The manufacturing sector of Nigeria’s economy is currently making frantic efforts to boost its contribution to the country’s Gross Domestic Product (GDP). But, that will depend on the ability of the government to stabilise the foreign exchange market and ensure ease of doing business in the country.
President of the Manufacturers Association of Nigeria (MAN), Mansur Ahmed, says the economic bloc has already mapped out measures to do so via value addition.
Manufacturing however, refers to industries belonging to the International Standard Industrial Classification (ISIC) divisions 15-37, while value added is the net output of a sector after adding up all outputs and subtracting intermediate inputs.
It is calculated without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources. The origin of value added is determined by ISIC.
Manufacturing, value added (percentage of GDP) in Nigeria was 8.77 as of 2016. Its highest value over the past 35 years was 10.44 in 1983, while its lowest value was 2.41 in 2008.
Analysts say GDP from the sector shot up to N1.7 trillion in the fourth quarter of last year from N1.6 trillion in the third quarter of the year. GDP from the sector reportedly averaged N1.4 trillion from 2010 until 2018, hitting an all time high of N1.7 trillion in the third quarter of 2014 and a record low of N875.4 billion in the first quarter of 2010.
The MAN president however, said in Lagos, the commercial capital of Nigeria that the manufacturing sector was not contributing significantly to the growth of the economy. According to him, ‘’the manufacturing sector is contributing less than 9.00 per cent of the nation’s GDP, which is not good enough.
‘’In countries that are even less developed than Nigeria, we have seen higher rates of contribution by the manufacturing sector. For instance, in many of our peer countries; Malaysia, Indonesia, Brazil, South Africa, the manufacturing sector have been seen to contribute something in the range of 30 per cent to their countries’ GDP, meanwhile, here we are contributing less than 9.00 per cent.
‘’So clearly, we have a long way to go to raise the level of contribution of the sector to the GDP, part of which comes from not only scope or depth but from capacity utilisation. Consequently, we need to make sure that we eliminate those things that on a day to day basis tend to impede the operations of members and therefore reduce their capacity utilisation.’’
As part of their new push, stakeholders are out to bring more manufacturers into the fold in a bid to ensure that the sectoral bloc remains vibrant. ‘’We have about 10 sectoral groups, but if you look at the relative contributions you will observe that not more than four or five sectoral groups are responsible for most of the contributions of the manufacturing sector to the economy and for most of the employment as well’’, the MAN chief said.
While decrying the decline of the textile sector, adding that efforts to broaden the sector and ensure that other sectors not adequately functioning were restored to good shape, he said that the tremendous capacity of the leather and footwear sector was not being fully exploited due to the lack of value addition.
Continuing, he said, ‘’value addition is the key to success in manufacturing; for instance, if you take the process from hide to finished leather and compare the value that is added from that finished leather to a pair of women’s handbags, the difference is huge.
‘’The same scenario is applicable to food processing; you produce cocoa, turn it into cocoa butter and you export it. What you get from that cocoa butter, they convert into chocolates, for the same quantity of cocoa butter, the manufacturers of chocolate will make literally a thousand times more than you do. Hence, there is need to deepen the sectors.’’
Adding, he said, ‘’it is not enough to have a factory you must also watch what technology is doing to that factory. If you do not update your technology very soon your processes will become obsolete and therefore your products will not be competitive.
‘’It is known that the poorer the infrastructure, the higher the cost at which they can produce and deliver products to the market. So, building infrastructure is one of the most critical responsibilities of the government for industries as a whole to be more competitive.
‘’Next, is improving the spending power of the ordinary people because the higher the spending power, the more demand for products. So, putting more money in the pocket of ordinary Nigerian clearly creates more market for the manufacturers.’’
While urging the government to lower lending rates and make foreign exchange rate stable and competitive for manufacturers, he argued, ‘’if you borrow funds to invest at 20 per cent interest rate, you must make more than 20 per cent for that investment to yield benefit.
‘’In other countries, it is less than 10 per cent interest rate for investments, this means that you will have problem competing with manufacturers from those countries. Also of importance to the manufacturing sector is the foreign exchange not only in terms of rate but of stability. We want a competitive foreign exchange rate and also to remain reasonably stable, if it fluctuates it makes it difficult for you to plan your operations.’’