Manufacturing sector

Nigeria sets ambitious target for manufacturing sector

Nigeria has an ambitious target of raising the share of manufacturing to a whooping 20% of GDP according to Niyi Adebayo, the federal minister for industry, trade and investment.

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He told a virtual event on 30 March that the sector’s size should reach 20% share in GDP by 2023.

In this report analysts at FBN Quest say this would mark an impressive step up from the 12.8% attained at current prices in 2020.

Adebayo also told the event, co-chaired by the Nigerian Economic Summit Group (NESG), that his ministry will work out strategic plans for three segments (clothing and textiles, oil palm and auto assembly) in place by end-year.

Alongside the strategy, the government offers selective incentives (such as those offered by the special economic zones) and funding (including its NGN75bn package of support for MSMEs to counter the COVID-19 virus).

Recall that the Central bank approved a more substantial NGN1trn programme of credit interventions for the sector for the same purpose, of which NGN800bn had been disbursed by mid-March.

· The minister highlighted a number of areas where manufacturing needed to raise its game: these included marketing, brand strength, research and development. Others would add training and quality control.

· Manufacturing in Nigeria, as elsewhere, had a very difficult 2020, contracting by -8.8% y/y in Q2 due to the lockdown and by -2.8% over the full year.

· Performance did improve in H2. The CBN’s index of manufacturing production rose by 1.5% q/q in Q4 to 181.1 (2010=100). The national accounts show more rapid growth of 5.6% for the sector in the same quarter, led by 18.6% for textiles, apparel and footwear.

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Manufacturers Association of Nigeria (MAN) urges CBN to improve credit access for manufacturers

The Manufacturers Association of Nigeria (MAN) has called on the Central Bank of Nigeria (CBN), to help improve credit accessibility for Nigerian manufacturers especially for intervention funds, as poor access to funds constrain the productivity and general operations of the sector.

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MAN affirmed that despite the roll out of various intervention funds, manufacturers still cannot access loans due to challenges around the high interest rate and requirements made available by Participating Financial Institutions (PFIs) like commercial and developmental banks who manage the funds and other banks like the Multilateral Development Bank (MDB).

In a communiqué made available to BusinessDay signed by Segun Ajayi-Kadir, director general of MAN, “The Central Bank of Nigeria (CBN) created several development funding windows with ‘single digit’ interest rates to support real productive businesses including manufacturing,

However, notwithstanding the availability of these funding windows, manufacturers still suffer the dual challenges of scarcity of investible funds and high lending rate.”

Manufacturers Association of Nigeria (MAN), noted that to access the N1 trillion COVID-19 stimulus for manufacturing required a working capital of N2 billion per obligator, with a refinancing facility N15 billion per obligator.

In addition to this, the loans have an interest rate of five percent which will revert to nine percent by February 2021, and cannot exceed N10 billion and is being managed by PFIs who prevaricate access.

“Generally, Manufacturers Association of Nigeria (MAN) observed through feedbacks from members and interaction with the CBN on several occasions that these facilities and funds have not been adequately accessible to manufacturers due mainly to the prevarication of the PFIs and MDBs.

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Manufacturing sector

Investment in Nigeria’s manufacturing sector down 76% on COVID-19

The Nigerian manufacturing sector is still reeling from the effect of COVID-19 as investment inflow into the sector declined by 76 percent in 2020, according to the Manufacturers Association of Nigeria (MAN)

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In its H2 economic review, MAN revealed that in 2020, manufacturing investments dropped to N118.52 billion representing a 76 percent decline when compared to the N496.11 billion achieved in 2019.

The decline was attributed primarily to the outbreak of the Coronavirus pandemic which disrupted economic activities globally and locally.

“Manufacturing investment declined in the period following the depressing fallouts from COVID-19 that gave no impetus for new investments in the sector,” the report states

According to MAN, in H1’2020, the sector recorded investment inflow of N62.08 billion, which was a 74 percent decline from the N248.45 billion achieved in H1 2019. In the second half of the year, investments further dipped by 78 percent to N56.44 billion from N257.66 billion realised in the same period of 2019.

The drop in investments also affected the overall performance of the sector, especially as many manufacturing firms were forced to either suspend or shut down operations during the period under review, thereby reducing the number of players in the sector.

“At the moment and following the impact of COVID-19 on productivity, the sector is at the lowest and therefore requires deliberate action to rekindle significant productive activities” the report added.

Emanating from China, the world’s manufacturing powerhouse and Nigeria’s largest trading partner, especially for manufacturing inputs, the COVID-19 pandemic caused an abrupt stop in the supply of raw materials, goods, tools, and machinery for manufacturing companies which forced many of them to suspend business operations.

Furthermore, Brent crude oil which serves as the major provider of the country‘s FX experienced a historic fall during this period, reaching a two-decade low in April at $15.98 a barrel. This drop triggered the prevailing FX shortage and also caused the naira to be greatly devalued thereby impeding the procurement operations of local manufacturers.

Consequently, after two years of consecutive growth, the sector glided to a negative terrain in 2020 with -2.75 percent, which is also the worst experienced since 2016 when the Nigerian economy entered into recession according to the GDP data released by the National Bureau of Statistics (NBS). The sector’s contribution to GDP as well dropped to 8.99 percent in full-year 2020 as against the 11.64 percent it achieved in 2019.

Furthermore, with Nigeria ranking 131st out of 190 countries surveyed on the 2020 World Bank’s ease of doing business index, business experts assert that due to the recurrent challenges in Nigeria’s business environment and insecurity challenges, investors are forced to take flight for the proverbial greener path, scaring away prospective investors.

Experts, however, believe that investment inflow will improve in the medium to long term following the partial border reopening and the implementation of the African Continental Free Trade Area (AfCFTA)

“The reopening of the land borders should provide succor to the manufacturing sector even as the kick-off of AfCFTA serves as an avenue for manufacturers to penetrate new African markets and for investors to flood the market” Jide Babatope, Lagos-based analyst said.

Beyond the decline in investments, manufacturers suffered a decline in the volume of demand for causing an uptick in the inventory of unsold goods. This is also coming amid the surge in production and operations cost.

MAN revealed that the inventory of unsold manufactured goods in the sector increased by 44 percent to N577.61 billion in 2020 from N402.42 billion recorded in 2019.

In H1’2020, inventory of unsold goods stood at N275.39 billion and it increased significantly to N303.22 billion in the second half of the year.

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