Nigeria’s Manufacturing Sector: the big picture
Over the last few years, I have had lots of contact with quite a number of manufacturing companies in Nigeria and I always had the impression that the future seems to be bright. When I hear people complain about the decline of the manufacturing sector, I just smile patronizingly and ask myself why Nigerians like to complain so much.
My reaction was not so farfetched. I see many of these companies building new massive factories, looking for more skilled people to employ, fighting to meet demand because people just can’t get enough of whatever it is they are producing. These are not signs of an ailing sector.
Yesterday, I attended a conference on the local content policy being promoted in the Oil and Gas sector and it was then that I saw the light. Many people delivered papers but I was most impressed by the one delivered by Mr. Vassily Barberopoulous. With a name like that, he is obviously not Nigerian but he is as passionate about the Nigerian Manufacturing sector as any Nigerian I have ever seen.
Mr Barberopoulous (from now on I will just refer to him as Vassily, my fingers ache each time I type out the full name) rolled out facts and figures about our manufacturing sector that made me realize that we are facing a serious problem. This sector should be the main engine of growth so the fact that it is ailing should be a source of concern to those in charge of ruling the country and to all the rest of us as well.
Firstly, the growth rate of our manufacturing sector is declining each year. Right now it composes only 4% of our GDP. In India, the sector’s contribution to GDP was 15% as at June of this year and their ministry of commerce planned for it to grow at a rate of 12 – 14% yearly till 2025. The contribution of the manufacturing sector to the GDP of the United States went down to 9.8% during the recession and that was considered low. This figures reflect how bad our situation is.
Another problem is the lack of demand for local goods. Nigerians still prefer imported goods to locally made goods. It is partly a problem of perception but the truth is that generally, the quality of goods produced in Nigeria is not much to write home about. However, I think this problem can be solved if local entrepreneurs are encouraged to keep producing. If one considers the way low quality Chinese goods are being patronized by Nigerians, I think we can safely conclude that the majority of Nigerians are not too concerned about quality. We just need to promote our locally made goods more.
The liquidity problems being faced by Nigerian manufacturers is a negative factor. There are 2 sides to this coin. I will not join others who roundly condemn the banks for not making credit readily available. I have heard many stories of how loan facilities provided by financial institutions have been abused by Nigerians who used the money for purposes other than what they claimed they needed it for and then refused to pay back.
Also many Nigerians don’t have enough collateral to back themselves up when they apply for access to loans. The banks respond by slamming ridiculously high interest rates which only very optimistic persons will accept without running the risk of making money for the banks for the rest of your life. However, if loans are not available then the manufacturing sector is not going to make any progress. The very nature of manufacturing requires having enough money to finance operations. I think this problem requires more of a governmental policy intervention to make things easier and safer for both parties.
Government can also do a lot to ensure that local manufacturers have a more conducive environment to operate. We are not doing them a favour, the country needs them. China, despite being a communist country, has turned a blind eye to the international trade carried out by its local manufacturers because they are promoting Chinese goods all over the world. Things like tax incentives, reduced import duty etc. will encourage more people to produce goods in Nigeria. Right now, only the big companies are surviving.
According to Vassily, it is more profitable to produce goods in other West African countries and export them from there to Nigeria. This is not the way to become the true giant of Africa.