Nigeria: Creating an industrious environment

As the latest step in the country’s long march to encourage diversification, the Nigerian government has been facing a growing chorus of calls to step up efforts to support the manufacturing sector and reverse the decline the labour-intensive industry has been experiencing for some 20 years. However, any turnaround will require high levels of investment from both the public and private sectors.

The manufacturing sector has been playing an increasingly small part in the hydrocarbons-rich economy, with estimates putting its share of GDP between 3% and 4.5%, well below the 5.6% or more contributed by the telecommunications sector and the 13.6% of the oil and gas sector, local media reported this summer.

Earlier this year, Olusegun Aganga, the minister of trade and investment, said the government wanted to see the manufacturing sector lift its contribution to the economy to at least 10% of GDP, with the state aiming to provide what he called an “enabling environment”.

At the beginning of November, Pat Utomi, a professor of political economy and a member of the Nigerian Economic Summit Group, an independent think tank that promotes reform to the national economy, said the government has to develop a master plan for the manufacturing sector, one that would lay the groundwork for broadening the base of industry.

“For the country to move forward, the manufacturing sector needs to account for a significant percentage of output. Currently, however, we are less than 3% of GDP in Nigeria,” Utomi said.

The sector faces many structural challenges, including regular power outages and a rapidly deteriorating transport network. These issues have had negative long-term effects. According to a recent report released by the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, between 2009 and 2011, some 800 Nigerian manufacturers were forced to shut down due to the country’s challenging operating environment, and more than 50% of the remaining firms were characterised as “ailing”.

A recent report by research firm Sullivan and Frost said that up to $650bn worth of investments were needed to bring the nation’s power grid and transport infrastructure up to the level required to meet the government’s stated objective of making the Nigerian economy one of the 20th largest in the world and would take 10 years to achieve.

Indeed, as in many areas of the Nigerian economy, securing a steady supply of power is not always easy and has perhaps slowed development of the industrial sector. “Power is the primary obstacle to production. We need to run generators for almost the entire day and must commit the majority of our overhead cost to the purchase of diesel in order to do so. Effective implementation of regulations from the Nigerian Electricity Regulatory Commission is critical to improving this situation,” George Onafowokan, the managing director and CEO of Coleman Wires & Cables, told OBG.

The draft 2013 budget, unveiled by President Goodluck Jonathan in mid-October, did offer some assistance to manufacturers, mainly in the form of tax breaks and tariff relief on imports of equipment for certain industries, and in higher allocations for infrastructure, particularly for transport and power. Of the $31bn in spending set out under the budget, just over one-third will be dedicated to capital expenditure.

The Manufacturers Association of Nigeria has welcomed the government’s plans to offer assistance to some industries, though the group has called for a system of relief and incentives to be extended to all segments. While acknowledging that the problems faced by the industrial sector cannot be solved overnight, more needs to be done to help manufacturers cut costs and tool up, according to Kola Jamodu, the national president of the association.

“If government must save the day, then waivers and incentives should be granted across sectors instead of just to a selected few,” he said in early November. “To encourage investors who operate on the same playing field, concession must be granted to all members of the sector.”

Despite this challenging situation, many industrial players are optimistic about the future. In recent years the government has shown itself to be increasingly adept at implementing transformative economic development programmes. The rapid progress of the cement industry over the past decade, for example, is considered to be a prime example of the efficacy of the state’s newfound approach to economic growth, which relies largely on private investment. Indeed, public-private partnerships are expected to play a major role in the advancement of the industrial sector under Vision 20:2020.

If the government is able to strengthen the utilities and infrastructure backbone of the country, this will go a long way towards creating an “enabling environment”. However, many manufacturers will likely be looking for more in the way of assistance, with improved access to credit, funding and incentives.