The Nation Newspaper

Tag: real sector

  • Will budget 2017 stimulate real sector?

    Will budget 2017 stimulate real sector?

    The stage appears set for real sector’s rebound. With N20 billion for reviving the Export Expansion Grant (EEG) in the N7.3 trillion 2017 budget proposal and plans to resume payment of accumulated Negotiable Duty Credit Certificate (NDCC) estimated at over N300 billion as well as increased focus on infrastructure development, the sector looks good to rescue the economy from recession. However, some operators are cautiously optimistic, fearing that shoddy implementation and the government’s silence on the controversial foreign exchange policy may throw a spanner in the works, CHIKODI OKEREOCHA reports.

    President Muhammadu Buhari came across as an incurable optimist when he presented the 2017 budget proposal of N7.3 trillion to a joint session of the National Assembly on December 14, last year. Despite the growing anxiety, particularly among real sector operators over the direction of the recession-battered economy, he spoke glowingly of his administration’s commitment to “make Nigeria a new manufacturing hub.”

    Perhaps, reading the doubts in the minds of operators and, indeed, Nigerians on his capacity to pull this through, Buhari while presenting the “Budget of Recovery and Growth,” backed his avowed commitment to turn the country into a manufacturing hub with a number of policy pronouncements. Hopes were raised that a new deal was perhaps, in the offing for the real sector, which comprises manufacturing and agriculture.

    For instance, the president noted that because of the emphasis on industrialisation and supporting Small and Medium Enterprises (SMEs), the Federal Government  set aside N50 billion as contribution for the development of new Export Processing and Special Economic Zones. Old ones are to be expanded.

    Before the budget presentation, The Nation learnt from sources close to the Minister of Industry, Trade and Investment that the industrial sector would receive a major boost this year, as funding had been included in the budget to reflate the sector. The ministry was said to have secured funding in the budget for the development of six  Special Economic Zones (SEZs).

    The SEZs, according to the sources, who declined to be mentioned because they were not authorised to speak, are expected to be launched this month, with Afrexim Bank and EXIM Bank of China committing $1 billion to the project. According to Buhari, the SEZs will be developed in partnership with the private sector, as the government continues to promote and protect Nigerian businesses.

    Expectedly, the N50 billion earmarked in the budget for the SEZ project has earned Buhari the commendation of the Lagos Chamber of Commerce and Industry (LCCI).

    Its Director-General, Mr. Muda Yusuf, said it will boost manufacturing and SMEs. The LCCI and indeed, other members of the Organised Private Sector (OPS) were no less gladdened by the N20 billion voted in the 2017 budget for the revival of the Export Expansion Grant (EEG) programme.

    According to the president, as the benefits of agriculture and mining are  becoming visible, the EEG will be revived in the form of tax credits to companies. This, in his view, will further enhance the development of agriculture and mining, bringing in more investments and creating more jobs.

    The Federal Government introduced the EEG in 1999 to encourage non-oil exports and cushion the effects of cost disadvantages faced by local exporters due to infrastructural deficits. The grant was disbursed in the form of the Negotiable Duty Credit Certificate (NDCC) and was utilised by beneficiaries for the payment of customs and excise duty on their export shipments.

    However, the extant policy on EEG and the utilisation of NDCC was suspended in January 2014. Minister of Finance Kemi Adeosun recently cited abuse of the export grant as a reason. Since then, many exporters have been screaming blue murder that the suspension of the scheme impacted negatively on their non-oil export activities. They complained that the huge backlog of unutilised NDCCs amounting to over N300 billion, according to the Nigerian Export Promotion Council (NEPC), paralysed their operations.

    They, therefore, intensified push for the return of EEG and settlement of backlog of unutilised NDCCs to drive the non-oil export sector.

    The Executive Secretary, Organised Private Sector Exporters’ Association (OPEXA), Mr. Jaiyeola Olarewaju, said the only way out for Nigeria to disentangle itself from the shackles of mono-economy was for the government to diversify the country’s export sector.

    This was why the inclusion of EEG and the NDCC in the 2017 budget proposal, with commitment that payment will resume soon, was music in the ears of OPS members including the  Manufacturers Association of Nigeria (MAN).

    Its President, Dr. Frank Udemba Jacobs, has been in the forefront of the agitation for the review of the  policy on EEG and the utilisation of the NDCCs.

    To unlock the huge, but largely untapped potential in the SME sector, this year’s budget proposal also sought to address the difficulties faced by SMEs in accessing longer term, more affordable credit. To address this situation, President Buhari said N15 billion has been provided for the recapitalisation of the Bank of Industry (BoI) and Bank of Agriculture (BoA)

    He also said the Development Bank of Nigeria will soon start operations with $1.3 billion focused exclusively on SMEs. The president noted that agriculture remained at the heart of his administration’s efforts to diversify the economy. And to underscore this, he said the proposed allocation to the sector this year was N92 billion.

    “This sum will complement the existing efforts by the Federal Ministry of Agriculture and Central Bank of Nigeria (CBN) to boost agricultural productivity through increased intervention funding at single digit interest rate under the Anchor Borrowers Programme, commercial agricultural credit scheme and the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending,” Buhari said.

    He explained that, his administration’s agricultural policy will focus on the integrated development of the agricultural sector by facilitating access to inputs, improving market access, providing equipment and storage as well as supporting the development of commodity exchanges.

    Buhari also noted that achieving this goal required improving the skills of the labour force, especially young people. He, therefore, said government has made provision to establish and operate model technical and vocational education institutes, working with the private sector and state governments.

    His emphasis on local content and encouraging patronage of locally produced goods rather than imports was also seen as shot in the arm of real sector operators. In doing so, he regretted that Nigeria wasted her large foreign exchange reserves to import nearly everything it consumed.

    He said this was why low oil prices in the past 18 months saw the nation’s foreign exchange earnings cut by about 60 per cent, and her reserves eroded. Consumption also declined, as Nigeria could not import to meet her needs.

    “By importing nearly everything, we provide jobs for young men and women in the countries that produce what we import, while our own young people wander around jobless. By preferring imported goods, we ensure steady jobs for the nationals of other countries, while our own farmers, manufacturers, engineers, and marketers, remain jobless,” Buhari stated.

    He therefore maintained that under his watch, the old Nigeria will disappear and a new era will rise in which “we grow what we eat and consume what we make. We will increasingly grow and process our own food…we will buy ‘Made-in-Nigeria’ goods… We will patronise local entrepreneurs.

    “We will promote the manufacturing powerhouses in Aba, Calabar, Kaduna, Kano, Lagos, Nnewi, Onitsha, and Ota. From light manufacturing to cement production and petrochemicals, our objective is to make Nigeria a new manufacturing hub,” he declared.

    Infrastructure is game changer

    The role of infrastructure in creating inclusive growth was not lost on the president. This was why he said this year, government will focus on the rapid development of infrastructure, especially rail, roads and power.

    He added that efforts to fast-track the modernisation of railway system are priorities. He specifically announced the allocation of N213.14 billion as counterpart funding for the Lagos-Kano, Calabar-Lagos, Ajaokuta-Itakpe-Warri railway, and Kaduna-Abuja railway projects.

    According to development experts and operators in various sectors of the economy, massive infrastructure deficit remained one of the stumbling blocks to Nigeria’s road to economic growth and development.

    They argue that reducing the country’s huge infrastructure deficit estimated at $350 billion will be a game changer to unlock productivity, improve business competitiveness and create employment.

    In tackling the infrastructure deficit, The Nation learnt that government plans to actively partner the private sector by using new funding platforms including the Road Trust Fund, which will develop potentially tollable roads, and the Family Homes Fund, which is an on-going Public Private Partnership (PPP) initiative for funding of affordable housing.

    Budget size

    Under the proposed N7.3 trillion budget for 2017, N2.24 trillion, representing 30.7 per cent of the budget, would be committed to capital expenditure aimed at pulling the economy out of recession.

    Capital expenditure was increased from N1.8 trillion in 2016 to N2.24 trillion in 2017 and N2.98 trillion as recurrent expenditure for the 2017 fiscal year.

    While the 2016 Budget was predicated on a benchmark oil price of $38 per barrel, oil production of 2.2 million barrels per day and an exchange rate of N197 to the dollar, the 2017 budget moved higher, proposing an oil price benchmark of $42.5 per barrel as well as using a more realistic exchange rate of N305 to the dollar.

    Experts say apart from the fact that the 2017 oil price benchmark of $42.5 per barrel was achievable, given the Organisation of Petroleum Exporting Countries (OPEC’s) agreements on production cuts, its output projection of 2.2 million bpd was also realistic.

    They hinge their position on the fact that the Federal Government had since stepped up efforts at addressing the restiveness and agitations in the oil-rich Niger Delta, where activities of militants and pipeline vandals have seen crude oil production reducing to almost half.

    Other initiatives

    Apart from announcing that the Ministry of Industry, Trade and Investment will get N81 billion, Buhari also established the Presidential Enabling Business Council (PEBEC) to be chaired by Vice President Yemi Osinbajo.

    PEBEC will have the mandate to make doing business in Nigeria Buhari said that with the council, which has Industry Minister Okechukwu Enelamah as vice-chairman, getting approvals for business and procurements will be simplified and made faster.

  • For real sector, an unreal year

    For real sector, an unreal year

    For the real sector, 2016 has been a challenging year–no thanks to low oil prices, dearth of public infrastructure and dwindling Foreign Direct Investment (FDI), among others. But, according to experts, with a stable macro-economic environment and improvement in public infrastructure, the sector will get the economy out of recession. Assistant Editors CHIKODI OKEREOCHA and OKWY IROEGBU-CHIKEZIE report.

    For the sectoral groups in the real sector, 2016 may go down in history as the most tasking year. The out-going year witnessed an upsurge in the advocacy and stakeholders’ engagements of the Manufacturers Association of Nigeria (MAN). MAN engaged governments at all levels, including Ministries, Agencies and Departments (MDAs) and regulatory authorities, on issues affecting the real sector and the economy.
    From lack of access to the official foreign exchange (forex) market by manufacturers to agitation for settlement of outstanding claims on Export Expansion Grant (EEG) after genuine claims were certified, and increase in electricity tariff without commensurate increase in quality and quantity of power supply for industrial use, among others, it was quite challenging for industrialists.
    The increased tempo of MAN’s advocacy and engagements was all it could do to save the sector from total collapse. Although, the performance of the real sector, which comprised manufacturing and agriculture, has, over the years, been everything but sterling due to a plethora of business environment-related issues, it assumed threatening dimension last year, further reduced its performance to a disturbing level. For instance, while Nigeria’s real sector contribution to Gross Domestic Product (GDP) currently stands at 9.5 per cent, those of the United States (US) and China stand at 35.6 per cent and 49.5 per cent, respectively. Malaysia boasts of 45 per cent real sector contribution to her GDP.
    For manufacturers and other real sector operators, high cost of production was the culprit. They blamed it on local and foreign investors’ apathy in investing in Nigeria, closure of factories and migration of the few surviving ones to greener pastures, which resulted in job losses, with attendant insecurity and rising crimes. Because of rising energy cost, for instance, most manufacturing firms in Nigeria contended with falling profit margin last year. Shrinking margin was one of the major threats to business sustainability and manufacturers’ global competitiveness.
    According to the Chairman, Economic Policy Committee (EPC) of MAN, Reginald Ike Odiah, manufacturers spend an estimated N500 billion annually for running and maintaining their in-house power plants. The sector as a whole operated on more than 70 per cent of energy it generated, using generators. And operating these generators greatly increased the cost of manufacturing goods. For much of last year, MAN President, Dr. Frank Udemba Jacobs, lamented that manufacturers were paying for electricity not consumed.
    Other factors that undermined the performance of the real sector last year included increase in the prices of petroleum products used by industries, multiple taxation, unabated smuggling and inadequate access to finance, both locally and abroad. Corruption was also a major factor, even though the President Muhammadu Buhari administration stepped up the anti-graft war. The alleged unwholesome practice by Nigerian franchisers of gas, who created bottlenecks in the supply chain and pricing, was also a pain in the neck for real sector operators.
    Global crisis and its unsavoury local consequences
    If developments in the real sector in 2016 were challenging, those at the global scene were devastating. From mid-June 2014 when global oil prices started crashing, operators in various sectors of the economy have never slept with both eyes closed.
    For instance, from over $120 per barrel in December 2013, oil price fell to around $60 per barrel in December 2014. By December 2015, it crashed to about $32 per barrel. Again, by January 19, 2016, the price of Brent crude, which is the world benchmark price, crashed to below $28 per barrel, the lowest in 12 years. As at Thursday, December 15, 2016, oil price was $49.74 per barrel.
    The effects of the crash of oil price started manifesting as soon as the present administration came on board on May 29, 2015. The crisis, which continued in 2016, induced a sharp drop from the Federation Account, necessitating a huge financial bailout for some state governments. At the last count, 27 out of 36 states were broke and unable to pay salaries.
    Because of the import-dependent nature of the economy, the slide in oil prices in the international market caused an unprecedented slide in the value of the naira. And the development necessitated the need for a policy intervention to defend the value of the naira and protect the nation’s foreign reserves in the midst of dwindling revenue from oil.
    The Central Bank of Nigeria (CBN) uses the foreign reserves to defend the naira, but the reserves have been badly depleted as a result of sharp fall in oil revenue. Industry watchers say CBN policy of defending the naira has failed, and there was need for the apex bank to allow the naira rate be determined by market forces. The apex bank did just that when it came out with a new flexible, market-driven forex policy.
    Before the new forex regime, more than 200 out of the over 2,000 manufacturing firms in the country were on the verge of closing shop due to lack of raw materials to continue production.
    While about 100 operators in the general goods sector indicated their readiness to shut down when they run out of raw materials, 120 operators in the pharmaceutical manufacturing sector were said to be down to two months’ supply of raw materials after they were unable to restock. Also, in the food and beverage sector, only few of the 80 operators remained in business.
    The high mortality rate in the industrial sector was blamed on CBN’s June 2015 monetary policy that barred importers of 41 items that can be sourced locally from accessing its official forex window. The policy threw the real sector operators, particularly manufacturers, into confusion. Those who needed the raw materials and products were restricted from the forex market as their primary products in the manufacturing process were adversely affected.
    However, in removing the 41 items from accessing its forex window, the CBN’s good intention was not in doubt. For one, the apex bank believed that those items could easily be produced in Nigeria rather than spend the country’s reserves on importing them. The CBN also said the policy was aimed at encouraging local production of such items, which in turn would create jobs.
    But organised private sector (OPS) members thought otherwise, with Lagos Chamber of Commerce and Industry (LCCI) for instance, insisting that the policy would have dire consequences for the economy if not reviewed and possibly reversed.
    The LCCI immediate past President, Mr. Remi Bello, for instance, frowned at the inclusion of what he called “intermediate products” in the list of the 41 items excluded from the forex market.
    He also queried the CBN for not engaging the private sector before coming up with the policy. He noted that as key stakeholders in the economy their opinion and input should have been sought as main drivers of the economy.
    However, the Federal Government waded in to avert the impending collapse of more companies by creating a 60 per cent special forex allocation window for manufacturers. Through the CBN, it directed all authorised dealers to set aside at least 60 per cent of their forex purchase from all sources for manufacturers.
    While commending government’s preferential forex allocation to manufacturers, Jacobs recently called on the government to continue the search for viable options of making forex available for manufacturers, as some of them are still having challenges with the intervention.
    “The challenge, as always, is how to enforce the directive. This is always our default line. Good policies, good intentions, good pronouncements and launching ceremonies, but after that the Nigerian factor steps in,” industrialist and Managing Consultant, Starteam Consult, Mazi Sam Ohuabunwa, said.
    He said the CBN must watch the backs of the banks and analyse their monthly returns and publications on forex utilisation, while manufacturers on their part, should set up a mechanism to monitor weekly allocations and provide feedback to the CBN and Nigerians.
    Yes to EEG, no to EPA
    During the year under review, MAN also appealed to government to gradually settle all outstanding claims on the Export Expansion Grant (EEG) after certifying the genuine claims of manufacturers. The Association argued that resolving the stalemate in the EEG will restore investors’ confidence, generate forex and also encourage employment through non-oil exports.
    MAN also advised the government against signing the controversial European Union (EU) Economic Partnership Agreement (EPA) as currently crafted. According to Jacobs, it runs counter to Nigeria’s industrialisation objectives.
    He pointed out, for instance, that because of the nation’s acute infrastructure challenges Nigeria cannot compete with the developed economies or their products because of differences in the operating environment and cost of funds. He was emphatic that signing the agreement will heavily disadvantage local manufacturers and harm the economy.
    What future for the real sector?
    Despite the poor performance of the sector last year, the consensus is that the sector remains Nigeria’s hope of diversifying the economy and steering it out of the current crippling recession, if its potential is fully exploited and utilised.
    The belief is that the sharp decline in oil prices should force a strategic rethink in favour of manufacturing and agriculture, which hold better prospects of boosting the economy and creating jobs.
    For that to happen in the coming year, experts say there is need for the Federal Government to step up its art in closing the nation’s huge infrastructure gap, while ensuring a stable macroeconomic environment through robust fiscal and monetary policies.
    Other actions tipped as having the capacity to turn things around for the sector and the economy in the coming year include the sustenance of the anti-corruption drive, and strengthening national security and revamping human capital development, among others.
    Interestingly, most, if not all of these strategic policy actions are captured in the Nigerian Industrial Revolution Plan (NIRP), which was why operators and stakeholders were pushing that the plan be carried to its logical conclusion if Nigeria must realise her Vsion 20:2020, which envisaged the manufacturing sector to be globally competitive, tightly integrated and contributing no less than 25 per to GDP.
    The NIRP aimed to raise overall manufacturing competitiveness through improved industrial infrastructure, power prioritisation, reduced borrowing cost, access to finance, skills training, improved investment climate, better product standards, innovation and technology and promotion of local patronage of “Made in Nigeria” goods – all areas seen as major hurdles for the manufacturing sector.

  • Real sector: Why economy’s growth engine is faltering

    Real sector: Why economy’s growth engine is faltering

    The consensus is that the economy must be diversified from oil to manufacturing and agriculture, which experts believe make up the real sector. They are the economy’s growth engine because of their linkages to other sectors. Assistant Editor CHIKODI OKEREOCHA reports that  efforts at leveraging a vibrant real sector to reboot the economy bruised by recession have continued to be undermined by faulty fiscal and monetary policies and dearth of infrastructure. 

    With a compelling and deep insight into the economy, particularly the real sector, Mazi Sam Ohuabunwa is arguably, one of the respected voices in the private sector. The former Neimeth International Pharmaceuticals Plc President/Chief Executive Officer (CEO) and Starteam Consult Managing Consultant recently drew manufacturers’ attention to what he called “frightening trends” in the economy. He left no one in doubt that the nation’s economic woes are far from being over and that the country may not exit recession soon as expected.

    Ohuabunwa’s ‘frank talk’ was in his presentation a fortnight ago at the 49th Annual General Meeting (AGM) of the local chapter of Manufacturers’ Association of Nigeria (MAN) in Ikeja, Lagos.

    In the paper titled: “Vibrant, diversified economy: Panacea to economic recovery”, Ohuabunwa raised the alarm that all the indices and parameters that measure the health of the economy look bleak.

    According to him, the unfriendly exchange and interest rates, inflation and unemployment rates, erratic power supply among others, were indicative of more turbulence ahead for real sector operators.

    Ohuabunwa, who was a one-time Chairman of the Nigeria Economic Summit Group (NESG), pointed out that inflation and interest rates have risen to as high as 18.3 per cent and 14.00 per cent.  The exchange rate of the naira to the dollar stood at N310/$1 at the official market and N475/$1 at the parallel market.

    Besides, the unemployment rate rose from 12.1 per cent in the first quarter of the year to 13.3 per cent by the end of the second quarter, according to National Bureau of Statistics (NBS). These negative indices, Ohuabunwa noted, have resulted to increased poverty and misery, with the nation’s Misery Index standing at 49.5 per cent.

    Misery Index, according to development experts, is a measure of the economic well-being of citizens in a specified economy. It is computed by taking the unemployment rate and the inflation rate for a given period.

    An increasing index means a worsening economic climate for the economy in question, and vice versa. Nigeria’s Misery Index stood at 47.7 per cent as at August, the NBS stated.

    Ohuabunwa said that with the current 49.5 per cent,   Nigeria ranks fourth on the world’s most miserable country scale.

    The disturbing trends, according to experts, were preceded by market contraction due to decline in consumer purchasing power; declining corporate sales and profitability; increasing delinquency in meeting obligations, otherwise called credit defaults.

    Also, corporate atrophy, morbidity and mortality were high, just as Nigeria lost her global competitiveness, occupying 169th position out of 189 countries captured on the Ease of Doing Business Index.

    Ohuabunwa brought these realities nearer home when he said: “The economy remains in dire straits. If you are not losing your job, your salary is late in coming (some many months); if you are not closing your factory or business, your sales and profitability have dropped     significantly.

    “If you are a house wife, your feeding allowance can no longer allow you any allowance to manoeuvre. Nobody is exempted from the effects of the recession.”

    Blaming the present disturbing trends on the crash in oil prices, he said passing through this turbulent path cannot be the best of times of a country that is dependent on mono economy.

    “But, we have never come this low in about 27 years” , Ohuabunwa added.

    He warned that Nigeria we may recede further into depression if the authorities failed to initiate serious to curtail the trend.

    The former NESG chief urged those in charge of fiscal and monetary policies to come up with sensible policies to return the nation to a state of macro-economic stability, arguing that a regime of macro-economic stability and supportive infrastructure would be viable options to galvanise the real sector, which comprises manufacturing and agriculture.

    Experts argued that since Nigeria anchored her hope of driving economic growth and development through diversification on the real sector, a stable macro-economic stability would give impetus to the sector. They, however, noted that this could only be possible through a robust monetary policy.

    The thinking is that the prevailing harsh macro-economic environment was caused by the nation’s wrong monetary policy framework; that an economy cannot stand without the right monetary policy framework.

     How faulty monetary policy hurt operators

    For long, real sector operators have been screaming blue murder over the monetary authorities’ failure to initiate a robust monetary policy regime. Some of them argued that the situation hurt them by eroding their competitiveness.

    Putting the situation in perspective, an analyst, Mr. Henry Boyo, said: “The pillar of any economy is monetary policy and the pillar of monetary policy is interest, inflation and exchange rates. When you get those ones right like in countries, you will fix the economy.”

    Boyo, like a lone voice in the wilderness, had been crusading that high interest rate was making it impossible for the real sector to grow and high inflation rate was the main driver of poverty.

    According to him, in most advanced economies in the world, the interest rate is below two per cent. The exchange rate remains stable for many years and the cost of funds below two per cent.

    “Diversification does not rain from heaven; it’s created by a structure and the structure that drives diversification whether it is agriculture, manufacturing or transport is stable monetary policy,” Boyo told The Nation, insisting that interest rate must be at a level that will make it possible for manufacturers and commercial farmers to borrow money at one or two per cent.

    He also said that exchange rate must be such that industrialists, who import raw materials from abroad do not wake up to find out that their costs are increasing on a daily basis, making them uncompetitive.

    Describing diversification as not a new concept and reminding that Nigeria tried to diversify during the military era, Boyo warned that the efforts being directed at diversification would not work because “you cannot expect the real sector, which is normally the driver of the economy, to be vibrant if there is no demand. Industrialists will not do anything when cost of funds is as high as over 20 per cent.”

    He said that fixing the economy is not rocket science; that a robust monetary policy to address the challenge of excess liquidity in the system would put the economy on the right track.

    Boyo blamed unacceptably high inflation rate, high cost of funds and high interest rates on excess money supply into the system.

    Boyo got a backer in Ohuabunwa, who said: “Exchange rate, interest rate and inflation rate can all be moderated by sensible and coordinated policies. Investment flows preferentially to macro-economic stable environment that actually seek, welcome and reward investors.”

    Although, it is not in doubt that crashing oil prices was the main cause of the present disturbing trends as earlier pointed out, Boyo blamed the Central Bank of Nigeria (CBN). He accused the apex bank of being responsible for the nation’s excess liquidity crisis.

    He said CBN’s conscious, deliberate and misguided payment arrangement that unilaterally substitutes naira allocations for dollar-derived revenue result in market imbalance, which ultimately weakens the naira exchange rate.

    Boyo said that CBN’s monetary policies aggravate the level of inflation in the country. According to him, by substituting naira allocations for dollar-derived revenues, the bank unleashes hundreds of billions of fresh naira inflow into the coffers of commercial banks.

    Insisting that the excess cash in the system has less goods and services to contend with, the expert explained that the resultant market imbalance drives higher prices and fuel inflation.

    Boyo noted that with rising inflation, incomes buy less goods and services. Even higher incomes buy less because of the rising general price level.

    He suggested that the CBN must stop the obnoxious payment policy and in its place, adopt the use of dollar certificates or coupons (strictly not cash) for payment of monthly allocations to the three tiers of government.

    Boyo said that instead of getting dollar from the government and substituting it with naira, the CBN should give the certificates to beneficiaries, who would go to banks to change the certificate into naira.

    According to him, using the dollar certificate will bring down interest, inflation and exchange rates.

    “It (the use of dollar certificates) has so many ramifications, and the earlier it is adopted, the better”, Boyo said, adding that many of the nation’s economic challenges were self-inflicted and can therefore, be solved with the application of standard and established models.

     Agric sector also hit

    The disequilibrium in the macro-economy caused by the nation’s unstable policy environment is also hurting the agric sector, identified as the other component of the real sector and which is believed to hold promises of turning economic fortunes around.

    Like manufacturers, prospective investors in commercial agriculture lack access to capital. Where they do, the high interest rate remains a discouraging factor.

    “It has never been easy to borrow money in Nigeria from the banks”, Ohuabunwa lamented, recalling that in the past, several funding initiatives were opened by the Ministry of Agriculture & Rural Development and the CBN at single digit interest rate.

    He, however, regretted that the ease with which the facilities were accessed by the applicants became an issue and that those who benefit more from the initiatives are usually emergency farmers and fly-by-night businessmen.

    The Nation learnt that lack of access to capital that is friendly to agriculture has been a pain in the neck of farmers wishing to invest in equipment to process their harvest through value addition to ensure preservation and higher returns.

    “Most of our agriculture exports are mere commodities with little value addition, which makes them easily susceptible to global market price volatility”, Ohuabunwa confirmed.

    According to him, many agriculture enthusiasts have had their fingers burnt by watching their harvest spoil and lose value before they could not get off-takers. He recommended single-minded focus on manufacturing-production through value addition as the best way of out of recession.

    But Nigeria’s quest to leverage agriculture to grow and diversify the economy has never been this tough and lack-luster. Experts recalled that Nigeria made significant progress in positioning agriculture to galvanise the economy during the stewardship of former for African Development Bank (AfDB) President Akinwunmi Adesina held the forte as Agriculture & Rural Development Minister.

    They recalled that apart from pursuing several initiatives captured under the Agricultural Transformation Agenda (ATA), it was during his time that agriculture was being projected as a serious business, not a vocation.

    “Visible efforts were made to show that agriculture is not a business for the old, women and the uneducated, but for young people as well. A crop of young people called Nagropreneurs were born and showcased,” an expert who preferred anonymity said.

    ATA may have lost steam under the current administration due partly to the recession, Adesina’s successor, Chief Audu Obge spoke passionately about repositioning the sector. The consensus of operators has been that the new attempt to turn around the fortunes of agriculture must be built on the platforms and successes already achieved if it must yield the desired result.

    They expressed the belief that given the urgent need to ride on the back of agriculture to diversify and steer the economy out of recession, Nigeria does not have the luxury to reinvent the wheel.

    Insufficient resources

    The new thinking struck the right chord in the ears of Lagos State Governor Akinwunmi Ambode. He recently took the campaign to revolutionalise agriculture to the doorstep of corporate organisations.

    Ambode, who was on a courtesy visit to Nigerian Breweries (NB) Plc, advocated agriculture and backward integration by corporate entities as a way of revitalising the local economy.

    He said agriculture, which was once the mainstay of the economy, would only thrive with the encouragement of backward integration by not just the government, but by corporate bodies, such as Nigerian Breweries has been doing through its sorghum and cassava value chains.

    The governor said: “With the thousands of jobs you have created through your sorghum and cassava value chains, it is clear that we can use agriculture and backward integration to revive and reflate this economy. We would like to partner with you in this regard to increase employment in Nigeria.”

    But, will Ambode’s colleagues join the push to reposition agriculture? Will the corporate bodies heed the clarion call? What about the Federal Government through Ogbe, on whose table the buck stops? Will the government demonstrate the political will to give the minister’s “Green Alternative Agriculture Promotion Policy” the necessary push?

    With answers to the above questions remaining in the realm of conjecture, the consensus of experts is that government, for a start, the government must address the land tenure system and the ease of getting land for commercial agriculture.

    Besides, the dearth of extension services, appropriate technology and expertise, which are in short supply, must be resolved and the availability of seed stock, fast-maturing species and access to affordable fertilizer, among others, must be accorded attention.

    An accountant, Mr. Omooba Olumuyiwa Sosanya, added: “Nigeria must start having farm settlements in the local government areas and we can specialise on crops each of the states has comparative advantage in.”

    He told The Nation that with the introduction of agricultural marketing board that will buy the goods from the farm settlements and sell at subsidised prices to the market, “you are not only creating employments, but creating wealth, because most of our graduates will be employed.”

  • How real sector’s woes hurt diversification

    How real sector’s woes hurt diversification

    Things are not looking up for the real sector. The challenges in the business environment has continued to hold the sector down, pushing its contribution to the Gross Domestic Product (GDP) down to 9.5 per cent. This has raised fears that Nigeria’s hope of riding on the sector’s back to diversify the economy may not be realised, if the challenges are not addressed. Assistant Editor CHIKODI OKEREOCHA reports.

    Nigeria’s transition to a non-oil economy is under threat. The real sector, particularly manufacturing, upon which Africa’s largest economy anchored its hope of diversifying the economy from  over-dependence on oil proceeds, is gasping for breath. For most operators in the sector, the deteriorating operational environment caused by lack of supportive infrastructure and macro-economic uncertainty has become too heavy to bear.

    Apart from the huge costs imposed on them by the lack of critical infrastructure, particularly electricity supply, the prevailing macro-economic indicators such as high interest rate, rising inflation, depreciation of the naira against other major currencies, especially the dollar, and scarcity of Foreign Exchange (Forex), among others, have continued to plague the sector acknowledged as the economy’s growth engine.

    The economic downturn manifested by these negative indicators, The Nation learnt, has since forced not a few operators to take drastic measures including scaling down their operations and sacking their workers in a bid to stay afloat. Others that could not cope closed shop or relocated to neighbouring West African countries where the operating environment is friendly.

    Expectedly, one of the unsavoury consequences of the high mortality rate and or relocation of companies in the sector is job losses. Apart from compounding the nation’s already high unemployment rate, the spate of job losses in the sector clearly defeats one of the government’s objectives of pursuing diversification, which is job creation.

    According to experts at PriceWaterhouseCoopers (PwC Nigeria), oil & gas jobs account for less than one per cent of total employment and the young population can no longer be absorbed by the sector. The experts said apart from the need to insulate the economy from the risk of being vulnerable to a single commodity, job creation was another core reason why Nigeria needed to genuinely pursue diversification.

    The consulting firm identified the real sector as one of the priority sectors that Nigeria should target for diversification, apparently because of its job creation potential and dominant transmission link to the overall economy. However, the challenging fiscal and monetary policy environment has weakened the real sector’s capacity to stimulate economic diversification and create jobs.

    For instance, since manufacturers came under the challenge of lack of forex, workers in the food, beverage and tobacco sector have not slept with both eyes closed. Recently, the National President of Food, Beverages and Tobacco Senior Staff Association (FOBTOB), Comrade Quadri Olaleye,  said between December 2015 and March 2016, a period of four months, about 405 workers in the sector lost their jobs.

    The labour unionist raised the alarm that under the guise of lack of forex, virtually every company in the sector is now calling for downsizing of the workforce. “Even companies, which seemed immune to the gale of redundancies are now being put under pressure by the action of others to shed weight and retrench some of their workforce,” he alleged.

    Although, the employers are said to have cited the challenging operating environment as reason for sacking the workers, Olaleye would have none of that. He argued that the economic downturn presented an opportunity for innovation and creativity.

    According to him, instead of carrying out “incessant and deceitful redundancy exercises as bailout”, companies in the sector can reduce the pressure created by the demand for forex if they stopped being intellectually lazy and engage in Research and Development (R&D) to discover alternative sources of raw materials for production.

    FOBTOB president, noted that the union was not unaware of the fact that not all the raw materials used in the food industry can be sourced locally, and that where they are found, they are not in commercial quantity.

    He, therefore, called on the Federal Government to review the forex policy with a view to placing the companies in the food industry on the priority list of those deserving of forex.

    But Olaleye’s call appears to be a tall order, as the Federal Government through the Central Bank of Nigeria (CBN) may have foreclosed a review of the import prohibition list. The Nation learnt from reliable sources close to the apex bank that the creation of a special forex window for operators in any segment of the manufacturing sector is not on the card.

    Besides, it wasn’t the first time such call came from real sector operators. Early this year, Manufacturers Association of Nigeria (MAN) President, Dr. Frank Udemba Jacobs, led a delegation of its members on a courtesy visit to Vice President Yemi Osinbajo in Abuja where, among other issues, he urged the Federal Government to avert imminent shut down of factories by creating a special forex allocation window for manufacturers.

    The MAN boss said the special forex window was necessary to facilitate easy access to forex required to fund importation of industrial inputs that are not readily available in the country. Although, the vice president assured the Association that the issue as well as others presented will be treated with dispatch, succour is yet to come the way of manufacturers, especially with regards to the request for a special forex window.

    But forex challenge is an addition to the long list of woes plaguing the real sector and limiting its capacity to drive economic diversification. Others that have continued to leave sour taste in the mouth of operators include lack of supportive infrastructure especially electricity, faulty monetary framework that has continued to push up cost of production and policy inconsistency.

    For instance, manufacturers require about 3,000 Megawatts (MW) of electricity for optimal performance, but less than 1,000 MW get to them. This is why over 75 per cent of the electricity needs of manufacturers are said to be generated in-house, leaving only about 25 per cent coming from the power utility firms. Electricity supply alone takes between 35 per cent and 40 per cent of manufacturers’ cost.

    The huge cost came about because most manufacturing firms run full time in-house power plants for production for fear of unannounced power outages and surges from the utility companies, which often result into damages to machines, tools, raw materials, man-hour loses, and disruption to production processes.

    Although, small-scale operators are worst affected by the erratic electricity supply, as they are unable to finance the cost of backup power, large scale manufacturers are also seriously constrained.

    Some of them spend more than 40 per cent of their production cost on diesel. Such outrageous cost is proof that the inefficiency of the energy sector, despite the power sector privatisation about three years ago, is a major setback to private investment, and by extension, a hindrance to the on-going economic diversification.

    Dr. Jacobs did not mince words when he lamented recently  that the emergence of the new core investors in the electricity market, the Electricity Distribution Companies (DisCos) nationwide did not seem to provide the anticipated reprieve to manufacturers.

    “We are still contending with inadequate and poor supply; high tariff, including fixed charges; arbitrary and startling increase in tariff; unwarranted disconnections, among others,” he lamented at a recent forum organised by MAN in Lagos.

    Jacobs said in spite of the poor energy situation in the country, the Nigeria Electricity Regulatory Commission (NERC) has maintained increased electricity charges not considering its implication on the economy, especially the productive sector, which spends so much on alternative energy sources for production.

    The increase in the average cost of production caused by lack of electricity lowers the competitiveness of locally produced goods against imported close substitutes. It has also forced a decline in operators’ productivity.

    The Chairman, Economic Policy Committee (EPC) of MAN,  Reginald Ike Odiah, an engineer, put it in perspective when he said because of the rising cost of production, Nigeria’s real sector contribution to Gross Domestic Product (GDP) currently stands at a paltry 9.5 per cent.

    He said in contrast, those of United States  (US) and China stand at 35.6 per cent and 49.5 per cent, respectively. According to the industrialist, manufacturing cost in Nigeria is twice that of Ghana, four times that of South Africa and Europe, and nine times that of China and Malaysia.

    The nation’s faulty monetary framework is also frustrating the hope of levering a vibrant real sector to drive economic diversi-fication.

    The belief, for instance, is that with inflation rate hovering around 20 per cent, currently, and cost of funds as high as 20 per cent, while the exchange rate remains unstable, real sector operators may not gather enough steam to drive diversification.

  • How Enelamah can reposition real sector

    How Enelamah can reposition real sector

    Minister of Industry, Trade and Investment Dr Okechukwu Enyinna Elelamah has a major task-to revive the moribund real sector, whose contribution to the Gross Domestic Product (GDP) stands at a meagre 9.5 per cent. Is he up to the task? Operators and experts point the way forward. CHIKODI OKEREOCHA reports.

    The task before the Minister of Industry, Trade and Investment, Dr Okechukwu Enyinna Enelamah, is enormous. He came at a time the real sector is the focus of the Federal Government’s strategic rethink in favour of weaning the economy of its age-long over-dependence on  oil revenue. This means that the responsibility of driving the diversification agenda rests on him.

    Lagos Chamber of Commerce and Industry (LCCI) Director-General Mr. Muda Yusuf said the minister’s success would depend on the support he gets from other ministries and agencies to complement his efforts through appropriate policies and infrastructure.

    “If the country does not have the right infrastructure and policies, he cannot succeed in his portfolio,” Yusuf told The Nation.

    Describing the minister as “a good material,” he said the bulk of his work should be advocacy so that other agencies would collaborate with him in the task of repositioning the real sector, especially manufacturing, to play its role as a catalyst of economic development through the provision of basic infrastructure.

    “He can only succeed to the extent that other ministries complement him to drive the real sector,” Yusuf emphasised.

    Manufacturers Association of Nigeria (MAN) president Dr. Frank Udemba Jacobs said Enelamah must concentrate on improving on the nation’s poor infrastructure such as electricity, roads and railway among others. According to him, the dearth of infrastructure especially poor electricity supply is responsible for the rising cost of production, which in turn lowers manufacturers’ productivity and competitiveness. It is also responsible for the high mortality rate of manufacturing firms in the country.

    Jacobs, who spoke with The Nation on the sideline of the 48th Annual General Meeting (AGM) of MAN, Ikeja branch, held in Lagos, last week, noted that without infrastructure, locally manufactured products won’t sell beyond the country’s shores. Pointing out that the manufacturing sector, more than any other, has the greatest capacity to create wealth, generate employment and facilitate skill acquisition, he said: “All obstacles to its sustainable growth and development should be removed in order to achieve its full potential.”

    He also said the minister must address fiscal and monetary policies that have worked against the manufacturing sector. Although he described Enelamah’s emergence as industry minister as “a welcome development”, Jacobs pointed out that one of the policies the minister must address is the Central Bank of Nigeria (CBN) Foreign Exchange (forex), which prohibits importers from accessing its forex window for 41 items that can be sourced locally.

    Jacobs lamented that under the forex restriction policy, which has thrown manufacturers into confusion, some essential raw materials that are not available locally were lumped together with finished products. He argued that only imported finished items should have been on the list for the policy to be truly beneficial to the manufacturing sector and the economy generally.

    Noting that the challenge of inadequate forex and CBN’s new forex guidelines, to a large extent, negatively affected manufacturers and increased the cost of production, Jacobs raised the alarm that if not addressed , the policy could result in factory closures and loss of jobs.

    Indeed, the picture of the real sector Enelamah inherited is everything but inspiring. For instance, over the last decade, the manufacturing sector’s contribution to the nation’s Gross Domestic Product (GDP) stood at an average of four per cent. Although, there was a significant increase in the sector’s contribution to GDP to 9.2 per cent in 2013 following the rebasing exercise, before it peaked at its current 9.5 per cent, the figure is still considered a drop in the ocean.

    For instance, while Nigeria’s real sector contribution to GDP is 9.5 per cent, those of US and China stand at 35.6 per cent and 49.5 per cent, respectively, according to the Chairman, Economic Policy Committee (EPC) of (MAN), Reginald Ike Odiah. He said Japan, India and Germany also parade 38.2 per cent, 38.4 per cent and 35.9 per cent real sector contribution to GDP.

    Odiah, who made this known at the 48th AGM of MAN Ikeja branch, expressed regrets that, despite priding itself as Africa’s biggest economy following the recent re-basing of the economy, Nigeria has been unable to ensure the support and development of her real sector to grow her economy the same way other countries with large populations like hers such as China, India, Indonesia and Brazil did.

    In a paper he presented at the AGM titled:“Serious Constraints to Sustainability of the Real Sector (From a Manufacturer’s Perspective)”, Odia, who is also Managing Director of Bennett Industries Ltd., said when adequately developed, the benefits derivable from the real sector, which includes agriculture and manufacturing are huge. According to him, the sectors have enormous backward and forward linkages with other sectors of the economy.

    Indeed, Odiah and other experts believe that the real sector holds better prospects of galvanising the economic. According to them, the sector is more inclusive and sustainable, growth-oriented and also characterised by high economic linkages.“The real sector of any economy is the engine of growth. The need to ensure a healthy and strong real sector therefore, cannot be over emphasised’’, Odiah pointed out.

    The need for a  robust real sector has become more compelling now that oil prices are plunging, compelling the Federal Government to shift focus to the sector in the hope of reversing the trend where oil revenue accounts for more than 75 per cent of government’s revenue and close to 90 per cent of foreign exchange income. For real sector operators, this is the most auspicious time to unlock the massive potential in the manufacturing sector and increase its productivity through result-driven policies.

    One of the major steps is for the minister to work with relevant ministries and agencies to close the huge infrastructure gap, particularly power that has been a thorn in the flesh of manufacturers. The consensus is that the power sector reforms embarked upon by the immediate past administration failed to offer manufacturers the needed succour. The crisis in the energy sector has refused to abate. The power sector privatisation has not seen any significant improvement in electricity supply to residential and industrial consumers.

    “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 certainly is out of the equation,” Odiah lamented, noting that apart from basic infrastructure, other major components the minister must focus on, working with other relevant ministries and agencies, include good governance, financial reforms, security and corruption.

    He said, for instance, that a good government must constantly look inwards with a view to encouraging consumption of locally made goods. “This is the first step to developing a strong real sector. A strong internal market for locally-made goods will create employment, reduce crime and bring prosperity to the people,” Odiah pointed out.

    In recent time, unemployment rate has assumed a scary dimension and is believed to be contributing largely to the insecurity that pervades the nation. Investors’ confidence has also drooped. Most local and foreign investors are said to be holding back, waiting to see a significant improvement in security of life and investments.

    Although these issues present significant challenges to the new minister, industrialists and members of the Organised Private Sector (OPS) say he has no reason to fear if only he could pay closer attention to the challenges facing the real sector. Some of them who spoke with The Nation said in doing so, the minister must give room for robust consultations with private sector bodies for input into policy formulation processes and a universal application to all investors in a given sector.

    For economist and Managing Director of Cocosheen Nigeria Limited, Mr. Henry Boyo, respecting the sanctity of monetary stability would help reposition the real sector. “The pillar of any economy is monetary policy and the pillar of monetary policy is interest rate, inflation and exchange rate. When you get those ones right like in other countries you will fix the sector and the economy generally,” he declared.

    Delivering a paper titled: “Future Growth and Capacity Utilisation of Nigeria’s Manufacturing Sector in the Context of New Economic Realities and Tariff Policy Constraints” at a 44th AGM of Apapa branch of MAN, Boyo said: “high interest rate makes it impossible for the real sector to grow”. According to him, there is need to stem the crisis of excess liquidity in the system, which is responsible for the high interest rates, inflationary pressure, and devaluation of the naira.

    According to him, excess liquidity in the system is caused by Central Bank of Nigeria (CBN) “crazy, merciless, insensitive, and unilateral policy” of substituting naira allocations for dollar-derived revenue. He said CBN’s conscious, deliberate and misguided payment arrangements result in market imbalance, which ultimately weakens the naira exchange rate.

    Can Enelamah ride the storm? Only time will tell. But going by his intimidating resume, operators and stakeholders are hopeful that the Abia State-born medical doctor, chartered accountant and chartered financial analyst would deliver.

  • ‘How to revitalise real sector’

    ‘How to revitalise real sector’

    Industrialists are not happy with the way the privatisation of some public utilities were handled. They believe it was poorly done by the Bureau of Public Enterprises (BPE). In this interview with OKWY IROEGBU-CHIKEZIE, Manufacturers Association of Nigeria (MAN) President Frank Udemba Jacobs says due process was jettisoned when the firms were being sold. He wants the government to revisit the exercise. He also slams the Central Bank of Nigeria (CBN) for frustrating the real sector with its policies.

    The Comptroller General of Customs, Col. Hameed Ibrahim Ali, recently visited members of your association.What did you take out of the meeting?

    The Nigerian Customs has indicated  willingness to work with manufacturers and protect the interest of the country in the discharge of their duties. That means   the interest of the nation remains paramount in their scale of duty.The Manufacturers Association of Nigeria (MAN) believes the present administration under the leadership of President Muhammadu Buhari, has been moving in the right direction and needs time to complete ongoing efforts at resolving some of the challenges facing the country.

    The government is yet to unveil its policy direction. How has this affected the real sector and the economy at large?

    There are high expectations no doubt, however, many investors are cautious and are watching the direction of government. Manufacturers are still producing and are desirous of what government intends to do as regards addressing the major issues such as energy, security, funding and multiple taxation all of which add to cost of production and are making Nigerian products uncompetitive.

    How has government’s  policy through the CBN, especially the one that has to do with domiciliary accounts, affected manufacturers?

    In the first place, we appreciate the intention of the CBN to raise local productivity through the use of monetary policy. However, we think the apex bank needs to also take suggestions from stakeholders. The issue of domiciliary account should not be a blanket policy, as there are companies that may wish to access their essential raw materials, which currently are classified as not valid for forex. They may want to do so through recourse to their export proceeds that may have been lodged in the domiciliary accounts. It is our considered opinion that they should not be technically hindered.

    How has the policy that shut out importers of 41 items from accessing forex through the CBN window affected manufacturers?

    We are not totally against the CBN policy; what we are saying is that there is need to carry the key stakeholders along. However, we are already engaging CBN with a view to resolving the issue around the 41 items. We want the essential raw materials of our members removed from the list. At MAN, we believe the policy is an ad hoc solution to a bigger problem. Barring 41 items that we believe were not thoroughly studied from accessing forex is not the way to go. Indeed from our findings, we identified over 900 items that CBN should bar from the forex market and not what we have seen. It’s our belief that CBN will see reason to allow manufacturers to  import essential raw materials.We forwarded a letter to the CBN governor to allow our members have access to foreign exchange for the  importation of all inputs required for manufacturing.  The repercussion of the insistence of CBN on the 41 items will lead to job losses.

    Why are manufacturers opposed to the European Union- ECOWAS Economic Partnership Agreement (EPA)?

    There is no doubt about the importance of economic partnerships as tools for economic cooperation and development. However, in a situation where such cooperation is on unequal basis, there is need for caution. The Economic Partnership Agreement (EPA) between Europe and Africa, Caribbean and Pacific (ACP) countries is an offshoot of the Cotonou Partnership Agreement (CPA) and is essentially designed as an instrument of economic and trade cooperation between the European Union and the ACP countries.

    The purported goals of EPA are to promote economic growth and development, reduce poverty in the partnering countries, expand and diversify trade and increase domestic and foreign investment. However, the process, structure and perceived contents of the EPA negotiations have raised serious concerns about the impact EPA would eventually have on ACP countries and their efforts towards poverty eradication, regional integration and economic growth.

    We are asking for the development implication of this agreement in the belief that if Nigeria signs the agreement, most industries will close down; our local manufacturers cannot compete favouarbly with goods from Europe and other developed economies due to cost of doing business occasioned by the paucity of infrastructure. We believe that what they are looking for is our huge market for their products but if they can help us deal with the challenges of  poor infrastructure and multiple taxation, we will have no choice but to support the government to sign it.

    We also called for the diversification of the Nigerian economy because any country that is largely dependent on a single source of revenue runs the risk of operating an economy that is dictated by external market forces. The nation’s economy still depends heavily on the oil and gas sector, which contributes 82.9 per cent of export revenues; 70 per cent of government revenues and 11.2 per cent of the gross domestic product (GDP) in 2013.

    What  is the real sector expecting from government in terms of policy?

    Some of the issues we have presented in the past have centered on cost of doing business. These include inefficient energy distribution, high cost of funding, multiplicity of taxes and levies, over regulation from regulatory agencies and trade malpractices resulting in faking, counterfeiting and smuggling. Some of these issues have been addressed partially, but we need a holistic approach that will resolve the problem and free manufacturing to a level that the sector would achieve its full potentials.

    The real sector expects an efficient and regular power supply; a single digit interest rate, harmonisation of taxes and levies, re-alignment and redirection of regulatory framework. We also expect strong regulation  in terms of supervision and enforcement, strong policy and instrument to address trade malpractices through combination of fiscal and monetary policies and policy support that will elicit patronage of ‘Made-in –Nigeria’ products, all of which will go a long way in diversifying the economy. Funding issue remains a challenge to the manufacturing sector as credit by banks to the manufacturers is below expectation. The current situation where manufacturers pay double digit interest rate is not manufacturing-friendly.

    What are the things needed to grow the real sector and the economy?

    Government needs to put in place relevant policies that will encourage backward integration in the real sector. Government needs to take the real sector into confidence and have targeted policies that will grow the manufacturing sector. That is the only way we can keep our factories going and also create jobs.

    Is it expedient to continue the oil subsidy regime in view of free fall of oil price at the international market?

    In the first place, Nigeria does not have business with having subsidy regime.But we are where we are today, due to the fact that we have mismanaged our oil sector, both in terms of upstream and downstream sectors. Therefore, the issue of subsidy does not arise.Now that we are having challenges at the international market as regards the price of crude oil, it is expedient that we discontinue the oil subsidy regime and address the issues of our refineries and refine our crude oil locally.After all, it has been proven that the whole arrangement is laden with corruption. Nigeria cannot afford to do the business as usual (thing), we have to address this issue frontally and take a firm stand on it.

    How competitive are locally manufactured goods?

    Nigerian products are not competitive. For instance, energy cost constitutes about 40 per cent of production cost. This is because the average number of power outage per day across MAN industrial zones in 2014 was five times more than previous years, while the number of hours electricity is supplied per day was six hours in 2014. Over the years, the sector has been greatly constrained. We are faced with high energy cost which has and is still affecting productivity and profitability of investments.

    These challenges have resulted in a decrease in sales/turn-over as well as margins across the manufacturing sub-sector and rare cases of expansion, diversification and new employment, while importation of technical skills required by the industry affected the bottom line. However, it is pleasing to know that our interaction with the Nigeria Electricity Regulatory Commission (NERC) is also producing desired results. The monthly fixed charge has been reduced by a margin of between 17 and 50 per cent, depending on the Distribution Company (DISCO) servicing the area. It is also on record that members experiencing continuous or cummulative power outages for a period of 15 days in a month are no longer liable to pay the monthly fixed service charge.

    What is your take on multiple taxation?

    We have constantly spoken against multiple taxation, we believe that when taxes are harmonised, illegal taxes will be eliminated and cases of multiplicity addressed. It will also reduce production cost, making our products globally competitive.

    Some people have called for the revisit of the privatisation policy. Do you agree with this?

    We believe the privatisation policy did not follow due process and is tainted with a lot of irregularities and corruption. We are yet to witness a rebound in some of the companies privatised. We must not forget that government embarked on the privatisation because they wanted to turn around the fortunes of those companies but if it can’t be achieved then something is wrong. We advise the government to take a second look at the whole process. For instance, the nation has not received a commensurate fortune from the privatisation of the three paper mills in the country. The trio, worth billions were sold for peanuts that is why the  pulp and paper mill sector has remained comatose, whereas in other climes, it is one of the highest employer of labour.

    Do you see any benefit in the Federal Government’s Treasury Single Account (TSA)?

    The TSA policy is a good one. It will grow the economy if corruption is eliminated from its operation as government will know exactly how much it has and what parastatal is paying what. Unlike now where some ministries and parastatalsare known to have been running independent accounts not known officially or openly. In some cases, when the minister or chief executive officer leaves office, the accounts are lost as it was operated in the first place without altruistic reasoning. So, we are of the opinion that the policy should be pursued with all seriousness to curtail corruption in the public service.

    What would you say are some of the challenges confronting MAN?

    The manufacturing sector has been under the siege of fakers and counterfeiters for some years now. In fact, the Nigerian manufacturers are now big victims of large-scale product adulteration, faking and counterfeiting. Outright faking of established local brands, increased incidence of smuggling, dumping, illegal importation of unregistered products, under-invoicing and considerable evasion of duty payments. All these undermine the sector and its export potentials thus, eroding the revenue base of the nation.We are happy that the Standards Organisation of Nigeria (SON) raided some companies in certain parts of the country for producing substandard products and rather than taking correction they went on a smear campaign. But we came  out strongly and declared that the companies involved are not our members and must be made to face the full wrath of the law.We are calling on the government to strengthen and empower the operations of the SON and the National Agency for Food, Drugs Control and Administration (NAFDAC) to carry out their regulatory duties. We must get rid of fake and sub-standard goods from our markets.

  • Berger Paints’ chief urges govt to support real sector

    Managing Director,  Berger Paints Nigeria Plc, Mr Peter Folikwe has called on the government to support the development of the Nigerian real sector by providing enabling environment for manufacturing companies to thrive.

    Folikwe, who assumed the leadership position in Berger Paints in March, said Nigerian manufacturers are contending with several obstacles, which have reduced their competitiveness and limit their growth potential.

    Folikwe urged the Federal Government to address the issues of foreign exchange rate, infrastructural deficit, multiple taxation and enforcement of enabling rules by the Standard Organisation of Nigeria (SON) in order to create the much-needed enabling environment for businesses to thrive.

    “The real sector is the major sector that can drive economic growth and development. But in Nigeria, the sector has consistently suffered a setback in the scheme of things. The sector is bedeviled with myriad of issues which include infrastructural deficits such as bad road, epileptic power supply, multiple taxation, Naira exchange rate volatility and the extent to which the Standard Organisation of Nigeria (SON) is actually tracking and sanctioning those who compromise standard in their product quality. All these increase production cost and force producers to pass the cost to consumers who are already struggling with weak purchasing power. Government should address these issues without further delay,” Folikwe said.

    He added that efforts should also be geared towards instituting a virile consumer advocacy framework in order to promote culture of quality products among manufacturers.

    According to him, quality products are necessary condition for competitiveness in the global market and it enhances consumers’ loyalty and higher turnover.

    He said Nigeria would compete more favourably in the global market if the country leverage on consumer advocacy approach through which consumers of products are made to know that while inferior products appear cheap, they are actually more expensive than quality products in the area of durability and utilitarian value.

    He however assured shareholders of Berger Paints that the company would sustain its profitability noting that the performance of the company in the first half of 2015 indicates that the company has been waxing stronger despite the harsh operating environment for manufactures in Nigeria.

    He pointed out that the company is setting up a multi-billion Naira factory to expand its operations while working on innovative products that would not only appeal to Nigerian consumers but the entire global markets.

    Folikwe reiterated that his pre-occupation is to drive Berger Paints as a brand whose products would continue to define quality and acceptability in Nigeria.

     

  • CBN naive about real sector, says LCCI

    CBN naive about real sector, says LCCI

    The last may not have been heard about the exclusion of 41 items from the foreign exchange (forex) markket by the Central Bank of Nigeria (CBN). The Lagos Chamber of Commerce and Industry (LCCI) has slammed CBN for what it called the bank‘s “limited understanding of the manufacturing process of many of the sectors affected by the policy”.

    While introducing the list, the CBN declared the items invalid for forex from the interbank market and Bureaux de Change (BDC). But the policy did not go down well with members of the Organised Private Sector (OPS).

    LCCI consequently organised a dialogue between CBN officials, business leaders and members of the Chamber to discuss the policy, its rationale and consequences, and to advise on the way forward.

    In a communiqué after the meeting signed by its Director-General, Mr. Muda Yusuf, LCCI said it understood CBN’s constraints  in fashioning the policy.

    “Many of the restricted items are irreplaceable raw materials in the manufacturing process of many industries and this policy will cause significant damage to the Nigerian manufacturing sector and economy.

    ‘’We affirm that while there are several items on the list which any patriotic Nigerian will not object to, there are many others that will harm the manufacturing sector,” Yusuf said.

    He said given CBN’s dominant role in forex supplies and the fact that all three ‘official’ markets are excluded, the policy means that manufacturers who require any of the restricted items as input and raw materials for their production may have to shut their operations once their stock is exhausted.

    He said the items include those which are critical to manufacturing. He advised CBN to simulate the impact of the policy on employment, inflation and output in the year and review it. He insisted that the impact  of the three areas would be negative.

    Yusuf argued that the new CBN policy was ambiguous, to both manufacturers and banks.

    “We urge CBN to immediately amend the policy with full product definition and specification of all restricted items, including HS Codes and excluding any items which are non-substitutable industrial raw materials from the list. The CBN policy should also allow appropriate time frames for items, which require some time interval before local substitutes can be created for imported raw materials,” he said.

    The LCCI chief reminded the CBN and the Federal Government that manufacturers had suffered from the recent currency devaluation. Compounding recent devaluation losses with higher cost and inability to source critical raw materials, he argued, might push many firms over the precipice, resulting in business closures, loss of jobs, declined manufacturing sector production and greater social tension.

    Continuing, he said: “We call CBN’s attention to the fact that the fundamental forces the CBN is struggling against are economic and fiscal policy dependent while the bank continues to exert monetary policy tools almost to a point in which economic harm may result. The fundamental factors are diversification of the Nigerian economy in terms of exports and government revenue, issues around downstream oil sector deregulation and upstream oil sector fiscal regimes.

    “Others are power sector efficiency and creating alternative economies in solid minerals, agriculture, manufacturing and other sectors towards building a productive, export-led local economy. These matters cannot be resolved through exclusive deployment of monetary policy tools.”

    Yusuf suggested a conversation between the CBN and Federal Government so that a more appropriate regime of economic and fiscal polic initiatives could be designed to address these issues.

    He called on the CBN to harmonise its policies with other agencies of government, including Customs, Federal Inland Revenue Service (FIRS), Standards Organisation of Nigeria (SON), and Immigration.

    “Moreover we urge CBN to be mindful of the economic role and importance of Small and Medium Enterprises (SMEs) and moderate-sized manufacturers as it develops policies. The CBN should avoid policies that may produce oligopolistic and even monopolistic outcomes at variance with its mandate of building a sound economy,” he advised.

    LCCI also urged increased engagement and consultation between the CBN and manufacturers and other stakeholders so that policies would be based on proper understanding of the real impact on stakeholder groups and the economy.

  • Real sector’s thorny road to Forex market

    Real sector’s thorny road to Forex market

    The Central Bank of Nigeria’s closure of the Retail Dutch Auction System (RDAS) window as part of measures to rescue the naira and preserve foreign reserves may hurt manufacturers, particularly those with high foreign exchange (forex) exposure. Chikodi Okereocha and Okwy Iroegbu-Chikezie report.

    It was an intervention to halt the sliding value of the naira and preserve foreign reserves. But, there are indications that the Central Bank of Nigeria (CBN) policy, which scrapped the Retail Dutch Auction System (RDAS), leaving the interbank foreign exchange (IFEX) market as the only official foreign exchange (forex) market, would leave the real sector operators in the cold.

    The intervention became necessary because of the huge gap between the rates at the CBN official exchange market and the interbank market, a development said to be fuelling the current speculative activities in the forex market. However, manufacturers, who depend heavily on imported raw materials for production, are worried over the policy’s unintended consequences. Some of them with high FOREX exposure are worried that the policy would impact their businesses negatively.

    For members of Lagos Chamber of Commerce and Industry (LCCI), the policy, for instance, is a mixed bag. “This policy measure has its merits and downsides,” LCCI President Alhaji Remi Bello said. He noted that following the revision of the guidelines and the exclusion of some transactions, the forex window was targeted at providing support for the real sector of the economy because of its strategic importance to development, job creation and inclusive growth.

    Bello lamented that real sector operators are therefore, the first victims of the closure, particularly the few that had access to this window.

    He said the policy has some immediate implications for the real sector. According to him, it would, among others, result in the escalation of production cost for firms that had access to this FOREX window.

    “Such firms will experience cost increases of up to 20 per cent.  This would impact on sales performance, profit margins and ultimately capacity utilisation of their firms,” he said, adding that import duty and other port charges, which are computed as a percentage of import costs, will increase correspondingly.

    The LCCI chief argued that the policy implied additional pressure on operating costs for erstwhile beneficiaries of the CBN RDAS FOREX window. He said firms’ funding requirements (in naira) will increase to reflect the new exchange rate, which has implications for cost of funds. He also noted that because of the policy, many firms, especially manufacturers with high foreign exchange exposure, would incur loss consequence upon the depreciation of the naira over the last couple of months and the eventual closure of the RDAS window.

    “This is a major challenge currently being faced by many real sector operators, especially the medium and large firms. Exchange rate induced loses could trigger a new wave of non-performing loans in the banking system and this has implications for financial system stability,” Bello pointed out.

    Managing Director, Spectra Foods Limited, Mr. Duro Kuteyi, is also worried. To him, the new policy regime will affect manufacturers, who are exposed to the importation of raw materials and machinery. The industrialist said local manufacturers are faced with a lot of challenges even before now and adding these to the hostile environment where they operate amount to overkill. He expressed fears that if the situation is not properly managed it may force some companies to down-size or close shop.

    In scrapping the RDAS, the CBN, in a statement by its Director, Corporate Communications Department, Ibrahim Mu’azu, said: “The Bank has observed a widening margin between the rates in the interbank and the RDAS window, thus engendering undesirable practices including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents. This has continued to put pressure on the nation’s foreign exchange reserves with no visible economic benefits to the productive sector of the economy and the general public.”

    The CBN, therefore, said the closure of the official window was to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves. The apex bank said henceforth, all demands for foreign exchange should be channeled to the interbank foreign exchange market, while it would continue to intervene in the IFEX market to meet genuine and legitimate demands.

    Managing Director of Financial Derivatives Company Limited, Mr. Bismarck Rewane, said with the policy, the CBN has converged the market and rates into interbank and parallel markets, which leads to pure competition reduced arbitrage opportunity. According to him, the RDAS structure meant buyers get FOREX in official market at N215 to the dollar, leaving a profit margin of N47 on every dollar for doing nothing. He said one of the advantages of the new regime is that it discontinues the practice of the banks mobilising their naira and queuing up to purchase dollars.

    Members of LCCI agree with him, noting that the policy was desirable to some extent. Bello, for instance, said given the record disparity between the CBN RDAS FOREX window; the interbank and the parallel market rates, it was clear that the RDAS FOREX window was not sustainable. “The CBN could obviously not meet the huge demand for FOREX under the RDAS window.  In spite of repeated assurances, many genuine requests for FOREX for industrial raw materials and other vital inputs were denied by the CBN.  Foreign financial obligations could also not be met by many firms as remittances were affected.  This resulted in serious confidence issues among foreign creditors of Nigerian companies with some credit lines to Nigeria companies being put on hold,” the operators said.

    Bello further pointed out that the huge premium of over 20 per cent was a major incentive for round tripping, corrupt practices in FOREX management, speculative activities in the foreign exchange market and many other abuses.  It was also a major source of uncertainty and volatility in the market. “There were concerns about the lack of level playing field in the management of the RDAS window.  In the light of all these, it is difficult to fault the decision of the CBN to close the RDAS window,” he said.

    Bello, however, said a combination of monetary and fiscal measures will need to be deployed to mitigate the pressure the policy would have on the affected firms and save them from going under. The Chamber, he said, proposed a number of measures to cushion the effects of the policy on investors with high foreign exchange exposure. One of the measures is that the CBN should urgently provide a refinancing facility as lifeline for investors in the economy, which have high foreign exchange exposure. “The sustainability of this class of businesses is currently at risk. We recommend a minimum refinancing facility of N200 billion to be provided at single digit interest rate and a 15-year tenure,” LCCI said.

    The Chamber also proposed that all critical raw materials and other imported inputs of manufacturing firms should henceforth, attract zero import duty. They include all machineries and equipment, while port charges should be waived for raw materials importation and machineries. According to LCCI, all these are necessary to minimize dislocations in the economy and ensure the continued survival of the real sector.

    These mitigating measures, LCCI said, have become necessary, considering the fact that many real sector investors are faced with numerous investment climate challenges including high cost of fund, competition from unbridled smuggling and dumping of finished goods, counterfeiting and faking. Besides, investors are saddled with high energy cost including electricity tariffs, high cost of regulatory compliance and high transaction costs at the ports.

    The Economic Community of West African States (ECOWAS) Common External Tariff (CET), the Chamber said, would soon come into force and create new competition challenges for domestic firms.  The CET, when implemented, will allow goods from any other parts of West Africa into Nigeria without tax imposition, import duty or levy. The fear is that this would throw the nation’s borders open to influx of goods from within the West African region thus, exposing local industries and products to unequal competition.

     

  • Real sector is still crawling

    Real sector is still crawling

    Nigeria is celebrating 14 years of democracy, but there is nothing to cheer about its manufacturing sector, despite various economic policies. TOBA AGBOOLA writes 

    In the past 14 years of democratic rule, efforts to boost the manufacturing sector seem not to have yielded results. A look at the country’s development plans between 1999 and now, reveals that the same issues have been haunting the sector for decades.

    The issues are inadequate infrastructure, shortage of skilled manpower; over-dependence on the external sector for raw materials and capital goods and the shallow manufacturing activities as exemplified by lack of basic industries.

    For most part of the period under review, there has been near collapse of infrastructure. The development is so bad that most businesses are almost down because of the overhead cost incurred in providing alternative infrastructure such as power.

    According to the President, Lagos Chamber of Commerce and Industry LCCI, Mr Goddie Ibru, investment in the manufacturing sector has been low. He said many indigenous manufacturing firms, multinationals and investors have either shut down or relocated outside the country because of the infrastructural challenge.

    “In addition, the reduction in global consumer spending and demand has compounded the problems of the sector by hastening the fall in trade and export of manufactured goods.

    “The Nigerian manufacturing sector has failed to undergo the critical structural transformation necessary for it to play a leading role in economic growth and development. The sector is structurally weak and basic industries such as iron, steel and petrochemicals are not fully in place,” Ibru said.

    The National President, Nigerian Association of Small Scale Industrialists (NASSI), Mr Chuku Wachuku said since the advent of democracy, many companies have been operating below capacity because of unstable power supply, inadequate funds and high labour costs.

    This, he said, has increased businesses’ expenses, reduced productivity and hampered economic growth making many firms to shut down or relocate to neighbouring countries.

    He said the manufacturing sector was facing challenges in the face of the economic crisis that has accentuated the loss of competitiveness against manufactured products from China.

    “The blackouts are negatively impacting the economy, which is grappling with a combination of slow growth, a weak currency, high inflation and the effect of flooding that is expected to drive up food prices,” he said.

    However, President, Manufacturers Association of Nigeria (MAN), Kola Jamodu, noted that there has been increased investment and improved turnover for the industrial sector of the economy within the last one year.

    To achieve the desired goals in the manufacturing sector, Jamodu urged the government to address the acute infrastructural deficiency in the country and nip insecurity in the bud.

    He said smuggling, unbridled importation and dumping of cheap and substandard goods, which usually suffocate local manufactured products, should be brought to an end.

    He listed other challenges to include: high cost of funds and inadequacy of long-term loan windows to support long-gestation investments; multiple taxation, which is threatening the survival and growth of businesses in the country; non completion of the development of core industries particularly the petro-chemical, as well as, iron and steel industries; irregular supply of industrial fuel arising from the epileptic operation of local refineries; high energy cost, resulting in uncompetitive pricing of locally produced goods and dearth of qualified skilled middle level manpower worsened by the decaying educational system and policy inconsistency.