Things are looking up for the real sector after years in which some firms died and others relocated because of what was described as harsh operating environment. It recorded growth between January and March; its capacity utilisation also increased. It is thanks to the Federal Government’s interventions and the sector’s push for a better deal. Assistant Editor CHIKODI OKEREOCHA reports.
Last quarter of 2014 to last year would probably go down as the most challenging period for manufacturers. The decline in foreign exchange (forex) flow into the country, caused by the sharp drop in oil prices, left a sour taste in manufacturers’ mouths. Many of them were unable to source forex to import critical raw materials that were not locally available.
Expectedly, the result was telling. For instance, manufacturing capacities stagnated below average. Many manufacturers recorded huge financial losses. Many of them who could not weather the storm shut down; others relocated to neighbouring West African countries. Consequently, many people lost their jobs. Hopes of riding on the sector’s crest to diversify the economy also receded.
But there are indications that the sector is gradually bouncing back. For instance, the manufacturing sector recorded positive growth in first quarter of the year, hitting 1.36 per cent, against -2.54 per cent it recorded in fourth quarter of last year. Capacity utilisation also increased to 59.18 per cent in the second half of 2016, from 44.3 per cent recorded in the first quarter of that year.
As far as manufacturers are concerned, this growth recovery, driven by better policy adjustments particularly in the area of forex management, following MAN’s various meetings and presentations to the Federal Government, portends that the manufacturing sector is out of recession. MAN President Dr. Frank Udemba Jacobs who made this known described it as “heart-warming.”
The President, who was represented by the group’s Director-General, Mr. Ajayi Kadri, stated this at last week’s breakfast meeting for directors/chief executive officers in Lagos. The event themed “Nigerian economic recovery: Strengthening the real sector” was organised by the Ikeja branch of MAN.
The meeting is a yearly event that provides a platform for effective interactions of more than 300 chief executives, thereby helping them to chat the way forward to overcome the economic challenges/threats facing them.
Jacobs said that in line with the recovery momentum in the manufacturing sector, any further discussion on the theme will evoke more credible measures that will help sustain and strengthen the sector’s recovery process. He expressed optimism that government’s current policies and guidelines aimed at addressing the challenges facing manufacturers will improve the operating environment in due course.
One of the policies that may have put the sector on the recovery path, The Nation learnt, was the creation of a 60 per cent special forex allocation window for manufacturers by the Federal Government through the Central Bank of Nigeria (CBN), following several representations and stakeholders’ engagements by manufacturers.
The apex bank explained that the gesture was to address an observed imbalance to the sector, as a negligible proportion of forex sales were being channelled towards the manufacturing sector hence, it directed authorised dealers to dedicate at least 60 per cent of their total forex purchases from all sources to end users, for the importation of raw materials, plants and machinery.
The CBN said the balance of 40 per cent should be used to meet other trade obligations visible and invisible transactions. It also mandated forex dealers to publish weekly sales of foreign exchange to end users in the national newspapers and render statutory returns of sales on same to the CBN promptly.
Recall that the CBN in June 2015 announced a forex policy that restricted importers of 41 items from accessing its official forex window. Even those who export products that fall under the 41 items listed in the CBN circular were barred from using their export proceeds to fund the importation of raw materials, which were classified as not valid for forex.
The apex bank had argued that the policy was necessary to promote locally-produced goods, build robust foreign reserves, and also create jobs. “…We needed to aggressively begin the process of feeding ourselves by ourselves and producing much of what we need in this country.
“The huge amounts of money the country spends on importing things we can produce locally have become a significant drag on our foreign exchange reserves…,” CBN Governor Godwin Emefiele had said.
But manufacturers and other members of the Organised Private Sector (OPS) kicked, describing the forex restriction variously as “obnoxious, superfluous, and ill-conceived.” Many of them argued that they were not consulted by the CBN and other regulators before the restrictions were placed on the items.
They also pointed out that the vague nature in which the items in the import prohibition basket were described in the circular impeded the access of several local manufacturers to foreign exchange for procurement of their raw materials.
They accused the CBN of emasculating manufacturers by failure to properly appraise domestic capacity for production of some of the excluded items, and therefore, called for a review.
But CBN kicked its heels in, insisting that the policy was in the interest of the economy and Nigerians. The apex bank reiterated that the policy was necessary to re-awaken the consciousness of manufacturers on the need to look inwards and embrace the utilization of local raw materials, conserve foreign exchange and create jobs.
However, following persistent requests by real sector operators, the CBN directed that a special 60 per cent forex allocation window be set aside for manufacturers. And as it turned out, the policy has infused life into the real sector as the performance of the sector has improved in the first half of the year.
According to Jacobs, the policy has seen MAN’s membership strength increased by 415 in the last two years. He said that although, the CBN has removed the 60 per cent preferential forex allocation through its forex policy of February 21, 2017, it has promised to continue to accord the manufacturing sector strong priority in forex allocation.
The MAN boss stated that because of the increases in capacity utilisation and local sourcing of raw-materials, manufacturing production surged to N5.02 trillion in the second half of 2016, from N4.21 trillion in the same period in 2015 and N3.76 trillion recorded in the first half of 2016.
Ease of Doing Business, MSME clinic, others also
But the special forex allocation is not the only policy intervention that is gradually changing the manufacturing sector’s narrative. The establishment of the Presidential Enabling Business Environment Council (PEBEC) is also said to have the capability to further boost the performance of the sector.
PEBEC’s mandate is to improve the Ease of Doing Business (EODB) in the country. As Jacobs stated, “The performance score card of PEBEC indicates that its seven points objectives set in line with the World Bank Indices of Ease of Doing Business (EODB) have been achieved.”
The MAN boss observed, for instance, that there has been visible improvement in the ease of company registration, which is now being facilitated through a web portal. Also, trade facilitation constraints have been removed. He also noted the implementation of some aspects of the single windows ports operations, among others.
He, however, said MAN will continue to encourage investors to take advantage of these initiatives while imploring government to extend the improvements to other areas that affect the Ease of Doing Business not currently captured in PEBEC framework to improve Nigeria’s competitiveness.
Other policy interventions that may have signalled a new dawn for the sector include the recently launched Micro, Small and Medium Enterprise (MSME) Clinic, the inauguration of the Nigerian Industrial Policy and Competitive Advisory Council, which has the mandate to drive Nigeria’s industrial agenda of which MAN is a strong member.
The recent signing of three strategic Executive Orders by Vice President Yemi Osinbajo to promote patronage of made in Nigeria products, transparency and ease of doing business as well as the review of CBN’s list of 41 items that led to release of 32 items of raw materials that can now have access to the official forex market are also gradually impacting the manufacturing sector.
The Lagos State Commissioner for Commerce, Industry and Cooperatives, Mr. Rotimi Ogunleye, said that his ministry was at the concluding stage of the industrial policy review where various laws are being promulgated to ensure adequate security, social welfare and economic well-being of the people of the state.
He pointed out that the state had addressed the issue of multiple taxation and that the work place inspection team had been harmonised under one umbrella to reduce the incidence of multiple agencies carrying out inspections in the same company at different times.
On her part, the National President of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Chief Alaba Lawson, noted that the Federal Government in April this year launched the Economic Recovery and Growth Plan (ERGP) 2017-2020, which lists 24 programmes made up of 60 strategies and 369 key activities.
She said the programme is to provide a catalyst through which the economy can be revamped to advance the diversification drive, ensure efficiency in government processes, promote ease of doing business, encourage easier access to capital, and solve the daunting challenge of infrastructure deficit, among others.
While describing the ERGP as “laudable,” Lawson, however, lamented that the ERGP, just as other government programmes, plans and strategies aimed at strengthening the economy and the real sector, is being hampered by issues around proper guidelines, timelines, proper implementation, monitoring, feedback mechanism and information dissemination.
She therefore, said that for policies and strategies to truly succeed in revamping the economy, the real sector must track the initiatives of government, offering insightful recommendations, reporting verifiable impact on the real sector and the Nigerian economy at large.
