Manufacturing sector: Issues, battles, prospects for 2018

by | January 15, 2018 1:15 am

The manufacturing sector performed fairly well in 2017, particularly after the ease of foreign exchange crisis in the second quarter.

Now in 2018, the sector is bound to make meaningful progress on the back of higher oil price (closer to $70 per barrel), which will free dollars for the importation of inputs, spare parts and machines.

However, the progress will depend on other ancillary factors such as availability or otherwise of energy, patronage, state of infrastructure, and continuation or otherwise of 2017 wins on ease of doing business, among others.

In terms of energy, the future of manufacturing looked bleak in early January when the Escravos-Lagos Pipeline (ELP), a natural gas pipeline which supplies gas from Escravos region of the Niger Delta area to Lagos, was ravaged by fire.

This shrunk the level of gas available for manufacturers, prompting manufacturers to move onto alternative energy sources such as the use of Low Pour Fuel Oil (LPFO) and diesel.

“It is going to be a disaster, really. I hope this does not portend a bleak 2018,” Ibrahim Usman, chairman of Manufacturers Association of Nigeria Power Development Company (MPDC), told BusinessDay after the pipeline went up in flames.

Even though the pipeline was repaired, another one along that axis also had a challenge last Thursday, sending shockwaves among gas-using manufacturers.

Linked directly with this is the success or otherwise of the MPDC set up by MAN. This company has reached agreements with several organisations, including Tower Energy Solution & Systems Limited and Negris Group, for the supply of various megawatts of electricity to some industrial clusters in Lagos.

This is still at an inchoate stage and the success or otherwise will be visible this year and will go a long way to determining output, production costs, new investments and employment in the sector.

Another major factor that will define the trajectory of manufacturing this year is politics/ policy. This year, 2018, is a campaign year when politics will likely trump economics. It remains to be seen if governments at various levels will come up with policies to drive the economy.

Will the federal government privatise Ajaokuta Steel Complex? Will there be any clear policy on the local textile industry ravaged by lack of competitiveness?

Analysts are divided on what the government will likely do. Some say the federal government will particularly make pronouncements on key economic sectors to score political points, while others feel that attention of ministers, governors and President Muhammadu Buhari will move away from the economy to re-election.

Whichever political permutation turns out right, it is possible that the present government will struggle to meet the demands of manufacturers and, in some cases, make un-implementable pronouncements to win the sympathy of Nigerians.

The Economic Partnership Agreement (EPA) will also come to the front burner this year.

The EPA is a free trade agreement between the 15 countries of the Economic Community of West African States (ECOWAS) and the Europe Union seeking to enable West African countries access the European market and vice versa, without paying tariffs. Europe is committing €6.5 billion every five years, beginning from 2015 to 2019, including during the 20-year transition period that will end in 2035.

It is clear that manufacturers see this as a threat to them, but Europe will keep pushing this.

“Nigeria has clearly indicated that it is not happy with the EPA. Unless we have the EPA that is favourable to us, unless we have an EPA that will not endanger our businesses, we will not be signing it,” Zainab Ahmed, minister of state for budget and planning, said at MAN’s annual general meeting last year.

Patronage of made-in-Nigeria products will equally be key to determining the performance of manufacturers this year. Will the federal government supervise implementation of last year’s pronouncements that more of local products be used in ministries, departments and agencies?

A study conducted by the Manufacturers Association of Nigeria (MAN) and the Enhancing Nigerian Advocacy for a Better Business Environment phase II (ENABLE2) hast year showed that 60 percent home bias in public procurement in the country would raise the share of investment in the gross domestic product (GDP) by 56 percent.

The study revealed that that would cut unemployment in Nigeria by 37 percent and raise the willingness of firms to engage new workers from the current 1.5 to 22.6 percent.

It further showed that Nigerian manufacturers lost an average of $3 billion annually to government preference for foreign goods.

Hence, whether locally-made products will have more prominence depends on acceptability and implementation of made-in-Nigeria products.

Finally, the state of local raw materials sourcing will determine the progress of the manufacturing sector this year. Will manufacturers make new investments in local inputs? Will they find local alternatives that meet the desired quality?