Members of the organised private sector and economic experts have identified adverse effects of the federal government’s current economic reforms as the major cause of dwindling contribution of the manufacturing sector to the country’s Gross Domestic Product (GDP).
They tasked the federal government to implement favourable policies, especially the recommendations of the Manufacturers Association of Nigeria (MAN) and operators of Small and Medium Enterprises (SMEs), in order to reverse the discouraging trend.
A report by the National Bureau of Statistics (NBS) showed that the contribution of the manufacturing sector declined by 20.95 per cent in Q2’24, when compared to the same period in 2023.
The NBS report also showed that the sector’s contribution declined from 16.04 per cent in December 2023 to 12.68 per cent in June 2024.
Director General of Nigeria Employers’ Consultative Association (NECA), Mr. Adewale-Smatt Oyerinde, attributed “the distortion and declining performance in the manufacturing sector to government policies, particularly the FX liberalisation policy,” which, he argued, “is ill-suited for an economy and business environment heavily dependent on imports, as it has led to increased borrowing costs and escalating import prices for raw materials and machinery”.
Oyerinde told THISDAY that the unfavourable exchange rate of approximately N1600/US$, coupled with a staggering inflation rate of 33.60 per cent, had led to a significant increase in interest rates, reaching 26.75 per cent.
He explained, “These factors have significantly increased the cost of raw materials, productive machinery, and overall production, ultimately resulting in low sales and profitability for manufacturers.”
Oyerinde expressed concerns about the implications of the trend, warning that “Nigeria’s collective industrialisation aspirations are at risk if the manufacturing sector continues to underperform”.
He cautioned that the declining sector performance would not only impact employment and government tax revenue negatively, but would also “derail activities in other sectors through economic linkages, potentially leading to a broader economic contraction”.
Similarly, National President of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr. Dele Kelvin Oye, said having carefully analysed the recent NBS report and its implications for the manufacturing sector in Nigeria, he believed that the significant decline of the sector was cause for concern, because “the manufacturing industry is a crucial driver of economic growth, job creation and industrial development”.
Oye identified insufficient and aging industrial infrastructure, unfavourable macroeconomic policies, inconsistent fiscal and monetary policies, and increasing production costs as some of the hindrances facing the Nigerian manufacturing sector.
He said, “The contraction in the manufacturing sector’s GDP contribution will have significant implications for both investment and employment in the Nigerian economy by reducing investor confidence and hesitation to commit new capital to the manufacturing industry, hampering much-needed expansion and modernisation.”
According to him, that would result in “layoffs, reduced working hours, and higher unemployment, as companies struggle to maintain operations and profitability”.
It would also cause a “slowdown in the development of industrial clusters and supporting supply chains, limiting opportunities for small and medium-sized enterprises (SMEs)”, he said.
According to Chief Executive Officer of Centre for Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, the manufacturing sector is one of the most vulnerable sectors amid current economic reforms and its inherent shocks, even though the reforms are necessary to pull the economy from the brink.
Due to the effects of the reforms, Yusuf said, “Many large manufacturing firms posted losses in their most recent financial results. Some opted to shut down and leave the country.”
He said, “Reversing the declines in manufacturing would require the fixing of the macroeconomic headwinds, especially stabilising the naira exchange rate, addressing the structural impediments, moderation of energy cost, reduction or possible elimination of import duties on critical industrial raw materials.”
A former Director General of West African Institute for Financial and Economic Management (WAIFEM), Professor Akpan Hogan Ekpo, advised the government to “implement the policies and recommendations put forward by MAN as well as those of small and medium-sized business association”.
Ekpo said the government should, among others, “relax the conditions for assessing forex, fix the power sector and reduce the tax burden.
“Because of lack of adequate investment, you have sluggish and/low growth, resulting in high rates of unemployment. Hence the economy is producing below potential”.
He told THISDAY that the Nigerian manufacturing sector had never contributed more than 15 per cent to the GDP since 1963, stressing, “Until the sector contributes at least 40 per cent to GDP, the economy will remain at the primary stage of development.”
Ekpo, who retired recently as Professor of Economics and Public Policy at University of Uyo, said, “What we call manufacturing is packaging, assembling and bottling.”
He blamed lack of political will to implement sound policies on the sector, misuse of the oil sector with emphasis on exporting crude rather than linking the sector to petro-chemicals, pharmaceutical and agricultural subsectors, among others, as the bane of Nigerian industrialisation.
Dike Onwuamaeze
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