Nigeria’s economic diversification drive is shifting manufacturers’ thinking away from being mere packagers and assemblers to becoming major converters of raw materials into complete finished products.
“We are counselled to embrace the paradigm shift by changing our definition of and attitude towards manufacturing from packaging and assembly to actual conversion of the abundant local raw materials into the goods that the country needs,” said Frank Udemba Jacobs, president, Manufacturers Association of Nigeria (MAN) in Lagos.
According to Jacobs, the focus of Nigerian manufacturers and the government must now move towards backward integration and import substitution, to realise sustainable industrial growth and development sooner than expected.
Nigeria has a number of packaging companies in the pharmaceuticals, chemicals, water production, plastics, cement, food, beverages and tobacco, among others. Some local manufacturers, that do not do full-scale production, are in the business of packaging imported products for companies in other countries.
Also, most of the vehicle firms that have pledged to set up local plants in Africa’s largest economy are in the business of assembly and will also need to import components when they resume fullscale production in the country.
“You must not forget than the skills are not yet here. Nigeria will have to adopt the German type educational system or pay much more attention to science and technology to achieve its industrial target. All courses are important but at this stage of our development, we need to produce more technicians, production engineers, researchers and scientists,” Ike Ibeabuchi, managing director, MD Services Limited, producer of chemicals, told BusinessDay.
Many Nigerian manufacturers have remained in the business of packaging and assembly, owing to the shortage of capital to enable them to move into full-scale conversion. Much of the finance in the Nigerian manufacturing sector is short-term and Nigerian banks are often reluctant to fund the productive sector.
Currently, Nigerian manufacturers pay 23 percent interest rate on the average, while borrowing from financial institutions. Godwin Emefiele, Central Bank of Nigeria Governor, represented by Olaitan Mudashir Adeola, acting director of development finance, said recently in Lagos that only 3.5 percent of total bank finance is lent to farmers, while merely 0.2 percent goes to SMEs (and zero to export).
“The effort by government to stimulate the real sector of the economy may be in futility if the current trend in lending rate continues, and impedes the ability of manufacturers, entrepreneurs and indeed the real sector, to access operational funds, as well as funds for expansion,” said Bassey Edem, national president, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), in a economic review.
Manufacturers say the Bank of Industry (BoI) has played its key part in bridging the financial gap in the real sector by offering single-digit rates to manufacturers, farmers and other players in the value chain. But they say the bank needs more financial power to ramp up lending.
“The Federal Government should fast-track the establishment of its proposed Manufacturers Development Bank, to cater specifically for the credit needs of the manufacturing sector in the country,” said MAN, in its economic review.
Another key problem preventing Africa’s largest economy from being a manufacturing hub is the constant export of primary products which serve as raw materials for Europe, the Americas, Asia and other parts of the world.
Currently, Nigeria’s top non-oil exports are cocoa and rubber, unlike in other developed countries where manufactured products top the list of export products.
This precludes the country from developing its raw materials and puts local manufacturers in search of inputs in other markets.
Thabo Mbeki, former president of South Africa, told manufacturers last week, that Nigeria must wean itself from this challenge.
“We must change economic relations that make us producers and exporters of raw materials and importers of manufactured goods,” Mbeki said during the annual general meeting of MAN, held in Lagos.
According to Frank Jacobs, achieving Nigeria’s industrial target will require addressing acute infrastructural deficiency, general insecurity, smuggling/unbridled importation and dumping of cheap/substandard products, as well as high cost of funds and inadequacy of long-term loan windows to support long gestation investments.
“There is the need to address policy inconsistency, as well as tardy implementation of policies, sometimes arising from lack of political will to follow through on good policies,” he said.
