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Thursday, 17 July 2014 08:44

Nigeria: Manufacturing Sector Now Nigeria's Major Economic Growth Driver - Rencap

By Phillip Oladunjoye

LAGOS, Nigeria, July 17, 2014 (Daily Independent) --- The transformation agenda of the Federal Government appears to be making the necessary impact on the manufacturing activities in the country. This is hinged on the recent report by Renaissance Capital (Rencap), which noted that the manufacturing sector is now the major driver of economic growth in Nigeria.

According to the report, with Nigeria's rebased Gross Domestic Product, the manufacturing sector is currently growing faster than the telecommunications, oil and gas and agricultural sectors.

The report, titled, "Nigeria's GDP: Bigger but slower - Manufacturing is the engine of growth," further strengthens recent figures by the Manufacturers Association of Nigeria, which showed that there was an increase in manufacturing capacity utilisation from 46.3 per cent recorded in the first half of 2013 to 52.7 per cent in the 2nd half of 2013.

Specifically, the Rencap report stated that the manufacturing sector recorded 22 per cent growth in 2013, as against the 14 per cent it recorded in 2012, noting that the growth was largely driven by the textile, cement and food sub-sectors, among others.

The growth recorded by the manufacturing sector within the period under review, it said, accounted for one third of the total growth in the economy.

"Manufacturing is growing strongly, despite power deficit. The manufacturing sector is a much bigger, faster-growing sector under the new series (nine per cent of GDP as against the four per cent previously). In 2013, it recorded substantial growth of 22 per cent (as against 14 per cent in 2012), comprising one-third of total growth. Food, beverage and tobacco producers account for half of the manufacturing sector. The sub-sector's growth accelerated to 12 per cent in 2013, against 7 per cent in 2012.

"An analysis of the growth drivers shows that telecoms is a maturing and slower-growing sector. The growth sectors are manufacturing (particularly food, cement and textile producers) and real estate," the report said.

The report further revealed that the cement sub-sector, which accounts for about one per cent of the country's GDP, recorded phenomenal growth in 2013, as it posted a 39 per cent growth as against the 14 per cent recorded in 2012.

"Several of the smaller manufacturing sub-sectors are growing even faster than food producers. Cement, which only comprises one per cent of GDP, grew by a sizeable 39 per cent in 2013, up from a strong 14 per cent in 2012.

"Nigeria's large population of upwardly mobile consumers, particularly in the south-west, coupled with investments in power, implies that the strong growth of manufacturers, including food producers and breweries, is sustainable."

The report also noted that in 2013, the oil and gas sector experienced a decline in growth as the sector contracted by 13 per cent, while trade and real estate sectors overtook agricultural and financial services to emerge as the top three growth drivers of the Nigerian economy.

"The trade and real estate sectors trumped agriculture and financial services in 2013, to become among the top three growth drivers, together with manufacturing. The decline in agriculture's growth contribution in 2013 was partly due to the 3Q12 floods. The upside is a smaller agriculture sector (23 per cent, as against 36 per cent) that reduces the economy's exposure to it," the Rencap report said.

According to analysts, the level of capacity utilisation in the manufacturing sector is an index of the health of the sector. When it is low, it indicates poor growth and vice-versa. The Rencap report therefore reflects the improving health of the Nigerian manufacturing sector just as the rising capacity utilisation has shown.

Manufacturers in Nigeria had attributed the remarkable increase recorded in capacity utilisation within the last year to favourable government policies, especially with respect to industry, trade and investment.

The Minister of Industry, Trade and Investment, Olusegun Aganga, while reacting on the new research findings, said the analyses, done by the reputed Renaissance Capital, corroborated the fact that the manufacturing sector was being transformed under the Transformation Agenda of President Goodluck Jonathan.

"It is a good thing that the manufacturing sector is breathing well under this administration. Figures are there as proof. All we need do now is further improve the situation through consistency in policy as we continue to work hard towards continuously improving Nigeria's non-oil revenue," Aganga noted.

Operating environment

Meanwhile, manufacturers are still lamenting that the operating environment in the country is poor, making the cost of doing business in the country to be on the high side.

For instance, Managing Director/Chief Executive Officer of the Arewa Metal Containers Limited (ARMECO), Engineer Daudu Joachim, lamented recently that Government support to local industries in the country is very poor and not encouraging.

At the company's 45th Annual General Meeting (AGM) held in Kaduna recently, Joachim said local manufacturers have been operating within a very challenging environment coupled with the security challenges.

The director general of the Abuja Chamber of Commerce, Industry, Mines and Agriculture (ACCIMA), Mr. Joseph Wenegieme, also recently lamented that the business climate in Nigeria has been a challenging one despite the fact that there are so many growth and development as evidenced by the number of companies springing up daily to start off business in Nigeria. He regretted that the business environment has remained harsh as the cost of doing business in the country is extremely on a higher scale.

Factors affecting manufacturing activities

Joachim said security challenge is one of the major factors threatening the survival of local industries in Nigeria, noting that another challenge is that of Power, which also affect the production capabilities of local industries.

"More worrisome is customer's preference to imported products and the lack of support from the government; government should do more and provide better business opportunities for local industries to perform.

Board Chairman of ARMECO, Alhaji Mohammed Kabir Musa, said economic activities has been sluggish even though interest rates and inflation had remained relatively stable, stressing that local manufacturers have been put under pressure, resulting in the reduction of capacity utilization or outright closure of some companies.

He said the problem faced by local manufacturers is made double by the prolific liberation of the import policy currently in place.

Wenegieme said power supply has been erratic, saying that members of the chamber had to rely on diesel powered generators for production, noting that other members needed encouragements while access to financing of trading activities makes doing business in Nigeria, unappetizing.

Also, the Institute of Directors (IoD), Nigeria, condemned the high cost of doing business in Nigeria, saying it is the bane of economic growth and development in the country. The institute said access to and high cost of finance, lack of infrastructure and good operating environment, smuggling and substandard goods, lack of local patronage, dearth of industrial skills, and absence of investment in innovation are some of the problematic factors affecting cost of doing business in the country.

Experts have also said that infrastructure deficit in Nigeria valued at trillions of naira places about 15 percent additional burden on the cost of doing business by manufacturing firms and service providers in the country, leading to high cost of products and services.

The deficit, according to the experts, is so huge that Nigeria needs to spend about $14.2 billion per year for the next 10 years to be able to bridge the gap.

Government's effort

The Federal Government had inaugurated two Standing Inter-Ministerial Committees to address the high cost of doing business in the country.

According to the Executive Secretary, Nigeria Investment Promotion Commission (NIPC), Engr. Mustafa Bello, "Doing Business and Competitiveness Committee is charged with the responsibility to regularly monitor, review and recommend improvement on existing policies and legislation that govern the act of doing business in the country, while Investor Aftercare Committee is charged with the responsibility to consider the complaints from investors on account of apparent irregularity and inconsistency in the implementation of Government policies.

He said the Committee on Doing Business and Competitiveness, has identified 10 doing business indicators such as: starting business, registering property, getting credit, protecting investors, enforcing contracts and dealing with construction permits.

Others are: paying taxes, trading across borders, getting electricity, and resolving insolvency. The committee according to Bello, prioritized the indicators based on their impact on the competitiveness of the Nigerian business environment.

To further reduce the cost of doing business in the country, Minister of Industry, Trade and Investment, Olusegun Aganga, had approved the downward review of the cost of business registration at the Nigerian Investment Promotion Commission (NIPC) from N50,000 to N15,000 ($100).

According to a statement by Joel Attah, the Head of Media and Publicity Unit of the NIPC, the new rate is designed to make Nigeria highly competitive in line with international best practices.

It stated that the downward review was at the instance of NIPC and also in line with the desire of the Federal Government to improve the country's competitiveness in doing business rating.

"It is also a very bold attempt at lowering the cost of doing business in Nigeria.

"This is expected to substantially enhance the country's National Competitiveness as a Foreign Direct Investment Destination (FDI)," the minister stated.

What should be done

On what the government could do to further assist manufacturers and other sectors bedeviled by the high cost of doing business, Wenegieme said government should promote conducive business climate, such as ensuring the provision of steady electricity supply, as well as mount pressure on the banks to reduce their lending rates, saying that with cost of finance with a high interest rates and frightening COT charges on accessed funds, there is no way manufacturers can survive in their businesses.

The IoD said there should be a strong political will to develop basic economic infrastructure that will aid productivity; intensify the rehabilitation work on the existing transportation network and fast track the building of new rail lines; enforcement of corporate governance and best practices in all facets of the economy in order to combat corruption in the system; and that there should be easy access to credit without discrimination.

The executive secretary of NIPC said the committee has also recommended that government should "encourage the use of on-line system for reservation of company names; delegate to Corporate Affairs Commission (CAC) the authority to collect the stamp duty on behalf of the Federal Inland Revenue Service (FIRS) at the time of company registration; make involvement of accredited professional intermediaries optional in the process of company registration; eliminate the requirement to notarize the declaration of compliance (CAC 4); eliminate the signage fee currently imposed on all businesses by Lagos State Signage and Advertising Agency; conduct an intensive communication campaign to educate users about the option of on-line name reservation and payment," among others.(END)



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