Power, Skills, Policy Stalling Manufacturing Benchmark

Poor power supply to industrial zones, abrupt change and reversion of policies, as well as shortage of needed skills in industries have continued to dampen the chances of Nigeria’s manufacturing sector achieving 70 percent capacity utilisation which is the minimum target for any country aiming to become a frontier economy.

These shortcomings are also frustrating the chances of the manufacturing sector actualising a double-digit (13 percent target) contribution to Gross Domestic Product set by experts, while also preventing the industry from creating sufficient jobs for the teeming unemployed population.

“Policy inadequacy, inconsistency and reversals are major disincentives to industrialisation and are obstacles to the growth of existing firms and start-ups,” said the Manufacturers Association of Nigeria (MAN), led by Frank Udemba Jacobs, in an industrial memorandum made available to BusinessDay.

“Nigeria needs a functional technical educational system that would produce the skills required by the manufacturing industry,” Jacobs added.

Capacity utilisation in the manufacturing sector in Africa’s largest economy is currently 52 percent, while contribution to GDP is nine percent. This is abysmally poor when compared with South Africa, the continent’s second largest economy, with 12 percent GDP contribution and capacity utilisation of 81.5 percent.

The average daily electricity supply to industrial areas in the first half of 2014 was four hours, while there was a minimum of six outages each day, according to MAN data.

Due to poor power supply, firms such as Lafarge Africa, Flour Mills of Nigeria plc, Honeywell Flour Mills and Dangote, among others, have gas plants which are expensive to install. Many other firms in the small and medium category use diesel, which is expensive and raises their cost of production by as much as 40 percent.

Nigeria’s power supply has continued to hover between 2,500 megawatts (MW) and 4,500 MW for over four years. Data shows Nigeria’s installed capacity per capita, estimated at 0.005, lags African peers such as Zambia (0.13), Mozambique( 0.1), Angola (0.09), Namibia (0.23) and South Africa (0.93).

Nigeria is also a laggard in electrification rate, with a figure totalling 20 percent, which is behind Zimbabwe’s 40 percent, Mozambique’s 34 percent,  Sudan’s 30 percent and Botswana’s 22 percent, according to Akin Akinfemiwa, group CEO, Forte Oil plc.

Manufacturers say despite the recent 50 percent slash of electricity tariff by the Nigerian Electricity Regulatory Commission (NERC), they will pay the MYTO 2.0 rather than MYTO 2.1. mandated by the NERC, MYTO being  Multi Year Tariff  Order.

“The power sector reform and the privatisation that followed have not achieved the desired result. Without power, it would be difficult to move the economy forward,” said Remi Bello, president, Lagos Chamber of Commerce and Industry, during the 1st Quarter economic review held in Lagos.

According to Olugbenga Olufeagba, chief economist, Edward Kingston Associates,without adequate power generation and at a reasonable cost, the competitiveness of Nigeria on the global scene will be greatly impeded.

Policy inconsistency is among the greatest enemies of industrialisation. This has impacted negatively on sectors like iron and steel, ceramics and textiles, among others.

According to the World Bank, even though textiles are on ban, fabrics smuggled into Nigeria through Benin annually are estimated at $2.2bn, compared with local Nigerian production, which has dropped to $40m annually.

Currently, the number of players in the sector has dropped to ten, from over 100 recorded before two decades ago. 

“If policymakers wish to nurture their homegrown industries by protecting them from import competition, a far better option would be to crackdown on illegal smuggling and pirating of goods from abroad—a far greater threat,” said The Economist, in its research report entitled ‘Enabling a more productive Nigeria: Powering SMEs, ’ released last week.

Tunde Oyelola, chairman, Manufacturers Association of Nigeria Export Group and vice-chairman, PZ Cussons Nigeria, said the Export Expansion Grant (EEG), which has been suspended eight times, is one area where policy summersault is visible. 

More so, many firms that cannot find skills for their operations have embarked on importing them. Others such as Dangote, Nigeria Breweries plc and Lafarge Africa, among others, now train applicants on the needed skills or rely on the Industrial Training Fund, set up by the Federal Government.