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How To Salvage Troubled Nigerian Manufacturing Sector – MAN

‘Encourage investment in the electricity value chain and revisit the power sector reform processes to close electricity access deficit and ensure efficiency in the performance of Generation, Transmission and Distribution companies through improved public- private sector partnership.’

Siaka MOMOH

The manufacturing sector in Nigeria is troubled. The subdued performance of the sector is attributed to some ongoing harsh economic reforms that have compounded the long-standing challenges confronting the sector, the Manufacturing Association of Nigeria’s current Confidence Index report has confirmed.

The finding of this report reveals that forex scarcity, inadequate power supply, high inflation, rising energy cost, multiple taxation, policy inconsistency, exorbitant interest rate, poor infrastructure and high logistics costs are the top ten challenges depressing productivity in the sector. 

MAN acknowledges the efforts of Government aimed at revitalizing the manufacturing sector evidenced by the recent monetary policy initiatives targeted at salvaging the economy. But it notes that most of these policy initiatives have not resulted in a win-win situation. It notes that most of the initiatives have not been helpful.

 MAN argues: “Most notably, the consecutive hikes in the Monetary Policy Rate by 600 basis points to combat inflation and encourage the inflow of foreign portfolio investment will not result in sustainable gains for the naira. Foreign portfolio investments are hot monies that only result in short-term gains for the naira. The limited access to credit by the manufacturers has been further worsened by the upward adjustments of the cash reserve ratio and the recent reduction of the loan-deposit ratio without due consideration of the negative consequences on the survival of operators, especially the Small and Medium Industries (SMI).

“In its bid to bring high inflation under control, the apex bank must strike a balance by implementing policies that stimulate foreign investment and promote an enabling environment for domestic manufacturers to flourish.It is high time the government focused more on promoting foreign direct investment and exports of high-value added manufactured goods that are capable of boosting the country’s forex reserves and sustaining the appreciation of the naira.”

The Association argues further: “It is important to emphasize that monetary tightening is rather more effective for combatting demand-pull inflation. However, the economy is more plagued by cost-push inflation that is stoked by supply-side bottlenecks. Hence, the high inflation is yet to respond to the ongoing contractionary monetary policies that have rather choked the real sector. Therefore, ensuring price stability without undermining real sector growth requires the concerted efforts from both the monetary and fiscal authorities.”

MAN expects the Government to frontally address insecurity, improve electricity supply, promote fiscal sustainability, and ensure policy consistency. For MAN, “Among other priorities, the fiscal authority must also lend supportive measures by adequately incentivizing the manufacturing sector and other productive sectors. This is very important to boost non-oil export earnings in addition to the increase in oil export proceeds occasioned by increased oil production, rising global oil prices and the coming on stream of the Dangote Refinery.”

 MAN wants the Government to decisively implement the following specific recommendations in order to revamp the manufacturing sector and reposition the economy towards attaining sustainable growth:

Stabilizing the Exchange Rate and Improving Access to Forex

  • Prioritize forex sale to productive sectors of the economy, particularly the manufacturing sector.
  • Stabilized the value of the Naira by managing the floating exchange rate within a business-friendly threshold and introduce other measures that will promote healthy dollar transactions.
  • Direct the CBN to clear all outstanding dollar obligations on the FX Forward contracts of manufacturing concerns to engender confidence in the market.
  • Review the foreign exchange rate for import duty assessment for production inputs, including raw materials, machines and spare parts that are not locally available by pegging the rate at N800, pending the stabilization of the exchange rate.
  • Discontinue the operation of the Price Verification System as the arbitrary margin has been reduced considerably and it serves majorly to arm-strong the operation of private businesses.

Promoting Energy Security

  • Direct the NERC to review the high electricity tariff for Band A Customers as no manufacturer has access to the stated 20 hours minimum of electricity supply per day.
  • Strictly enforce the implementation of the privatization agreement with the Distribution Companies to enhance effective delivery of power.
  • prioritize the domestic supply of gas to make it more accessible for local manufacturers and enforce the pricing of domestic gas supply in Naira as it is only a fraction of gas export.
  • Refocus the Gas Master Plan to ensure sufficient supply of gas for power generation.
  • Reduce energy transmission and distribution losses by adopting modern technologies such as smart sensors and machine learning algorithms for rapidly predicting and detecting technical faults to enable quicker repairs.
  • Leverage the Electricity Act to engage sub-nationals and regions for integrated electricity solutions tailored to their specific requirements, securing their backing for financing large-scale solar projects and investments in other cleaner energy sources.
  • Urgently develop a detailed gas development blueprint that incorporates regulatory gas pricing and improves public-private engagement in the sector.
  • Give effect to the recommendation of the inter-ministerial committee on gas which was set up to develop the roadmap for addressing the challenges of gas pricing, gas flaring, gas infrastructure and policy gaps.
  • Promote energy efficiency, conservation, and sustainability by raising awareness of renewable energy, establishing standardized policies, and adopting local production of energy-efficient appliances.
  • Encourage investment in the electricity value chain and revisit the power sector reform processes to close electricity access deficit and ensure efficiency in the performance of Generation, Transmission and Distribution companies through improved public- private sector partnership.
  • Ensure the connection of all consumers to the electricity grid through adequate metering to avoid free riding and unfair charges on the few connected consumers.

Ensuring Affordable Lending rate and Increased Access to Credit

  • Create special windows for delivering single-digit interest rate to productive sectors of the economy, while ensuring the relaxation of stringent conditions that deny SMI’s access to such funding scheme.
  • Recapitalize the Bank of Industry (BoI) to match the huge credit demand of industries.
  • Identify and address the intended and unintended consequences that may occur during the bank recapitalization process in order to maintain financial stability.

Upgrading Infrastructure

  • Ensure adequate installation of scanners, functional CCTVs, adoption of digital automation solutions of all port processes to aid clearing of goods at the port.
  • Decentralize seaports nationwide to decongest the ports in Lagos.
  • prioritize budgetary allocation for the construction of infrastructure along strategic economic hubs.
  • Ensure the commencement of the Brass Methanol Project and fast-track the completion of the Assa North-Ohaji South (ANOH) Project, the Obiafu/Obrikom/Oben (OB3) Gas Pipeline project and the Ajaokuta-Kaduna-Kano (AKK) Gas Pipeline Project to improve the capacity of the midstream gas sector. 
  • Upscale the involvement of the private sector in the infrastructure concession window to enhance the rapid development of infrastructure including road and rail networks, and rehabilitation of access roads to the ports.
  • Partner with domestic and international investors that possess both the financial and technical expertise to fund the re-construction of Tin Can Port.

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