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Outlook 2008:Fix the power sector, have the sector hum
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Growth pace in the manufacturing sector of the Nigerian economy may be witnessed this year, unless government policies and infrastructure problem such as power which could boost production capacity in the sector are urgently addressed by government.
The sector has over the years been going through hard times unleashed by the harsh environment in which the sector operates, following which, over 50 manufacturing firms mostly textile companies, have closed shop while capacity utilization dropped drastically from year 2005 to about 40 percent by year 2006. Recent revelations by the Paints Manufacturers Association of Nigeria (PMAN) that manufacturing capacity utilisation in 2007 was a dismal 30 percent further points to the palpable fears being expressed within manufacturing quarters.
A cursory look at the power problem suggests it has worked in league with multiple taxes which include public convenience, sewage and refuse disposal fees, customary burial ground permit fees, religious places establishment permit fees, signboard and advertisement fees and radio, television licence fees other than radio, television transmitter in a way such impact on the operation of any manufacturing outfit to overstretch manufacturers who now feel so heavily taxed.
With regards to this situation, the Manufacturers Association of Nigeria (MAN) has therefore urged the federal government to ensure that revenue generated from taxation is effectively utilized to provide basic social, physical and economic infrastructure needed to drive the industrial sector this year.
“To achieve effective taxation in Nigeria this year, vis-à-vis the on-going tax reforms, government should effectively utilize the revenue generated from taxation to provide basic, social, physical and economic infrastructure needed to drive the industrial sector as well as attract more foreign direct investment into the country.” says Clement Olowokande, chairman, Economic Policy Committee of MAN.
According to Olowokande, problems of the real sector are multidimensional, ranging from weak domestic demand, deteriorating infrastructure, largely compounded by energy crisis, high interest rates, and inconsistent monetary and fiscal policies to massive influx and dumping of adulterated foreign goods into the country. The multiplicity of taxes and levies by states and local governments have so much compounded the situation, thus making the environment extremely un-conducive and local products uncompetitive to those of other nations.
“Cases abound where industries pay over 14 levies to governments, and the enforcement of these levies at times, comes with arm-twisting and the closure of factories. It is an obvious fact that the energy problem seriously compounds the cost of doing business and has made investments in most sub-sectors of the manufacturing industry very unprofitable.
He noted that “it is of great importance that the government embarks on tax reforms that will make it easier for firms to pay taxes without much negative impact on their business operations as a good tax system is key to sustainable economic growth and development in any country like ours.”
MAN, over the years, had also advocated that tax incentives should be granted to investors as done in other countries of the world for improved business investments.
Other recommendations from MAN include; the urgent harmonization and enforcement of Decree 21 of 1998 (now an act of parliament) and make the act binding on all State Houses of Assembly, local government councils, in consonance with the provision of the 1999 constitution.
The manufacturers’ body had also advocated a consolidated tax regime to be administered by one tier of government and distributed to all others, in order to reduce business overheads as well as attract foreign investments. This, it noted, will further engender consistency in tax administration. Others are, the need to: Widen the tax net to capture more from the informal sector of the economy by initiating positive and growth inducing policies to encourage focused migration of many of the players in the sector to the formal sector.
They also seek the urgent passage of the tax reform bills by the National Assembly as well as effective roadmap strategy to strengthen the Nigeria Tax system.
The manufacturers’ body had also stressed the need for capacity building for members of the Joint Tax Board with a view to sharpening their skills on tax matters, as well as standing them in a better position to advice the government on taxation issues.
Government, it advised, should be more transparent on issues of taxation, just as it urged that Government should not increase the Value Added Tax currently placed at 5 percent.
The corporate tax rate of 30 per cent that has been in operation since early 1996, MAN suggested, should be urgently reviewed downward to between 15 percent and 20 percent in order to encourage investors, while considering the deficiencies in Nigeria’s social, economic and physical infrastructure.
For the pharmaceutical sector, Joseph Odumodu, managing director, chief executive, May and Baker Nigeria Plc and Chairman Pharmaceutical Manufacturers Group of Manufacturers Association of Nigeria PMG/ MAN said, “Our major challenges are Power supply, water supply, road transportation and more. For example, sometime last year, it was impossible to take our goods to the Eastern part of Nigeria because the roads were not motor able and so the cost of transportation increased by almost 100 percent. But things are easing out now. Yet, it is not enough. I hope we will be able to find a permanent solution to this problem.
Industries today, do not mind paying two times what we pay for electricity, provided we do not have to go and buy generator and continue to buy diesel at exorbitant rates and all that.
Government has the responsibility to ensure that we are all well, safe and secured. To that extent, as well as they provide for the police they should also provide and ensure that drugs are available in the right quality at the right prices.
There is also the challenge of the petrochemical industry. Nigeria is involved in petroleum managerment and development. With the development of the petrochemical industry, we can begin to make our own raw materials. We are hoping that we will get there.
Today in Nigeria, there are people who die from preventable illness. That is sad for a rich country like Nigeria. Government must ensure that people must have access to quality products and one way we can do that is through the health insurance policy. All of us as Nigerians must be part of the health insurance scheme.
What the scheme does for example is that, you put N2; I put N100 because I am more endowed than you and at the end of the day, if you are ill, you go to hospital and get care free and I go to hospital and get care free. So you have to use those people more endowed to subsidise those who do not have enough. Even ancillary workers should register even if they do not pay they must get service.
The textile sector which is most hit by mass factory closure and loss of jobs has in the last two years been faced with more than half of the remaining 50 mills further shut down and the largest textile group in the country, the United Textile (UNT) was not immune from this closure,” he said.
Issa Aremu, general secretary, National Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWN),says Nigeria Textile Mills (NTM) and Enpee Industries, employing over 5,000 workers also closed down, adding that as many as 100,000 workers have lost their jobs from 1997 till date.
According to him, “when primarily labour in textile mills are endangered, it cannot be over emphasised that Nigeria is on the verge of de-industrialisation.
“Mass factory closures mean complete wastage of irreplaceable manufacturing investment estimated at $3-billion.”
Aremu said “Nigeria in this year will need industry consolidation with defined targets to revive the textile industry.
“We need a shock therapy and industry consolidation with defined targets in respect of capacity utilisation, capital adequacy and labour absorption to revive the textile industry. The PHCN, water board and roads should be a top priority, as the true test of the service delivery pact is the uninterrupted services of these agencies”.
He advocated for the re-capitalisation and strengthening of the Bank of Industry (BoI) to save the collapsed companies such as Kaduna Textiles Limited, Nortex Limited, Finetex Limited, Supertex Limited, Zamfara Textile Limited, Enpee Limited, among others.
Aremu lamented the closure of textile factories in the nation, which had resulted in the loss of several jobs.
In addition, Oladele Hunsu, the first national vice president of the union, stated that the approval of N80-billion by former president Obasanjo’s administration to revive the textile industry is commendable but noted that the problems of the industry goes beyond money because, when the basic infrastructures such as regular power supply are not there to boost production the money may still be invested in the sector and be spent on infrastructure which should have been provided by government.
The problem of inconsistency in government policies is one basic issue that needs to be resolved, especially policies concerning the textile industry. The problem of the industry has gone beyond money.”
According to the Union, Government should consolidate its commendable policy of ban by setting up a task force consisting of stakeholders to assist customs in ensuring effective implementation.
Demands that will shape the industry
•Address urgently and on a sustainable basis the energy problem.
•Take immediate step to halt the unabated rise in diesel prices, as most industries are generator driven.
•Institutionalizing the export grant (EEG) incentive through legislation for at least 10 years to secure export price
•Creating low interest textiles up gradation fund and make finance available and affordable through adequate funding of Bank of Industry (BOI).
•Modernization of plants to improve quality and enhance international competitiveness
•Sustain and popularize government policy of patronage of local fabrics by government agencies and parastatals.
•Mandate schools, armed forces and other security agencies to source their uniforms from local manufacturers.
•Workers’ attitude to reflect global demand for quality, productivity and competitiveness
A cursory look at the power problem suggests it has worked in league with multiple taxes which include public convenience, sewage and refuse disposal fees, customary burial ground permit fees, religious places establishment permit fees, signboard and advertisement fees and radio, television licence fees other than radio, television transmitter in a way such impact on the operation of any manufacturing outfit to overstretch manufacturers who now feel so heavily taxed.
With regards to this situation, the Manufacturers Association of Nigeria (MAN) has therefore urged the federal government to ensure that revenue generated from taxation is effectively utilized to provide basic social, physical and economic infrastructure needed to drive the industrial sector this year.
“To achieve effective taxation in Nigeria this year, vis-à-vis the on-going tax reforms, government should effectively utilize the revenue generated from taxation to provide basic, social, physical and economic infrastructure needed to drive the industrial sector as well as attract more foreign direct investment into the country.” says Clement Olowokande, chairman, Economic Policy Committee of MAN.
According to Olowokande, problems of the real sector are multidimensional, ranging from weak domestic demand, deteriorating infrastructure, largely compounded by energy crisis, high interest rates, and inconsistent monetary and fiscal policies to massive influx and dumping of adulterated foreign goods into the country. The multiplicity of taxes and levies by states and local governments have so much compounded the situation, thus making the environment extremely un-conducive and local products uncompetitive to those of other nations.
“Cases abound where industries pay over 14 levies to governments, and the enforcement of these levies at times, comes with arm-twisting and the closure of factories. It is an obvious fact that the energy problem seriously compounds the cost of doing business and has made investments in most sub-sectors of the manufacturing industry very unprofitable.
He noted that “it is of great importance that the government embarks on tax reforms that will make it easier for firms to pay taxes without much negative impact on their business operations as a good tax system is key to sustainable economic growth and development in any country like ours.”
MAN, over the years, had also advocated that tax incentives should be granted to investors as done in other countries of the world for improved business investments.
Other recommendations from MAN include; the urgent harmonization and enforcement of Decree 21 of 1998 (now an act of parliament) and make the act binding on all State Houses of Assembly, local government councils, in consonance with the provision of the 1999 constitution.
The manufacturers’ body had also advocated a consolidated tax regime to be administered by one tier of government and distributed to all others, in order to reduce business overheads as well as attract foreign investments. This, it noted, will further engender consistency in tax administration. Others are, the need to: Widen the tax net to capture more from the informal sector of the economy by initiating positive and growth inducing policies to encourage focused migration of many of the players in the sector to the formal sector.
They also seek the urgent passage of the tax reform bills by the National Assembly as well as effective roadmap strategy to strengthen the Nigeria Tax system.
The manufacturers’ body had also stressed the need for capacity building for members of the Joint Tax Board with a view to sharpening their skills on tax matters, as well as standing them in a better position to advice the government on taxation issues.
Government, it advised, should be more transparent on issues of taxation, just as it urged that Government should not increase the Value Added Tax currently placed at 5 percent.
The corporate tax rate of 30 per cent that has been in operation since early 1996, MAN suggested, should be urgently reviewed downward to between 15 percent and 20 percent in order to encourage investors, while considering the deficiencies in Nigeria’s social, economic and physical infrastructure.
For the pharmaceutical sector, Joseph Odumodu, managing director, chief executive, May and Baker Nigeria Plc and Chairman Pharmaceutical Manufacturers Group of Manufacturers Association of Nigeria PMG/ MAN said, “Our major challenges are Power supply, water supply, road transportation and more. For example, sometime last year, it was impossible to take our goods to the Eastern part of Nigeria because the roads were not motor able and so the cost of transportation increased by almost 100 percent. But things are easing out now. Yet, it is not enough. I hope we will be able to find a permanent solution to this problem.
Industries today, do not mind paying two times what we pay for electricity, provided we do not have to go and buy generator and continue to buy diesel at exorbitant rates and all that.
Government has the responsibility to ensure that we are all well, safe and secured. To that extent, as well as they provide for the police they should also provide and ensure that drugs are available in the right quality at the right prices.
There is also the challenge of the petrochemical industry. Nigeria is involved in petroleum managerment and development. With the development of the petrochemical industry, we can begin to make our own raw materials. We are hoping that we will get there.
Today in Nigeria, there are people who die from preventable illness. That is sad for a rich country like Nigeria. Government must ensure that people must have access to quality products and one way we can do that is through the health insurance policy. All of us as Nigerians must be part of the health insurance scheme.
What the scheme does for example is that, you put N2; I put N100 because I am more endowed than you and at the end of the day, if you are ill, you go to hospital and get care free and I go to hospital and get care free. So you have to use those people more endowed to subsidise those who do not have enough. Even ancillary workers should register even if they do not pay they must get service.
The textile sector which is most hit by mass factory closure and loss of jobs has in the last two years been faced with more than half of the remaining 50 mills further shut down and the largest textile group in the country, the United Textile (UNT) was not immune from this closure,” he said.
Issa Aremu, general secretary, National Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWN),says Nigeria Textile Mills (NTM) and Enpee Industries, employing over 5,000 workers also closed down, adding that as many as 100,000 workers have lost their jobs from 1997 till date.
According to him, “when primarily labour in textile mills are endangered, it cannot be over emphasised that Nigeria is on the verge of de-industrialisation.
“Mass factory closures mean complete wastage of irreplaceable manufacturing investment estimated at $3-billion.”
Aremu said “Nigeria in this year will need industry consolidation with defined targets to revive the textile industry.
“We need a shock therapy and industry consolidation with defined targets in respect of capacity utilisation, capital adequacy and labour absorption to revive the textile industry. The PHCN, water board and roads should be a top priority, as the true test of the service delivery pact is the uninterrupted services of these agencies”.
He advocated for the re-capitalisation and strengthening of the Bank of Industry (BoI) to save the collapsed companies such as Kaduna Textiles Limited, Nortex Limited, Finetex Limited, Supertex Limited, Zamfara Textile Limited, Enpee Limited, among others.
Aremu lamented the closure of textile factories in the nation, which had resulted in the loss of several jobs.
In addition, Oladele Hunsu, the first national vice president of the union, stated that the approval of N80-billion by former president Obasanjo’s administration to revive the textile industry is commendable but noted that the problems of the industry goes beyond money because, when the basic infrastructures such as regular power supply are not there to boost production the money may still be invested in the sector and be spent on infrastructure which should have been provided by government.
The problem of inconsistency in government policies is one basic issue that needs to be resolved, especially policies concerning the textile industry. The problem of the industry has gone beyond money.”
According to the Union, Government should consolidate its commendable policy of ban by setting up a task force consisting of stakeholders to assist customs in ensuring effective implementation.
Demands that will shape the industry
•Address urgently and on a sustainable basis the energy problem.
•Take immediate step to halt the unabated rise in diesel prices, as most industries are generator driven.
•Institutionalizing the export grant (EEG) incentive through legislation for at least 10 years to secure export price
•Creating low interest textiles up gradation fund and make finance available and affordable through adequate funding of Bank of Industry (BOI).
•Modernization of plants to improve quality and enhance international competitiveness
•Sustain and popularize government policy of patronage of local fabrics by government agencies and parastatals.
•Mandate schools, armed forces and other security agencies to source their uniforms from local manufacturers.
•Workers’ attitude to reflect global demand for quality, productivity and competitiveness
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