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‘Revamping Nigeria’s manufacturing sector’

The Nigerian manufacturing sector has begun to experience statistical growth. It is an important point to make, in spite of the cynicism towards statistical expression…

The Nigerian manufacturing sector has begun to experience statistical growth. It is an important point to make, in spite of the cynicism towards statistical expression of performances of economic indicators in Nigeria. But part of the economic transformation that is taking place in the country is that public and private sector institutions are now producing analytics for better understanding of what is going on in the economy. More systematic approaches to data-gathering are helping to provide reliable information which guide economic and investment decisions, in line with the trend in the advanced and emerging markets, where regional, national and sectoral data are crucial in understanding the state of the economies and the performance of their industries. According to the National Bureau of Statistics (NBS), the performance of the manufacturing sector has been strengthening. The sector grew by 8.41 per cent in Q1 2013. It was a performance that even bettered the impressive growth of 7.70 per cent in the last quarter of 2012. This upswing in the performance of one of the sectors that hold the ace for Nigeria’s economic transformation was corroborated by researchers at FBN Capital, one of the leading investment banking and financial advisory groups in Nigeria. FBN Capital’s Purchasing Managers Index (PMI) has maintained a reading above 50 points since the “headline reading” of 59.6 per cent at its launch in April 2013. The PMI methodology indicates 50 points as flat performance; a reading above it is growth, while lower reading indicates contraction.
Although far from glory days, the Nigerian manufacturing sector currently constitutes 10 per cent of our GDP. This is significant for a frontier market, and at this stage of Nigeria’s development. The sector accounts for about 12 per cent of employment in the formal sector. In spite of the decline in the sector a few years ago, the consumer goods sub-sector has always been vibrating. After decades of domination by multinational food and beverage franchises, recent growth in manufacturing has seen strong contribution by indigenous manufacturers, who have come into fortune because of the policy support under the Transformation Agenda of President Goodluck Jonathan, and the fillip provided by his predecessors.

A manufacturing hub
Nigeria has been a sort of manufacturing hub for West Africa for decades. A huge percentage of the trade in manufactured products that linked the sub-region is informal. Pharmaceutical products and other consumer manufactured goods had fuelled Nigerian exports to Ghana, Sierra Leone, Gambia, Liberia and a swath of Francophone West African countries, until China, from the 1990s, took aim at the sub-region to dump inferior quality items. But Nigeria is set to regain its status as the central nervous system for manufacturing and distribution on the West coast of Africa, for a number of reasons.
Unlike in the 1970s,  through to the last decade, China now cares much more than economic growth that is achieved through foul trade practices such as dumping. Now the second-largest world economy – one that aims to be more influential in global diplomacy – China has begun to reform its industrial practices, and is aiming to shift from manufacturing of inferior quality products to leveraging hi-tech. Moreover, China is transitioning from a low-wage economy as domestic consumption has been identified to be a major support for economic growth for the country, moving forward.
The status of Nigeria in manufacturing in West Africa can hardly be challenged. A domestic consumer base of over 170 million people ensures that local demands are strong and supportive of investment in manufacturing. This is particularly so as a result of the growing middle class in Nigeria that is boosting consumption. Thus, it is reasonable, that foreign investors in the region look at setting up in Nigeria and then export excess capacity to other countries in the region. A reverse strategy is a non-starter. While infrastructural support for trade of manufactured goods in the country has been inadequate (but improving), more serious logistical, non-tariff barriers will thwart any effort to serve Nigeria’s needs from a manufacturing base elsewhere in West Africa. Not surprisingly, therefore, some of the manufacturing companies that moved out of Nigeria a few years ago are returning.
A number of reforms are reshaping the manufacturing sector in Nigeria. The NBS has more recently attributed the growth in the sector to implementation of the power sector reforms. The full effect of the reforms is a promise than what we currently experience. It is, therefore, expected that the era of more stable grid-electricity power supply, which Nigeria now has on the horizon, would ensure that products manufactured in Nigeria move towards price-competitiveness. It will also drive other efficiency factors. As I had mentioned, this Administration has pressed on with addressing infrastructural deficiencies. As a first step in the rail transportation, some of the old rail lines have been revamped and are now operational. This and some proposals for new tracks will support establishment of an agricultural corridor to connect agricultural produce to agro-processing industries.
A number of policy supports, including fiscal incentives and establishment of free trade zones, have underlined government’s efforts to lift the manufacturing sector. General Electric is one of the global manufacturers that have taken advantage of this in recent times. Its $1 billion investment in a service and manufacturing facility in Calabar, Cross River State adds to the high profile non-oil foreign direct investment in the country. Of bigger scale is the $9 billion investment of Dangote Group in petroleum refining, petrochemical and fertiliser plant in the Olokola Free Trade Zone.
SME manufacturing is not overlooked. Part of the credit goes to the strong advocacy of the very vibrant trade association for the sector: Manufacturers Association of Nigeria (MAN). Its leadership has been persistent in calling for more favourable fiscal environment and removal of barriers to the growth of the sector. Where MAN has been helpless (although not altogether without assistance), is the area of high interest rate charged by the commercial banks. A number of financing initiatives, including an SME fund sponsored by the Central Bank of Nigeria (CBN) have been addressed to the special funding needs of manufacturers of smaller scale. That we have need of more low-cost finance solution is well acknowledged by policymakers, although macroeconomic goals that impact interests rates are much more difficult to achieve at the current level of success with diversification of the economy.
One of the agencies working closely together with manufacturers is the Nigerian Export – Import Bank (NEXIM). The specialised bank has been working more closely with some manufacturers, especially since it formulated its MASS Agenda. NEXIM Bank sees the manufacturing, agro-processing, solid minerals and services sectors as very important frontiers of job-rich growth that the country needs to give welfarist meaning to the impressive gross domestic product growth Nigeria has experienced since much of the last decade.
Since 2010, NEXIM Bank has been assisting some manufacturers to retool. It has funded complete overhaul of facilities for some manufacturer clients. As manufacturing evolves with technology, the bank has, therefore, tailored its interventions to usually assist manufacturers to adopt new technology in the form of new equipment and machinery.
As a development finance institution (DFI), NEXIM Bank’s facilities, including for manufacturers, are priced below the exorbitant market rate of the commercial banks. For a number of its loan beneficiaries, Its facilities have been critical to their ability to take advantage of opportunities that require them to expand their capacity, or acquire more cost-efficient facilities to improve the quality of their products. In either scenario, jobs are on the line. It looks to create and sustain more jobs in the manufacturing sector.
It also hopes to scale up its impacts. By 2015, Nexim Bank aims to provide about N42 billion in short and long-term financing to the manufacturing sector. This will represent about 6 per cent of total funding needs of the sector. With this, it hopes to directly mediate about 4 per cent of total production value in manufacturing, and create and support over 70,000 jobs. Its specific view of the sector is to identify key areas of growth dynamics. As a result of local consumption capacity and local sourcing of raw materials, the bank intends to focus significant parts of its intervention on the food and beverage, wood products, domestic and industrial plastic/rubber products, steel and alloy products sub-sectors.
Nexim Bank reiterates it will be innovating on how to support, in particular, export-manufacturers in fulfilment of its mandate. Another major step it is taking in this direction is its buyer credit facility which will be launched by 2015.
An up-to-date view of the manufacturing sector is not that it is comatose; it is revamping. The growth potentials in the manufacturing sector are huge. Manufacturing is one of the sectors that will contribute to the long-term economic growth in Nigeria. When we factor in the value chain, we see even brighter economic prospects.
Orya is Managing Director/Chief Executive Officer, Nigerian Export – Import Bank

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