Nigeria’s manufacturing sector ‘virtually dead’ – MAN

Mr. Ikpong Umoh is the Chairman,Toiletries and Cosmetics Manufacturers group of the Manufacturers Association of Nigeria, MAN, and the Chief Executive Officer, Stellarchem Nigeria Limited. He speaks on Nigeria’s economy under the administration of President Muhammadu Buhari in the last two years.

How do you assess the performance of the manufacturing sector and its contributions to Gross Domestic Product (GDP) under the current government?

Truly speaking, the manufacturing sector is in comatose and the economy generally has not fared well. Some years ago, fuel was N65 per litre but now it is N145. The masses are paying directly without for it without any succour. In terms of power supply, most people including manufacturers are using generators, still some allocations in the budget are not far reaching.

Are you saying that government has not put any positive measure in place to enhance industrial growth?

Well, one area I give government a plus is considering the needs of Small and Medium Enterprises (SMEs) by allocating N$1.3billion to the development bank they are setting up, which is going to help SMEs. This is because commercial banks and even Bank of Industry (BoI) do not meet the needs of SMEs. They give loans with high interest rate of 25 percent and above. BoI claims to directly help SMEs but the fact is that BoI does not share and under-write the risk of SMEs. For example, BoI gives loan for machineries and expansion and not for start-ups of new industries.

Do you think development bank will meet the needs of SMEs operating in rural areas?

Government must clearly define the functions of development bank for us to know if it will operate like rural banks with branches in local governments where SMEs can access funds. This is because some multi-nationals now have SMEs in smaller units that service them. They use such SMEs to obtain intervention funds given to the real SMEs by the Central Bank of Nigeria (CBN), such that these allocations still end up with these multi-nationals, instead of the real SMEs. That was what happened to the intervention funds given to SMEs by the CBN. That is why the SMEs sub-sector has not recorded any tangible growth since 1960s. Their growth is greatly hindered due to inability to access funds, which is why their contribution to national economy is quite dismal.

What does the manufacturing sector stand to benefit from N7.441trillion 2017 budget?

For the manufacturing sector to benefit from 2017 budget and contribute meaningfully to GDP, the money given to development bank must meet the intended purpose. There must be total fine-tuning of agencies that interface with SMEs. The tax system must be overhauled. We had example of a multinational company that came into Nigeria and a consortium of banks sourced funds for the firm while the State government where the industry was sited gave free land and fast tracked the Certificate of Occupancy (C of O) for the firm. No SME in Nigeria is given such opportunity. Instead, what you see is, as soon as you get a small shop, the revenue arms of government will knock on your door. They will come with police, KAI, and other regulatory agencies to tax you so much that, the business is forced to close shop. This is not the way to treat SMEs.

Aside from access to loans, can you say the operating environment has been condusive for SMEs?

In Nigeria, a typical SME must be a government on its own. It has to provide roads, power and virtually everything on its own. It has to contain with multiple taxation. You see a situation where government decides to set up joint tax board, but after discussion, within three months, new taxes suddenly come into bear. The situation is so bad that, if you move from one local government to another, you are compelled by agencies of government to pay new taxes. SMEs are currently being forced to put what they called inter-state tax. Imagine an SME operator with only one vehicle for distribution, after paying all manners of taxes in Lagos, moves to Ogun State for distribution, and he is forced to pay the same taxes, he paid in Lagos. If he fails, his vehicle is confiscated and the business closes shop.

Power generation is another major barrier to the growth of SMEs and the economy at large. MAN has estimated that 40 percent of the cost of production by a manufacturer in Nigeria goes into power supply. This means with the erratic supply of power, an SME operator must run his business with generator, buying fuel and diesel in a very high rate. At that rate, he cannot be competitive like his foreign counterpart. So, what we see here is low productivity along with the low purchasing power of consumers. If these issues are not addressed, it will take long for economic benefit in Nigeria to trickle down.

Can 2017 budget pull Nigeria’s economy out of recession?

On the surface, the budget looks like the sweetest we have ever had, but looking deeper, there are things showing that this budget cannot pull the economy out of the current recession, because there is a major dislocation. For instance, our dependent on crude oil revenue put us where we are now, in a recession. Yet, our government has not learnt from the mistake of the past, by predicating our annual budget on a revenue source where we do not have control over its price at the international market. I thought that budget 2017 will be based on increase in export and local production. Suppose crude oil sells below the budget’s benchmark of N$42 per barrel, what happens to our economy? Let us learn to put our budget on agriculture as well as non-oil revenue sources, and not on oil that the price is volatile in the international market. If the price of oil declines our economy will be greatly affected. This is a major mistake, which shows that we have not learnt. Also, N1.8trillion is allocated for debt servicing, meaning the benefits people will get is not there. Recurrent expenditure is still very high. Today most democratic nations are running slimmer governments, but in Nigeria the cost of governance is till very high.

What will you advise government to do in this case?

They should look at some agencies and merge them. For example, agencies like Standards Organisation of Nigeria (SON) and National Agency for Food, Drug, Administration and Control (NAFDAC) are doing the same functions. I think the local government should either be scraped or given autonomy, because now they bring nothing to the table as far as governance is concerned. We must move away from this Father Christmas style of governance. If government is enjoying affluence, it can spread its tentacle, but in a recession, it must streamline its activities.

What do you think should have been the major focus in 2017 budget?

There are things that the future depends on like education. As such, N150billion allocated for special intervention should have gone to education, while the N50billion given to education should have gone to special interventions.

Why?

Education is much more important. For example, some of the things that give rise to special interventions can be prevented if our education system is sound and the people are well empowered. If you put special intervention above education, where is our priority? Is it Internally Displayed People (IDP) that are funded by United Nations and other agencies that government is giving more priority than education? Another issue with this budget is recovery loot, which is estimated at N56billion, whereas we have recovered so far more is than this amount. The questions are? Where are the recovered loots? Where is the money kept? There is an issue of transparency here because a budget of recovery needs transparency on recovered loots and other issues. We must unravel these things, because if we predicate this budget on falsehood it will collapse, as the foundation is not there.

Why is our budget always static with the same things every year?

This is a big question that government must provide an answer. How come we keep putting the same needs in the budget every year when the masses are suffering? It means there is no proper monitoring to ensure adequate implementation. I have never heard government in Nigeria giving monitoring reports on quarterly implementation of the budget, to say certain things were achieved the previous year, let them not be included in another budget. Does it mean our needs as a people remain the same forever, and do not change? Our supplementary budget is always on the increase. Where as in private sector, we evaluate the budget and can reduce it.

But the World Economy said Nigeria is recovering from recession?

It is only in Nigeria you hear that the economy is growing and what you see is hopelessness, frustration on the faces of the people, abject poverty, unemployment, suicide and death. In my State you can see poverty walking on four legs and about two people die in my State daily. In Nigeria today, young people are dieing of hypertension while some are committing suicide due to poverty and frustration. If the economy is growing, where are the reduction in inflation rate and growth in Gross GDP? Six years ago, I went to China and their GDP was 6.7percent, two years later, their GDP increased from 6.7percent to 10.6 percent, and it was easy to see the growth in that country, the citizens were meaningfully engaged and were happy, productive activities were seen everywhere, their manufacturing and other sectors were doing very well. But in Nigeria, when hear that the economy is growing, what you see is poverty everywhere. How long shall we continue in falsehood? In analogy, poverty and hopelessness have taken over Nigeria.

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