The average manufacturing capacity of Nigeria pegged at 73.3 percent in 1981 has dropped to 55 percent in 2021. This decrease can be attributed to political instability, global economic pressures, constant government policy changes, poor infrastructure and other factors.
But, Nigeria has had political stability for the past twenty-three years and its manufacturing capacity within this period wobbles between 35-59 percent, revealing that the country’s inability to achieve optimum manufacturing capacity for its consumer economy is hinged on other genealogical factors.
Experts and analysts have opined that the full implementation of the African Continental Free Trade Area (AfCFTA) is the West African country’s best chance to optimise its manufacturing sector, despite the recurring challenges facing the sector.
Issues surrounding Nigeria’s manufacturing sector
The Manufacturers CEO’s Confidence Index (MCCI) survey report showed that out of the thirteen industrial zones in the country, Bauchi/Benue/Plateau, Abuja and Rivers struggled in the first quarter of 2022 due to the rising level of insecurity in their respective regions.
High levels of insecurity have disrupted manufacturing activities, raised operating costs and made industrial zones unsafe for manpower resources. Also, access to raw materials has become a huge challenge to manufacturers, for instance, grains and agro-allied products are major agricultural produce grown in northern Nigeria and are negatively affected by insecurity.
Some manufacturers have relocated their factories from Nigeria due to poor infrastructures such as bad roads for product transport and distribution; warehousing facilities for perishable raw materials and finished goods; port congestion affects manufacturing processes as it causes delays in access to imported raw materials and other means of production.
In 2021, manufacturers lost fifty percent of half-year profit to operating and forex cost. This was at a time when COVID-19 disruptions were still ravaging the nation coupled with the forex liquidity crisis. Operating cost continues to rise due to insecurity, low capacity utilisation, huge import levies, exchange rate volatility, haulage costs of imported raw materials and heavy dependence on alternative sources of power.
The Manufacturers Association of Nigeria (MAN) revealed that its members continue to spend more on alternative energy such as gas, low-pour fuel oil, diesel, and petrol due to poor electricity supply. Between 2017 and 2021, manufacturers spent N425 billion on alternative energy sources with 16.76 percent spent on buying only diesel in 2021.
Lack of Indigenous technology is another huge challenge in the manufacturing sector, rather than developing technologies that mirror Nigeria’s industrialization process, stakeholders and government is signing bilateral agreements to bring foreign technologies into the sector. Then, excessive reliance on foreign means of production has made some factories become idle while waiting for their imports to arrive and clear at the ports.
There is a huge gap between Nigeria’s technological advancement in comparison to other industrialised nations, and the inconsistencies in government policies and programmes gravely affect the manufacturing sector, from import quotas and exorbitant taxes to foreign exchange liquidity and restrictions.
More daunting is the low patronage of Made-in-Nigeria goods by Nigerian consumers, despite government policies raising taxes and restricting the import of goods being produced in Nigeria. With the AfCFTA in place, Nigeria’s manufacturing sector can have positive development.
How to maximise the Manufacturing Sector with AfCFTA
Despite the sluggish implementation of the AfCFTA in most African countries including Nigeria, it is reassuring to know that manufacturers will benefit from the free trade agreement through:
Increased access to raw materials and means of production
Nigeria’s tomato processing factories are lagging behind due to inadequate storage facilities, insecurity issues and stringent government policies causing a rise in production costs and prices of tomato paste across the country.
But, the AfCFTA will revamp trade agreements that will give manufacturers access to tomatoes through importation from neighbouring African countries to meet up with production in the processing factories while other manufacturing sub-sectors will also have unfettered access to raw material inputs and alternatives to production within the continent.
New markets for finished products
Nigeria manufacturers and entrepreneurs get to increase their market value because the AfCFTA promises zero tariffs on more than ninety percent of goods traded between African countries, this means, manufacturers can produce goods locally and get them across borders to sell in markets beyond Nigeria, paying less or no duty.
When tariffs and taxes are at a minimal level, manufacturers make more profit, break even and have more capital for market expansion and to produce more, just like Dangote Group and BUA cement.
Access to Capital and Credit facilities
The Central Bank of Nigeria’s (CBN) policies on the interest rates to manufacturers are unfavourable, and the Monetary Policy Rate (MPR) was increased to 13 percent from 11.5 percent while leaving the interest rate at 5 percent.
However, AfCFTA gives manufacturers the flexibility to approach other African banks for loans and other credit facilities for their businesses. This is a win-win for Nigeria as the investment trickles back into the Nigerian economy and boosts the manufacturing sector.
Create an African Supply Chain
Nigeria’s manufacturing output increased by almost 60 percent to N7.03 trillion in 2021, despite struggling with myriads of challenges. When AfCFTA gets implemented, Nigerian manufacturers will be top players in a continental supply chain that caters to the manufacturing and distribution of goods and services within the continent with zero barriers.
Bottomline for Nigerian Manufacturers
Nigerian manufacturers are beginning to take initiative by creating supply for demands within the Nigerian market. Fast-moving consumer goods (FMCG) companies such as Hello Products Limited, Tolaram Group and Seven-Up Bottling Company revealed in a business article that they have diversified their product offerings to cover excess demand for some FMCG products which can easily spread into neighbouring countries with the AfCFTA.
While experts on free trade continue to sing praises on how AfCFTA will be the springboard that will secure Nigerian manufacturers’ place within the continent, there are still concerns about the downsides of this agreement. Trade barriers exist to protect small businesses from sinking but the Nigerian government and agencies’ penchant for poor regulations might make MSMEs go into an abyss if the government does not properly implement AfCFTA.
More importantly, the Nigerian government needs to throttle back on restrictive policies that harm manufacturers. This will enable them to produce more and increase exports to other African countries, and by extension more revenue for the government in form of excise duties.
The NBS revealed that manufacturing investment in Nigeria surged by 157 percent to N305.02 billion in 2021 when compared with N118.51 billion invested in 2020. However, enabling policies are crucial to the successful implementation of the AfCFTA and to attracting more investment into the manufacturing sector.