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Numbers emerging from the manufacturing sector are encouraging, but it remains to be seen whether they are true reflections of the health of the sector.
The Purchasing Managers Index (PMI) released by the Central Bank of Nigeria (CBN) shows that the manufacturing sector PMI rose to 56.9 index points last month as against 51.1 points in the same month of 2017.
The April PMI data indicates an expansion in the manufacturing sector for the 13th consecutive month, according to the CBN.
“Improvement in FX supply is much better than it was before and this has made more businesses across vast sectors of the economy to begin to pick up. This can be seen in the new orders of the manufacturing sector, as companies have to meet up with demand,” a real sector expert told BusinessDay.
Capacity utilisation in the sector stands at 55.03, according to the manufacturers Association of Nigeria (MAN).
Local input preference, which measures the rate at which manufacturers source locally available raw materials, is estimated at 60.72 percent in the first half of 2017, as against 46.3 percent recorded in the corresponding half of 2016.
In the first half of 2017, manufacturing output rose to N4.67 trillion as against N3.76 trillion recorded in the corresponding half of 2016, according to MAN.
Real GDP growth in the manufacturing sector in the last quarter of 2017 was 0.14 percent (year on year), higher than the same quarter of 2016 and the preceding quarter by 2.68 percent points and 2.99 percent points respectively, according to the National Bureau of Statistics (NBS).
Nominal GDP growth of manufacturing in the Q4 of 2017 was recorded at 9.20 percent (year-on-year), 5.64 percent points higher than figures recorded in the corresponding period of 2016 (3.56 percent).
However, BusinessDay checks show that things are not significantly improving in the sector as is being reported and age-old problems have refused to go.
First, power sector expenditure in the manufacturing sector is rising rapidly and has been so since 2014/15. Manufacturers spent N66.03 billion on alternative energy sources in the first half (H1) of 2017; N62.96 billion in the corresponding period of 2016, and N69.99 billion in the second half of 2016, according to MAN.
Average daily electricity supply in H1 of 2017 declined to five hours, from seven hours supplied in the corresponding period of 2016 and eight hours in the second half of 2016.
In fact, manufacturers have given up on power distribution companies (DisCos), forming the MAN Power Development Company to cater to their own needs.
Results of survey conducted by MAN shows that the average interest rate banks charged manufacturers in H1 of 2017 was 22.65 percent as against 21.4 percent in the corresponding half of 2016.
Infrastructure-wise, Nigerian roads are not better and only Abuja –Kaduna Railway has been completed, which is not even a major economic rail. Lagos to Kano, and Kano to Kaduna, among others, which can help manufacturers cut logistics costs, are still at the inchoate stage. Today, manufacturers’ 20 to 40 percent expenditure goes to logistics.
Today, manufacturers in various states pay 54 types of taxes and levies as against 38 in 2013-14.
“These taxes need to be amalgamated into one or a few, since the whole tax cycle is a multiple chain of taxes on the same income stream,” said Vivian Chigozie-Nmonwu, tax expert and lead partner of Vi-M Professional Solution.
Today, Ajaokuta Steel Complex is yet to be revived as has been the case, prompting manufacturers to seek steel inputs from abroad. The Federal Government is still dithering on privatising it.
“Currently, I am not sure those technologies at Ajaokuta are competitive in steel making. The world has moved on. What is required now is for the private sector to get more and more involved in the downstream and the upstream segments in the steel business,” Raj Gupta, chairman, African Industries Group, a consortium of 12 companies, including six steel plants, told BusinessDay recently.
In fact, the foreign exchange crises of 2016 exposed Nigerian manufacturers as import-dependent, as even the CBN had to devote 60 percent of the entire FX market to ensure they stayed afloat. Even at that, 54 firms that could not cope went under, according to Frank Udemba Jacobs, president of MAN.
Today, the tomato industry is in crisis as many players are either shut down or operating at less than 20 percent capacity. More so, the only brakepads manufacturer—Star Auto Industries Limited—is shut down.
“We could not continue because we could not compete,” Chidi Ukachukwu, CEO, told BusinessDay after the closure.
The automotive industry is near dead, as 22 firms which planned to set up plants did not do so, owing to an incoherent government policy and harsh business environment.
The textile industry today is worse than it was in 2011 as only African Textile Manufacturers (ATM) Limited, Angel Spinning and Dyeing Limited, and Spinners and Dyers Nigeria Limited can be called textile firms.
In fact, industry sources said only two are in operation. Even at that, fabrics production makes up less than 30 percent of their business. In fact, most of what is called textile firms today and numbers emerging from international agencies about the industry focus on fashion and design, which does not constitute full-fledged manufacturing.
“What we need is the enabling environment. We cannot compete with the level of smuggling and counterfeiting going on now. We used to have about 127 textile firms in Nigeria but that has come down to two or three now,” said Grace Adereti, president of the Nigerian Textile Manufacturers Association (NTMA) in Lagos, at a Made-in-Nigeria stakeholders’ meeting recently.
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