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Performance of manufacturing sector defies fiscal incentives

By BusinessNews Staff on January 21, 2014

The performance of the manufacturing sector of the economy has defied the various fiscal incentives introduced by the Federal Government to boost the sector.
In spite of these incentives, the average contribution of the sector to the country’s Gross Domestic Product (GDP) was 4.0 percent in the last 10 years from 2003 to 2013, said Manufacturing Association of Nigeria (MAN).
This is far below the target of 12 per cent set for the period by the association. Furthermore, capacity utilisation at an average of 46.6 per cent is also well below the 10-year target of 65 per cent.

In a report exclusively obtained by Financial Vanguard, the association noted that, “In the last 10 years (2003-2013), manufacturing as a percentage of GDP has remained at an average of 4.0 per cent, ranging between 3.6 per cent (lower limit in 2004) and 4.2 per cent (upper limit attained in 2012). Capacity utilisation in the last 10 years (2003-2013) has been at an average of 46.6 per cent, with an all time high of 50.5 per cent recorded in 2007 and a 10-year record low of 43.9 per cent in the year 2005.

In the last 10 years, however, manufacturing growth rate has been at an average growth rate of 8.7 per cent and has been on steady decline since 2004. The maximum growth rate in the 10-year period was 11.9 per cent recorded in 2004, while 2003 witnessed the lowest growth rate at 5.7 per cent.”

The failure of Federal Government’s incentives to improve the fortunes of the sector, according to manufacturers, was occasioned by persistent challenges in the operating environment such as high interest rates on loan facilities, which hovers between seven per cent and 35 per cent including the Bank of Industry/Central Bank of Nigeria intervention window of seven per cent.

Other challenges include persistent irregularity in electricity supply and the introduction of exorbitant fixed charges by the Power Holding Company of Nigeria, PHCN; scarcity /incessant increase in the price of petroleum products particularly AGO, LPFO, gas, etc; as well as insecurity in Northern Nigeria that hindered human and goods movement, among other impediments.

Operators invest with cautious optimism
These challenges notwithstanding, manufacturers are optimistic about the fortunes of the sector. This is reflected in the increased investment of N566.3 billion in the first half of last year. According to MAN, “Manufacturing investment was cautiously increased to N566.3 billion as at June, 2013 which is above 50 per cent of N996.08 billion that was invested as at the end of the year in December 2012.This cautious optimism is inspired by positive signals coming from the government through various fiscal incentives along the stability in the macro-economic environment in the greater part of 2012.”

Investment in Plant and Machinery led with N159 billion, followed by Motor Vehicles at N126 billion; Assets under Construction was N102 billion and Land and Building – N97 billion; Furniture and Fittings-N83 billion.
A sectoral breakdown of the investments reveal that Non-Metallic Products sector (majorly prompted by cement manufacturers) had the highest investment of N323.8 billion, followed by Basic Metal, Iron and Steel at N143.9 billion. Domestic/Industrial Plastic and Rubber attracted N39.7 billion, while Food, Beverage and Tobacco attracted N32.5 billion. Pulp, Paper, Printing & Publishing received about N15.9 billion.

In the Chemical and Pharmaceutical sector, investors put in about N4.5 billion. For Textile Apparel and Footwear, a sum of N2.57 billion was invested. Investment in Electrical & Electronics was about N2.54 billion, while investment in the Motor Vehicle and Misc. Assembly was about N0.760 billion. Wood and Wood Products took the rear with a paltry sum of N0.231 billion invested.

Sector Generates 760,000 jobs
These investments enhanced employment generation in the sector, with more than 760,000 new jobs generated in the first half of last year. According to MAN, total employment rose to 1.83 million in the first half of 2013. This represents an increase of 60 per cent when compared with 1.14 million recorded in the first half of 2012; and an increase of 71 per cent when compared with employment figure of 1.07 million in second half of 2012.

Sector-by-sector analysis indicates that food, beverage and tobacco have consistently and significantly contributed to employment generation and it is closely followed by Domestic/Industrial Plastic & Rubber as well as Non-Metallic Products in that order.

In the period under review, Non-Metallic Products contributed the largest portion of 56.24 per cent to employment generation at 1.03 million followed by Basic Metal, Iron & Steel and Food, Beverage & Tobacco accounting for 9.23 and 8.84 per cent of the total manufacturing employment at 169,016 and 161,773 jobs respectively. Wood and Wood Products made the lowest contribution of 0.72 per cent of the total 13, 178 jobs.

[Vanguard]

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