Nigeria’s manufacturing sector has been plagued by a series of problems that have continuously affected its productivity, profitability and efficiency.
Unfriendly macroeconomic conditions further exacerbate the situation, which impacts both business owners as well as consumers. However, Nigeria’s manufacturers have managed to overcome these challenges while still hoping for better days.
They were already very vulnerable to the COVID-19 pandemic, which was a worldwide problem.
According to the Manufacturers Association of Nigeria, (MAN), these problems have grown multidimensional and more difficult than in previous years.
The MAN’s CEOs Confidence Index for the fourth quarter 2021 was released Friday. It shows that these problems have grown with new concerns, while the inherent problems have intensified and are nearly impossible to fix.
The last three months of 2021 saw major challenges for stakeholders: high costs of imported and local raw materials, rising security, skilled manpower shortage, foreign exchange challenges, high price of adopting advanced technology, government policy, overregulation.
Spike in raw material cost
Although raw materials are an essential part of production, there has been a drop in supply since the pandemic. This has caused a shortage of raw materials and a rise in the prices of those materials.
However, the Index for Production dropped to 61.5 points over the 3rd quarter of this year’s 64.3 points. This decline could be attributed to poor access to forex for importation of vital raw material and machines that aren’t available locally,” it said.
According to MAN, the supply cut resulted in a shortage in raw materials and inputs that drove an increase of 21 percent in production costs in the second quarter 2021.
Hamma Kwajaffa (director-general, Nigerian Textile Employers Association) stated to BusinessDay that the situation was further complicated by the increased scarcity of raw materials and the prolonged lockdown of key partner countries like South China, which has clogged vital ports for global trade.
He said that there are concerns that the pandemic may get worse as China plans to keep its border restrictions in place for at least another year because of the emergence and schedule of major events.
Nigeria’s high level of insecurity poses a significant challenge to Nigerian manufacturing companies. This has had a negative impact on their ability to source raw materials locally.
Some of these insurgents had to deal with terrorist attacks, kidnapping, herdsmen attack upon farmers, and other issues.
Seleem Adegunwa, Chairman, MAN, Ogun state, stated at the 36th annual general assembly of the branch, that insecurity is one of the factors that drives poor competition among local manufacturers.
He stated that the government should provide the tools and equipment required by various security agencies in order to support their operations in tackling state insecurity.
Adoption of advanced technology
Manufacturers are not able to use advanced technology and digitalization despite their willingness. This has a negative impact on their output and performance.
The National Agency for Science and Engineering Infrastructure of Nigeria (NNASENI), report on Advanced Manufacturing Technology (AMT), states that manufacturing processes, equipment, and systems are rapidly changing to meet new customer requirements, competing challenges, and the emergence of new technologies.
It stated that this allows companies to produce better products faster and at lower costs than ever before. However, the current situation in Nigeria is that all manufacturing processes are still based upon traditional methods of operation.
Segun Ajayi Kaldir, Director General of MAN, stated at a roundtable discussion on 2021 that industrialization is a catalyst to economic growth and growth with precedent showing that many developed economies have experienced enduring growth through advanced manufacturing capabilities.
He said that Nigeria’s industrialization rate has been slow and not impressive due to many factors, including financial constraints, knowledge, and other issues.
According to MAN manufacturing companies are constantly overwhelmed by multiple regulations from different regulatory bodies and an excessive drive for revenue from government agencies.
Another major problem affecting sector performance is overregulation. Nigeria has more than 25 regulatory agencies that oversee business activities, some with the same duties as other bodies.
Each agency attempts to fulfill its responsibilities but their activities can clash, causing confusion and problems for manufacturers, especially when it comes to documentation or levies.
“Regulators of different levels (Federal, State, and Local Authorities) often regulate the same manufacturing process. This can lead to operating losses, duplicate supervisory duties, and increased overheads for manufacturers. ” MAN stated.
Foreign exchange issues
The survey found that 75.1 percent claimed that FX sourcing in the sector was not improving during the quarter under review.
In Nigeria, foreign currency shortages are a constant problem and have led to 54 deaths of manufacturing companies in 2016. Many others have followed suit, with many more saying that they can get 2-10% of their dollar needs from markets even after waiting for 30-90 day.
This is made worse by the constant devaluation of Naira. It currently costs N414 for one dollar at the Central Bank of Nigeria (CBN), but it only costs N550 on the parallel market.
Experts believe that if FX accessibility and availability issues are not addressed quickly, many companies will close down. This will result in job loss and a collapse of the sector.
The country’s macroeconomic environment also affects business operations, in addition to the issues mentioned.
“The macroeconomic environment in quarter under review had an overwhelming effect on key manufacturing indicators like production and distribution costs; Capacity utilization, Volume of production; Investment; employment; sales volume; and cost of shipment,” MAN reported.
These conditions enhanced the perception of mixed grilled performance and exposed hotspots. The report also indicated that this sector remains challenging and needs comprehensive support.
Sector players also stated that the challenges they face have limited their ability and impact on the continent. They asked for prompt government action to address these issues.
“Manufacturing performance remains below the mark because the sector is still plagued with many familiar constraints. Therefore, in order to improve performance of the sector the Government must intentionally put in place mechanisms to address these challenges permanently,” MAN advised.
MAN recommended that the security of life and investments in industrial areas be addressed and that security infrastructure improvements are made in all areas of the country, with a special focus on the north.
This will encourage investment in local development of raw materials through backward integration and resource-based industrialization.
It is also important to allocate forex effectively to the manufacturing sector in order for importation of vital machinery and equipment, as well as raw materials.