PAUL OGBUOKIRI 
•Nigeria 171 Out of 190 Worst Countries to Do Business
While for decades, the share of manufacturing in Nigeria’s GDP has hovered around 7 per cent, the nation has not been able to extricate itself from the comatose nature of its industrial manufacturing sector, which has failed to unleash its potentials. PAUL OGBUOKIRI reports that there may not be changes until the electricity situation improves
800 companies shut down in 3 years
At least, 800 companies closed shop in Nigeria between 2009 and 2011, due to the harsh operating business environment, the Nigerian Chambers of Commerce has said. The companies that have survived are also having serious challenges as more than half of them have been classified as “ailing.’’
This was disclosed by the immediate past president of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, NACCIMA, Herbert Ajayi, in a paper he presented in Asaba, at a zonal workshop on economic diversification organised by the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC). Ajayi said the current situation of the “surviving” industries poses a great threat to the survival of the manufacturing industry.
He added that capacity utilisation in industries hovers around 30 per cent and 45 per cent on the average, with 100 per cent overhead costs. He blamed the continued decline of the manufacturing sector on “political and economic factors’’, citing poor infrastructure and epileptic power supply as key impediments to the industry.
“The manufacturing industry as a whole operates on more than 70 per cent of energy it generates, using generators; and operating these generators greatly increases the cost of manufacturing goods,’’ he said. The industrialist gave other reasons for the woes in the sector such as incessant increase in the price of petroleum products used by industries, multiple taxation, unabated smuggling and inadequate access to finance, both local and abroad.
He said widespread insecurity and the inability of government agencies in the ports to meet their 24-hour target, for cargo clearance, have contributed to the dwindling fortunes in the manufacturing sector.
Poor electricity supply, bane of manufacturing sector
Meanwhile, experts have argued that poor electricity supply is perhaps, one of the greatest problems confronting the manufacturing sector in Nigeria. According to them, the typical Nigerian firm experiences power failure or voltage fluctuations about 10 times per week, each lasting for about two hours, without the benefit of prior warning. This, they said, imposes a huge cost on the firm arising from idle workers, spoiled materials, lost output, damaged equipment and restart costs.
The overall impact is to increase business uncertainty and lower returns on investment. For the aggregate economy, this has seriously undermined Nigeria’s growth potential and the attractiveness of the economy to external investors, they noted. This came as the Manufacturers Association of Nigeria (MAN) said that Nigeria’s economy loses as much as N10.1 trillion annually to epileptic power supply.
The money lost amounts to two per cent of the country’s Gross Domestic Product (GDP). Consequently, access to electricity has remained a hurdle for millions of Nigerians. According to the 2021 report by the International Energy Agency, Nigeria’s 86 million is the largest number of people in the world without access to electricity”, Director-General (DG) of the Association, Segun Ajayi-Kadir, said. He said, without doubt, the current power supply is apparently inadequate to satisfy the energy requirements of the manufacturing sector and the entire population.
“As the largest energy access deficit in the world, Nigeria’s shortage of electricity supply has been identified as a hindrance to the profitability of manufacturers with an annual economic loss valued at about N10.1 trillion or two per cent share of the country’s GDP,” he said. The Director General said that MAN is therefore backing the new private sector driven Electricity Act signed into law by President Bola Tinubu, saying a stable power sector will guarantee sustainable economic growth and development.
MAN complained that the unfavourable situation in the power sector has placed the country among the worst countries to do business with a rank of 171 out of 190. Speaking in the same vein, President of African Development Bank (AFDB) Group and Nigeria’s former Minister of Agriculture in the President Goodluck Jonathan administration, Dr. Akinwumi Adesina, said Nigerian industries will always remain noncompetitive, until it decisively tackles energy deficiency and reliability.
He tasked the government as a way out of the quagmire to invest massively in variable energy mixes, including gas, hydropower resources and large scale solar systems to ensure stable baseload power for industries, to direct power preferen- tially to industries, and to support industrial mini-grids to concentrate power in industrial zones. “In addition, we should develop more efficient utilities, reducing technical and non-technical losses in power generation, transmission and distribution systems,” Adesina said.
He said: “Today, no business can survive in Nigeria without generators. Con- sequently, the abnormality has become normal. “Unless Nigeria decisively tackles its energy deficiency and reliability, its industries will always remain noncompetitive,” he said. Adesina noted that the country had failed to position itself for economic growth and achievements, the type attained by developing countries like Vietnam and Malaysia.
Nigeria manufacturing sector is just 3% of total revenue
In a recent paper, at the Adeola Odutola lecture held by the Manufacturers Association of Nigerian Annual Meeting (MAN) in Abuja, the president of African Development Bank (AFDB), Akinwumi Adesina, said that the performance of the manufacturing sector in recent years has been poor. He said from 2015-2017, the sector declined by -1.5 per cent, -4.3 per cent and -0.2 per cent. According to him, while the Asian countries have focused on the export of manufactured products, Nigeria’s approach has been on import substitution.
The manufacturing sector of Nigeria represents only 3 per cent of total revenues from exports, but accounts for 50 per cent of imports in the country. Instead of being forward looking in expand- ing the share of the manufactured goods in its total export revenue, Nigeria focuses on the model of import substitution.
In the lecture titled, “Overcoming Bind- ing Constraints to Competitive Manufacturing for Intra-Regional Trade,” he said that import substitution, while important, is a very restrictive vision because it looks towards survival, instead of looking to create wealth through greater export market and value diversification; saying the end result is a manufacturing sector that cannot develop nor compete globally, but limits itself to “survival mode, not a “global manufacturing growth mode”.
Adesina said Nigeria must have a greater ambition for its manufacturing sector, by integrating and rapidly moving up global and regional value chains in areas of comparative advantage; by driving greater specialization and competitiveness. A well- developed and policy-enabled manufacturing sector, with an export orientation will spur greater innovation, industrial policies for export market development, and structural transformation of the economy.”
He said instead of being consumed with the conservation of foreign exchange, the focus would shift to expanding foreign exchange through enhanced export value diversification. “We should be proactive, not reactive. “Let us take the example of Vietnam, a na- tion at war for 20 years, from the American War, to the Second Indochina War. Despite its challenges, it quickly mimicked successful Asian countries such as South Korea by pushing into relatively complex product categories, and horizontal diversification with the processing of agricultural products.
“Vietnam’s exports in 2020 were very well diversified, with electrical machinery and equipment earning it $153 billion; machinery including computers, $23.9 billion; Footwear $23.8 billion; clothing and accessories $15.5 billion, among others. In total, Vietnam’s exports in 2020 were $348 billion. “Malaysia achieved vertical diversification from its agricultural base of rubber and palm oil, investing heavily in high tech sectors such as electronics.
In 2020, its biggest exports by value were in electronic integrated circuits, refined petroleum oils, palm oil, vulcanized rubber and accessories, and solar power diodes or semi-conductors,” Adesina said. He said while export value per capita is $7,100 for Malaysia and $3,600 for Vietnam, it is only $160 for Nigeria. While Malaysia and Vietnam moved to “global manufacturing growth” creating massive wealth and jobs for themselves, Nigeria remains in a “survival” mode, still unable to substitute the imports of its petroleum products, while being one of the largest exporters of crude oil.
He further disclosed that most Nigerian manufacturing companies self-provide their own energy, with a high depen- dence on generators, diesel and heavy fuel oil. Their emissions contributions make them brown industries, not green industries. It has been estimated by the IMF that Nigeria loses $29 billion annually, 5.8 per cent of its GDP, due to a lack of reliable power supply. Also, that Nigerians spends $14 billion per year on generators and fuel.
A lack of electricity is killing Nigerian industries, something Chief Odutola was concerned about in 1971. According to the Manufacturers Association of Nigeria, industries spent N93.1 billion on alternative energy in 2018, 47 years after Odutola. Today, no business can survive in Nigeria without generators. Consequently, the abnormality has become normal, Adesina said.
China takes over production of Nigeria’s Adire cloth, Ankara
The adire textile business in Southwest Nigeria has had more downs than ups since 1956 when the iconic traditional fabric was gifted to a visiting Queen Elizabeth II. The largest market for the material in Abeokuta has also seen better days, as when a touring women’s union checked in on a sunny April afternoon in 1989 and bought all goods on display.
Today, however, the challenges facing adire fabrics are coming from unique directions as local dealers in the popular Balogun Market on Lagos Island said: “The local textile companies are dead. They are not producing anything. What we have in common are the Asian products, particularly the China-made Ankara. In fact, we take designs of Ankara materials from Ghana, Mali and Cote d’Ivoire to China and ask manufacturers there to manufacture for us.”
Asked why they travel to China and Korea, among other Asian countries, to produce African fabrics, Madam Kudy explained that prints from such countries were cheaper to produce when compared to those from African countries. She added: “We sold quality Hi-Target and Akosombo Ankara fabrics from Ghana and Cote D’Ivoire at reasonable prices until about three years ago, when materials from these Asian countries hit our market. Although, these Asian products are not good, their prices are also attractive.
I must tell you, price is a defining factor in this business. “For instance, customers who want to buy Ankara prints in bulk for marriage or funeral ceremonies do not care so much about quality. What they consider paramount is the cheapness of the fabric. In fact, this informed me of the inclusion of China-made Ankara materials in my stocks. Now, these Chinese products are the major fabrics that I sell. Nonetheless, I always let my discerning customers know the difference between one product and another.
Even at that, many of them go for cheaper products regardless of their quality.” Sunday Telegraph reports that the Fed- eral Government, through Cotton Textile Garment Intervention Fund, invested N100 billion to revive the Nigerian textile industry but the intervention seems not to be working as shown in the research carried out by Grand View Market Research. Nigeria was once home to the biggest textile industries in Africa, but it has become a shadow of itself.
Only 34 textile companies are operating in Nigeria, compared to nearly 200 in the early 1980s, as epileptic power supply forced many industries into fatal convulsions and bad government policies exposed others to irreparable damage. As of 2019, the Nigerian Textile Manufacturers Association (NTMA) said that the country spends $4 billion importing textiles annually.
Despite the Central Bank of Nigeria’s forex restrictions on textile products till the end of the President Muhammadu Buhari’s administration, importation has skyrocketed because demand continues to increase because of rising population. Despite efforts by the Federal Government to revive Nigeria’s once thriving textile industry over the past decade, the local industry continues to suffer dwindling fortunes, as 115 firms have shut down over the past 26 years and counting.
Nigeria’s textile industry was a vital and vibrant part of the Nigerian economy in the 1980s and early 1990s, and a major employer of labour, second only to the government, contributing to the nation’s GDP and foreign exchange earnings of the country at the time. Consequently, the Nigerian Textile Manufacturers Association (NTMA) revealed that over 117,000 jobs in the nation’s textile industry have been lost in the past 26 years.
According to the association, the textile sector could lose more jobs if the Federal Government does not intervene urgently to salvage the ailing industry. NTMA president, Mr. Folorunsho Daniyan, at a recent press briefing on the state of the textile industry in Nigeria and its lack of competitive edge, noted that the industry used to be the highest employer of labour, apart from the Federal Government in the 1980s.
At its peak, the textile industry absorbed more than 500,000 workers. He added that its membership had shrunk from 175 firms in 1985 to less than 20 in 2022.
