Manufacturers in Nigeria are faced with the challenges of providing own infrastructure, which in some states of the federation are subjected to taxes by the government.

    “A situation where a manufacturing company is forced to run on generators most of the time, is to say the least, unacceptable. This accounts for about 40 per cent of the cost of production whereas in some climes, these are taken for granted.  Lending rates in Nigeria, especially to Small and Medium Enterprises (SME), are about the highest in the world.”

    In a statement signed by the MAN president, Mr. Frank Udemba Jacobs, he said major challenges include infrastructure, cost, environmental and social challenges.

  • Police nab illegal arms manufacturers

    Police nab illegal arms manufacturers

    The Kaduna State Police Command has arrested the owners of illegal arms factories in southern part of the state.

    The suspects were paraded before reporters at the command headquarters yesterday.

    Police Commissioner Shehu Usman said they specialised in the production of arms and ammunition, supplying them to criminals terrorising the southern part of the state.

    He said they were arrested in Kaura and Zangon-Kataf based on intelligence reports by the detectives attached to the area commander in Kafanchan.

    Usman said during the raid, 37 locally-made pistols, 11 pistols and 34 single barrel guns were among the weapons recovered.

    He said: “The suspects manufactured and supplied arms and ammunition to criminals. They are Isah Yahaya, Zamari Peter, Baye Tswan all of Mabushi in Kaura Local Government and Felix Paul of Samaru in Zangon Kataf Local Government.

    “Items recovered include four manual hand drilling machines, six electric drilling machines, three gas cylinders, three bench vice, two dane guns, one 7.62mm ammunition, three 5.56mm ammunition, two tiger generators, a box containing parts of locally-made pistols/rifles and a tool box for the fabrication of rifle parts.”

    Also nabbed and paraded was Mrs. Moji Olangunju, who specialised in printing fake identity cards and documents of organisations.

    The commissioner said when a search was carried out in her home, nine fake police identity cards, seven fake military identity cards, 10 fake driver’s licences and 19 identity cards were found.

  • Ambode to support manufacturers

    Ambode to support manufacturers

    Lagos State Governor Akinwunmi Ambode has pledged his administration’s support to the manufacturing sector, saying that manufacturers hold the key to the sustainable economic growth and development of the state.

    He spoke at the opening of the Third Quarterly Council Meeting of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) in Lagos.

    He said the support to the manufacturing sector and investment s would drive self-sufficiency and sustain the status of the state as the economic hub of the country.

    “We are aware of the challenges of the business community in terms of poor power supply, inadequate infrastructure, and high interest and foreign exchange rates among others.

    “The resultant effects of these problems are manifesting in high operation cost, high rate of unemployment and poverty. But I am positive that these challenges are surmountable. We, therefore, need to be proactive and look towards becoming self sufficient by collaborating with the manufacturing sector, which obviously holds the key to sustainable economic growth and development,” he said.

    The Governor said this was why Lagos State has established the Office of Overseas Affairs and Investment to make the state a first choice destination for both local and foreign investors. He assured that his administration would continue to provide the enabling environment for the business community to thrive to create employment and grow the Gross Domestic Product (GDP)

    Ambode urged NACCIMA to collaborate with the state in its efforts to make Lagos the number one business friendly state.

    Also, the National President of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr. Bassey Edem, urged the Federal Government to hasten its roadmap for the diversification of the economy to tackle the dwindling income from crude oil.

    He urged the government to tackle corruption as it would translate into economic advancement, good governance and good living standard for Nigerians.

    He decried the poor utilisation and management of the Lagos International Trade Fair Complex and urged Ambode to call for a review of the concession of the complex. “The complex is primarily designed for trade promotion in Nigeria, but it has become a shadow of itself. We therefore, request that the management of the complex be transferred back to the Lagos Chamber of Commerce and Industry as was done for Kaduna International Trade Fair Complex. As an umbrella body of all chambers of commerce and industry, we will continue to lend our voice and support government at all levels to fulfill their roles,’’ he said.

    President, Lagos Chamber of Commerce and Industry, Alhaji Remi Bello, cited poor power supply, unstable policies, multiple taxation, poor access to credit and deficient infrastructure as problems affecting the business community.

    He said the meeting was aimed at reviewing those challenges for a better business environment and make impact on the new administration. He urged the government to continue to provide the enabling environment for businesses to thrive in order to boost the economy.

  • ‘Manufacturers dependent on private power’

    Despite the improve-ment in power supply from the national grid, manufacturers are still hugely dependent on personal electricity generation, it was learnt.

    The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, told The Nation that though there is an impressive improvement in the level of power generation across the country, most the manufacturers still generate 60 per cent of their power requirements and sometimes get 40 per cent from the public supply  (the national grid).

    He noted that the multinational companies and large indigenous manufacturers, such as Dangote, are permanently switched to their private power generators because the confidence level has not reached the point of switching to public supply.

    He said: “There is improvement even across the country. I also heard that people in diesel business are already complaining that it is no longer business as usual. I think there is a lot of improvement. However, many of our members are still 60 per cent dependent on generators and 40 per cent on supply from the national grid, which is good. But there are some big consumers that are permanently switched to their own power generating plants. All the multinational companies and the Dangotes of this world, they don’t rely on public power supply from day one. Those ones are still outside the grid. A lot of them use natural gas. Industrial areas, such as Ikeja and Ogba, they key into the gas pipeline for fuel to power their generators for electricity generation. But I think the smaller companies’reliance on generators has dropped.“

    The LCCI chief said he didn’t foresee the manufacturers switching permanently to the national grid soon because the confidence has not reached that level. ‘’The confidence level of packing up our generators for public supply, we are not yet there but the good thing is that there is a great deal of improvement,’’ Yusuf added.

     

  • ECOWAS CET: Why manufacturers are kicking

    ECOWAS CET: Why manufacturers are kicking

    Few months after the take-off of the Economic Community of West African States’ (ECOWAS’) Common External Tariff (CET), some aspects of the common regional tax regime, which seek to tackle the challenges of cross-border smuggling, have been criticised by manufacturers. They say the new policy, which took effect on April 11, should be fine-tuned, writes Assistant Editor OKWY IROEGBU-CHIKEZIE. 

    Before the commencement of the operational phase of the Economic Community of West African States (ECOWAS) Common External Tariff (CET) on April 11, this year, the policy had enjoyed the overwhelming support of the real sector operators, especially manufacturers. Most of them saw the policy, which ushered in a common regional tax regime, as the wedge for cross-border smuggling, which has almost crippled the domestic economy.

    Aside the hope that it would ensure significant improvement in the implementation of the ECOWAS Trade Liberation Scheme (ETLS), which will give rise to the concept of a regional Customs union, the scheme was seen as an effective instrument for harmonising the import policies of member-states to strengthen the framework for the realisation of a common market.

    ECOWAS CET allows goods from any other part of West Africa into Nigeria without the imposition of any tax, import duty or levy. It means that goods imported into a Francophone country will not necessarily be cheaper or more expensive than those entering another Anglophone country, such as Nigeria or Ghana.

    CET, according to experts, is a mild form of economic union, but may lead to further types of economic integration.

    In addition to having the same customs duties, the countries may have other common trade policies such as having the same quotas, preferences or other non-tariff trade regulations apply to all goods entering the area, regardless of which country within the area they are entering.

    The approval for the implementation of the new tariff was conveyed in a statement signed by former Finance minister Mrs Ngozi Okonjo-Iweala. The NCS said all imports arriving in the country beginning from April 11, shall be subjected to the rates contained in the CET 2015- 2019 and 2015 Fiscal Measures without recourse to the rates applicable before the coming into effect of the ECOWAS CET 2015 – 2019.

    In a statement, NCS spokesman, Deputy Controller of Customs, Mr. Wale Adeniyi, said the approved Supplementary Protection Measures/Fiscal Policy Measures comprised an Import Adjustment Tax list, which involves additional taxes on 177 tariff lines of the ECOWAS CET.

    The ECOWAS CET also covers a list of goods whose import duty rates have been reviewed to encourage more development in strategic sectors of the economy and an Import Prohibition List (Trade), applicable only to certain goods originating from non-ECOWAS countries. However, few months into its implementation, certain aspects of the policy appear to have got under the skin of manufacturers.

    For instance, at a briefing on the state of the economy, which held in Lagos last week, President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, said though manufacturers welcomed the introduction and commencement of the operational phase of the ECOWAS CET by the Federal Government, the policy appears to be the bane of industrial development in the country because of the difficulty in the consignment clearing process involved in its implementation.

    He said though the CET implementation started with the hope that it would eliminate smuggling, which has almost crippled the economy, the initial stage of its implementation was almost marred with difficulty in clearing processes and unnecessary delay of goods at the ports. This, he said, resulted in high demurrage. He, however, expressed hope that as the Nigerian Customs Service (NCS) gets accustomed to the proficient of the CET procedures, the delay in clearing will be greatly reduce.

    But the delay in clearing goods at the ports is not the only grouse of manufacturers.

    The MAN chief pointed out that another off-shoot of the implementation of the ECOWAS CET is its implication on pharmaceutical companies in Nigeria. While identifying what he called ‘oversight of the CET’ with regards to the pharmaceutical sector, he said: “It was observed that within the CET framework, imported finished pharmaceutical products attract zero per cent duty, while imported pharmaceutical input materials attract between five per cent and 20 per cent duty.”

    The implication of this tariff arrangement, Dr. Jacobs pointed out, is that locally produced medicines will be more expensive than imported ones. “If this is not addressed, it could lead to the closure of pharmaceutical industries and retrenchment of workers. This, by extension, will lead to an upsurge in poverty and crime levels in the country,” he stressed.

    Some of the issues raised by MAN are not  new. Before the take off of the policy, some experts had argued that there was the need to make smooth the grey areas in its implementation if Nigeria must benefit from CET. For instance, former director-general of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Dr John Isemede, identified the need for harmonisation of the various tariffs.

    For instance, while countries, such as Nigeria, Ghana, and Gambia are Anglophone nations, Togo, Benin, Burkina Faso, are Francophone. Similarly, while Value Added Tax (VAT) is five per cent in Nigeria, 20 per cent in the francophone countries and 15 per cent in Ghana, he noted that only when these VAT are harmonised can there be sub-region talk about one external tariff.

    Noting that Nigeria may not get to the Promised Land on the platform of CET unless VATs are harmonised, he called on ECOWAS to harmonise the various VATs in the countries for the smooth implementation of the policy. He also said cost of doing business in Nigeria was high compared to other countries, which is why goods shipped into the country are cheaper than the ones made in the country. He added that there was need to address issues responsible for the high cost of doing business in Nigeria.

    Also, Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said CET would have serious implications for the economy, particularly the manufacturing sector, unless issues of high energy cost, high costs of funds, high regulatory charges, and high ports charges, among others, are not addressed. He said the manufacturing sector is suffering significant competitiveness issues hence the need for immediate policy responses to avoid the collapse of what is left of the sector.

    Director-General, NACCIMA, Mr. Emmanuel Cobham, said local industries need protection against the influx of foreign products in the wake of the implementation of the ECOWAS CET.

    NACCIMA’s position on the policy is that manufacturing companies need some level of protection against the influx of foreign products that the tariff favours. Cobham said since the CET regime had commenced, the government might need to consider ways of alleviating the hardship on importers and manufacturers alike.

    Under the new policy, goods are grouped into five categories of tariff rates: zero, five, 10, 20 and 50 per cent. Goods dutiable under the zero per cent category are special drugs as well as industrial machinery and equipment.

    Under the five per cent category, goods dutiable include raw materials and other capital goods. Those dutiable under the 10 per cent category are intermediate goods while finished goods attract 20 per cent import tariff. Finished goods that can be manufactured locally, however, attract 35 per cent import tariff.

    For MAN, the import adjustment tax of 20 per cent should be introduced for imported finished pharmaceutical products with HS Code 3003 and 3004 because Nigerian manufacturers have the capacity to produce these medicines. Besides, the import prohibition list prescribed in the CET, MAN, insisted, should be retained because there is available local capacity in Nigeria.

    “The tariff issues of pharmaceutical products import in respect of the CET tariff arrangement is a crucial matter that must be addressed so as to continue to maintain the employment position in the sector,’’ MAN stressed.

  • Manufacturers spend over N4b on diesel yearly, says MAN

    Over N4billion is spent yearly by manufacturers under to procure Automotive Gas Oil (AGO), the President of Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs Udemba, has said.

    Udemba told The Nation that the manufacturing sector spends the huge cash on diesel  monthly, adding that the figure translates to an average of over N4billion when multiply by 12 months of the year.

    He said manufacturers invest on power devices such as UPS and inverters to keep some equipment working and further prevent loss of valuable data because power supply in the country is unreliable. He added that their members spend a chunk of that money on fuel to power their generators to stay in business.

    He said low metering coverage and the consequent dependence on estimated billing from distribution companies (DISCOs) has resulted in rise of costs in the power sector.

    He explained that low electricity generation is affecting power distributed to consumers, stressing that  when  electricity generation improves, supply would also improve.

    Udemba said: “The country generates less than 5,000 megawatts (Mw) of electricity for its over 160million population.  In a big country like Nigeria, we still struggle, fumble and wobble on 4000 megawatts and below. This does not and cannot go anywhere in meeting the energy requirements of the teeming populace. The sector would be able to employ more people if reasonable electricity supply is made available to them. But there is nothing like that for now.”

    According to him, the sector is yet to guarantee power supply, two years after private investors bought the unbundled assets of the Power Holding Company of Nigeria (PHCN),  adding  that the operation of the  power firms is fraught with problems including technical and commercial, among others.

    Penultimate week, Vice President Yemi Osinbajo held a meeting with Dr Sam Amadi,  chairman, National Electricity Regulatory Commission (NERC), representatives of power Ministry, MAN and other stakeholders on the need to develop a  framework for the creation of micro grid for industrial clusters across the country.

    At the meeting, a special committee with nomination from the Commission will be coordinated by MAN since its members will be the major beneficiaries of a stable power supply.

    This happened, amid announcement by the Transmission Company of Nigeria (TCN) of increase in generation from 4,517 megawatts to 4,545 megawatts in two weeks.