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Nigeria loses investors to bad trade policy – LCCI

By BusinessNews Staff on October 14, 2013

The director-general of Lagos Chamber of Commerce and Industry, Muda Yusuf, has criticised the approach employed by the Central Bank of Nigeria (CBN) for the disbursement of the N220 billion earmarked for micro, small and medium enterprises (MSMEs), saying the credits are only in the name of MSMEs when they are majorly disbursed to top players in the economy. In an interview with our Special Correspondent, TOSIN ADENIRAN, he suggests how to go about it, while proffering solutions to other challenges facing industries in the country. Excerpts…

How much interest are foreign industrialists showing in LCCI and what is its membership strength?

Some of the foreign industrialists are members; multinationals are members of the Chambers. When it comes to advocacy, Lagos Chamber is in the fore-front and it believes it is easier to engage the government with the Chamber than on individual. The Chamber of Commerce keeps it low and covers all sectors of the economy. We have people who normally should belong to these entire sectors as members; some prefer to stick to the sectoral association, who doesn’t want to be with membership of the Chamber. The current strength of the Chamber is about 2,500. We have this situation where some people come and say the membership of the Chamber, you are not meeting my expectation, and drop out and new people come in. On the whole, we have been doing fairly well, I know we can do better, we are working towards increasing the membership and we are creating awareness on the benefits of membership. But one core area the Chamber of Commerce plays an important role is advocacy. The whole essence of advocacy is to ensure we have an enabling business environment because no matter how much you know or how much you have, if the business environment is not conducive, you cannot be comfortable with your business. We do quite a lot of advocacy, covering almost all areas of community management policies, fiscal policies, monitoring policies, institutional policies. We also develop the capacity of our members to run their businesses to what we call the business development service; we ensure they meet foreign investors because we meet a lot of foreign delegations. We are also in the business of trade fair, we organise the biggest, perhaps, the best trade fairs in the country, which also give our members and the entire business a very good platform to showcase their businesses, products and services. Majority of our members are in the SMEs, also reflecting the characters of the business environment.

What is the capacity utilisation rate in the industries now?

Capacity utilisation in the industries has been for a long time less than 60 per cent, it has been around 40-45 for a long time and that is for obvious reasons. The operating environment for industries is not the best. We have issues with competitiveness, operating cost, infrastructure, finance, imported finish products, faking and counter faking, challenges of the institution, challenges also come from tax and levies. These are the challenges we face and have been there for several decades and we don’t seem to be making much headway. So, the capacity utilisation has not been satisfactory for a long time. We talk a lot about power, the power generation is not anything to celebrate, there have been a lot of motions made in that regard, reforms, privatisation efforts, and we have some in on-going plan in terms of changing the entire structure of the power sector. In terms of impact of quality of the power delivery, we are still talking about less than 4,000 mega watts as we speak. The situation is very unpleasant, so power is still the major problem in the industry. So, when you say the government has been doing a lot, they may have been doing a lot in terms of putting structure in place, but in terms of the ultimate impact on the end-user, the impact is not effective. Also, there have been efforts at reforming the port but if you talk to the port users, a lot of manufacturers use the port to bring in their raw materials, a lot of them still complain of the cost of clearing their cargoes. The source of fund, they are still borrowing at the rate of 20-25 per cent when their counterparts elsewhere in the world are getting it for less than five per cent. That is still an issue, there is the problem of logistics, you have to move your products from raw materials to finished products from one part of the country to the other, and the cost is prohibitive, these are the major issues affecting them. Where government has been doing something like the railway, we know they are making efforts at that but as we speak; the impact of these efforts are yet to properly manifest.

The Central Bank of Nigeria (CBN) recently earmarked N220 billion for micro, small and medium, small and medium scale operators, has any of your members access to this?

The CBN has had several forms of interventions in financial market. We have had the manufacturing sector intervention fund of N200 billion, the aviation fund, power intervention fund, something on textile and lately on MSMEs. Quite a lot of these funds interventions have been taking place. I have seen the guidelines of the fund and it is good. It has been difficult for our members to access the fund. A few of them are about to access. I know about two or three who had benefitted from the manufacturers’ fund which was about 10 per cent and the tenure was 16 years. The fund is a refinancing and restructuring facility. In other words, they owe the bank, if the money is available, so that the loan you owe the bank can be refinanced and restructured, so you have better room to service it at a lower cost. The truth is that when you relate the fund to the demand for the fund, it’s still a far cry. The one I know got one billion. The point is that it is those at the top end that benefit, because the fund was not for fresh capital, it was for existing debit. So those that benefitted were those at the top end of the manufacturing sector, that is why one will say the impact was not felt in terms of number. If you look at the list of beneficiaries, just like many of the government policies we have, it is the big players that get the fund because they have what it takes to get money from the bank, they have better relationship with the bank, they keep better record and have better structure, so naturally if they put those fund on the table, those people get more than the small fund users. That is one of the challenges; it rarely gets to the small and medium scale segment. In terms of the spread, it is not anything you can regard as satisfactory, if the banks by their nature are more comfortable with the big players it is because it is less head-ache for them. It is still a big issue because of the risk profile of the SMEs, the banks are not too keen to grant credit to SMEs. It takes a lot more to administer credit at that level than at the level of big players.

What is the way out for the manufacturers?

There is need for a lot of intervention even in the economy face. I think a firmer regulatory framework that will target those in the SMEs is required, because if you just float a fund and you leave it to the banks to administer, they will use their commercial judgment in the disbursement of the fund and if you are using commercial judgment you would rather give credit to the big players than the small ones. If there are specific guidelines that target the small players and say that for each company, this is the maximum that can be given to each company. So that when you are putting N100 billion in place, you are sure it will go round many more players. I think it is a regulatory issue, if we have better regulatory environment and better targeting for some of those credits, more SMEs will benefit. Generally, we need a financial system that can deliver credit better to the real economy because what we have seen in the past is intervention fund. Intervention funds are handouts, like the manufacturing fund, N200 billion after a year the fund was exhausted and that was the end of the story. We need a financial system that is structured to sustain and deliver that kind of credit that will entail totality of both monetary, fiscal system and the micro and macro economy to deliver that kind of fund. Like in the many advanced countries, except when they have a major crisis, there are regular systems that service their economy easily. We need a financial system constructed to support the means of the fund, what we have seen now is the trading sector and to some extent, the multinational companies, the big players in the oil industry and telecoms, they are cornering the credits in the country. Credit turnout from CBN looks big but when you look at the impact on the economy, it is minimal. The CBN governor mentioned that the SMEs created 80 per cent of the jobs in the country but get less than five per cent of the credit. We need to align our credit to help develop the economy.

How has the Chamber solved the problem of faking and counter faking in the country?

It is one of the biggest problems we have in this economy because there are a lot of ethical problems; smuggling is one of them, faking. The best we can go is using our advocacy skill to sensitise the government to strengthen the capacity of the regulatory bodies like the SON. The problem looks bigger than the capacity of the SON. They have killed a lot of companies; it doesn’t take a month to fake a good brand in the market. These characters bring fake products from Asia and package it better than the original ones. They have done quite a number of damage to the economy and they have killed the enterprise spirit of a lot of Nigerians. Unfortunately, we have not been able to take charge of the situation. It is an abnormal situation because manufacturers, after producing, have spent more to educate consumers on how to identify the original products. It is a serious matter and government should strengthen the SON, maybe the sanction is not strong enough that is why people continue to indulge in the acts. We have sensitised the business environment that it is unethical behaviour and it should not be encouraged. The earlier the better if every Nigerian fights against this unethical behaviour. I will also advise the business environment to help SON because they need intelligence and information regularly to help target their efforts. The thing is that competitiveness is very low, if they must produce to standards, it is very expensive and often more expensive than imported goods. Secondly, the economy is structured on poverty that the average Nigerian will first think of what he or she can afford before quality. Most of the imported products are targeted at the bottom of the pyramid. They are very cheap and because of the level of poverty people go for what they can afford. Unfortunately, people now prefer fairly used products; many people are going for fairly used products because of the level of poverty in the country. Cost of fund for those producing locally is very high, they borrow at 25 per cent, how will they compete with someone that borrow below five per cent? Finally, our government is not helping matters because we have a policy on local patronage, government is the major spender in this economy, it is easier to target government expenditure at locally produced items than target private sector. If government patronises local products more, it will help manufacturers. It will change the face of the economy. A deliberate government policy that emphasises local products, attitude of the local people will change. We still have products celebrated abroad, Nigerian wires and cables are still one of the best in the world, although more expensive but it is of best quality. That is why people fake their products. It is about sensitising the local environment and making the local manufacturers competitive enough.

Recently, your members demanded for equal privileges with members of Manufacturers Association of Nigeria (MAN), is there a rivalry between the two associations?

No, we just want some certain issues sorted out with SON (Standard Organisation of Nigeria). The problem is that there are some procedures for some certain issues in the industry that SON gives exemptions to members of Manufacturers’ Association of Nigerian. If you are not a member of MAN you are subjected to rigorous procedures and higher cost. So, what we are working on now is getting the same opportunities for our members because whatever is good for MAN members, we want a less rigorous procedure for our members. This is one of our methods of advocacy, among many other things we do.

How will you describe the government’s policy on duty and tariffs on products?

There is no sufficient enforcement of duties and tariffs and sometimes the government gives waivers to some people which creates distortion in the economy. There cannot be two players in an economy, one is paying duties, the other is not, and that is a problem. Government needs to respect some certain policies. There are always issues if tariffs are too high. If you have high tariff you must have the capacity to enforce the high tariffs or you will create opportunities for smugglers, take rice for example. When you raise tariff with the hope of improving local production, if you do not have the capacity to enforce, it will create business for smugglers, customs and neighboring ports. That is why you see that Cotonou port is always busy, there is a lot of investment. Nigeria loses a lot of investors because of our trade policy. Do not create a tariff policy you cannot enforce, otherwise you make nonsense out of it. Some of the items under prohibition should not be what we are benefitting for putting it.

[Daily Independent]

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