Unleashing the full potentials of the manufacturing sector By Jide Ayobolu
President Muhammadu Buhari has assured the Manufacturers Association of Nigeria (MAN) that his administration will eradicate bottlenecks and create an environment that can boost manufacturing.
The President stated this at the 44th Annual General Meeting of MAN in Abuja recently. According to him, the need to boost manufacturing has become imperative in view of the fact that the “manufacturing sector is well positioned to be a major driver of Nigeria’s economic growth’’. He maintained that government was focused on implementing necessary policies and strategies aimed at unleashing the full potentials of manufacturing in Nigeria.
According to him, his administration will rely heavily on the association’s ideas and inputs at all stages of formulation and implementation of new industrial policies.
“The manufacturing sector is well positioned to be a major driver of Nigeria’s economic growth because of our immense natural resources and the entrepreneurial spirit of Nigerians.
“Government is therefore focused on implementing necessary policies and strategies aimed at unleashing the full
potentials of manufacturing in Nigeria. “We will rely heavily on your ideas and inputs at all stages of formulation and implementation of new industrial policies.
“For our part, we will remove bottlenecks and create a more business friendly environment.
“Our strategic plan to boost manufacturing activities in the country is supported by the Nigeria Industrial Revolution Plan (NIRP) and the National Enterprises Development Programme (NEDEP).
“These programmes, present a clear road map towards an industrialised Nigerian economy.’’ Buhari stated that his administration is convinced that the key to the nation’s economic diversification and subsequent survival lies in the agriculture and manufacturing sector.
He said that a strong manufacturing sector would create more jobs and wealth for the citizens, adding that it would usher in sustainable economic prosperity “because we will produce what we consume as a nation and generate foreign exchange by exporting any surplus’’.
The President said that his administration was working on improving the patronage of locally made goods, bridging the gap between skills required by industry and those provided by the educational institutions and access to finance for the Small and Medium-Scale Enterprises (SMEs). He added that the Federal Government recognised that MAN and other members of the Organised Private Sector (OPS) were key stakeholders in the journey.
He said, “we will continue our engagement with you.’’ The President stated that he was inspired by the association’s commitment to a great Nigeria. He, therefore, urged them to join hands with government in making the ongoing efforts by government to revive the nation’s economy a success. He also urged them to ensure that the outcome of their deliberations would be to the benefit of all Nigerians, adding: “I look forward to receiving a communiqué of the deliberations from this meeting. “As events unfold in the coming months, many of you will be called upon to play critical roles in the implementation of this administration’s agenda.
“I implore you to avail us your wealth of experience so that together we can uplift our nation’s economy and social well-being.’’ In his remarks, the President of MAN, Dr Frank Jacobs, commended the government for its new forex policy of allocating 60 per cent of all available foreign exchange to the manufacturing sector for the importation of raw materials and machinery. He also praised the Buhari-led administration for the efforts it is making towards improving infrastructure across the country. Jacobs also saluted the government’s efforts to end insurgency in the North Eastern part of the country. He said the efforts were yielding fruitful results.
Furthermore, Nigeria’s leading industrialist, Aliko Dangote, has asked President Muhammadu Buhari to provide incentives to diversify the economy. He spoke at the 44th annual general meeting (AGM) of the Manufacturers Association of Nigeria (MAN), with the theme “Diversifying the Nigerian Economy: the Role of Government in Manufacturing”.
In his remarks, Dangote complained about policy inconsistency, saying it destabilizes industrial production plans and erodes investor confidence. He said: “To demonstrate seriousness and sincerity in its declared drive to revive the agricultural sector, government should come out with a comprehensive package of incentives and reliefs that addresses the issues of high entry cost, absence of low interest funding, long gestation periods, access to land, availability and cost of imported inputs and absence of guaranteed commodity prices.
“For example, in India and Sudan, zero taxation is applied to their agricultural sectors to incentivize investments. With a population of over 180 million people; projected to grow to 210 million by 2020, Nigeria must pay serious attention to the issue of food security.”
Dangote said governments at both national and state levels have a huge role to play in facilitating long-term investments. “The articulation of clear sector specific policies along with incentive packages that are commensurate with the risk inherent in each sector. Closely allied to this is the issue of consistent implementation of industrial policies,” he said.
Policy inconsistency destabilizes industrial production plans and erodes investor confidence.
For instance, the suspension of the Negotiable Duty Credit Certificate (NDCC) to exporters and non-payment of existing claims has discouraged non-oil exports and frustrated contracts entered into with overseas buyers.“More support for small and medium scale manufacturers, since many Nigerian manufacturers are relatively small with limited capital to support their investments. Government has to develop industrial clusters with requisite infrastructure for this category of businesses. They should also have access to soft loans and research & development support.“Boosting non-oil exports to bring in much needed foreign exchange, by ratifying and implementing the road-map recently developed the Nigerian Export Promotion Council, harmonizing the role of various Government regulatory agencies so as to eliminate conflict of roles amongst them. For instance, the roles of NAFDAC and SON should be properly aligned.
He went to explain that, developing the infrastructure base of the economy by actively involving the private sector through Public-Private Partnerships (PPP), where viable.
Particular attention should be given to transport infrastructure. Improving energy supply since no country can industrialize without sufficient and reliable energy to power her factories, ensuring adequate patronage by Government and her agencies of “Made-in-Nigeria products” so as to galvanize investment in the manufacturing sector, clarification by the CBN on how it intends to monitor and supervise banks to ensure that their recent directive on the allocation of 60 per cent of their transacted forex to manufacturers is complied with, the development of appropriate curricula for technical education and skills acquisition, reduce or eliminate the incidences of smuggling, adulteration and counterfeiting activities in the country.
Stronger penalties should be meted out to those found culpable of these offences, domicile the price of natural gas in Naira, in line with the agreement signed with manufacturers so as to avoid unnecessary conflicts. Also the benchmarking of the price of gas to the international oil price should be discontinued; the Gas Master Plan should be implemented to ensure adequate allocation of gas for the domestic market and encourage the establishment of more Development Banks to cater for the credit needs of the industrial sector and reduce interest rate to single digit levels.
For the manufacturing sector to effectively fulfill its potentials, the government should consider doing the following, namely, The Bank of Industry BOI as well as commercial banks should make available facilities such as overdraft and medium term loans at lower interest rate.
Government should be committed to the funding of BOI, Public Private Partnership on infrastructure should be encouraged and practiced. Also, in a related development, Public Private Partnership should be encouraged and power generation capacity should be increased to more than 10,000MW to meet the demand for power in the country. Similarly, alternative sources of energy should be sought and developed by both the government and the manufacturing sector, more research should be encouraged in this regard.
The transport system in the country should be diversified and developed. The government and the people on Nigeria should put into efficient use the waterways as well as the rail lines; Gas pipelines should be efficiently networked nationwide to ensure full utilization by consumers. An effective gas policy should be put in place by the policy makers as well as a workable gas pricing mechanism. In terms of communication, service coverage should be extended to all states of the federation particularly the rural areas. There should be an immediate overhauling of available security systems through regular/routine emphasis on crime prevention. Donor agencies such as UNIDO, DFID etc. should partner with government in the provision of infrastructure instead of limiting their services to consultation.
The guidelines for accessing SMEs should be relaxed and implemented; meanwhile, SMEs should accept the memorandum of understanding being drawn up by banks. SMEs should also avail themselves of the services provided by various service providers to help access the fund; Government should reduce the MRR to a single digit so that banks can have lending rates of one digit; The government should develop a workable and realistic national business data bank to provide information to investors as well as other Nigerians. It is important that, banks should allocate about 80 per cent of their loan portfolio to the development of SMEs
The Small and Medium Scale Enterprises (SME’s) are a sine qua non to the growth, development and progress of Nigeria’s political economy. The SME’s are the secret of the economic success of many Asian countries. But the SME’s have not been ably supported by government the way it ought to, especially by way of legislation, provision of facilities and tax holiday. In the country now, abundant talents abound but the snag is that there are no sufficient avenues to access soft loans to actualize burgeoning ideas and those that have struggled hard to establish cottage industries find it extremely cumbersome to get assistance from financial institutions, as they are only willing to give out loans with highest yielding return within the shortest time possible.
Today in the country, the SME’s are confronted with a myriad of problems, namely lack of capital, inadequate management arising from lack of capital to even fund training and acquisition of skills, restricted access to institutionalized credit and management skills. There are managerial deficiencies in marketing, account and finance, human resources and production. There is no gainsaying that good management strategy will have a positive impact on the modus operandi of SME’s in Nigeria. We concede that, there are serious inherent problems with Nigerian SME’s especially in terms of ownership, management, record-keeping, structure and even cultural constraints. But to perpetually bemoan these short-comings is tantamount to a deliberately stunting of the development of the national economy.
For the SME’s to succeed in Nigeria certain things must be done. The federal government must provide adequate finance for the sector and foster understanding between fund managers and operators of the SME’s for the scheme to materialize. Similarly, research institutes like the Federal Institute of Industrial Research, Oshodi (FIIRO) must be adequately funded. Furthermore, the state of socio-economic infrastructure is grossly inadequate; hence government should provide and sustain infrastructures which are capable of fostering and strengthening the various activities of SME’s in grants and subventions with attractive projects.
It should be recalled that the Bank of Industry (BOI) was established in 2001 to cater for SME’s in Nigeria when former Nigeria Industrial Development Bank (NIDB), Nigeria Bank for Commerce and Industry limited (NBCL) and National Economic Reconstruction Fund (NERFUND) coalesced to form BOI.
At inception, these three financial institutions owed a total sum of N17.7 billion with NIBD accounted for N2.816 billion, NBCL N3.694 and NERFUND N11.2 billion. So right from the inset, the BOI which was expected to provide the much needed fillip for small and medium scale industries were enmeshed in debts. In a related development not much is heard of the Small and Medium Industry Equity Investment Scheme which was set up by the Central Bank of Nigeria (CBN) to enhance spirited efforts to revive SME’s in the country.
However, since the scheme was instituted in 2001, its impact has not been maximally felt by those who are desirous of its doings. The government must match its preachments with actions, if indeed, it really wants the people to be gainfully employed and not be a burden on the government, then it must create the enabling environment for private enterprises to thrive. People can employ themselves where there is constant power supply and availability of other basic amenities that can take away the burden and stress of investing in a hostile environment. Even, it is on record that, Multinational companies have left Nigeria for some other climes, as the cost of doing business here is just too high for comfort. There is no doubting the fact that SME’s are crucial to the long overdue development of the Nigerian state.
According to a recent survey and findings by Economist Insight, to support SME productivity, Nigeria’s government must stabilize macroeconomic policy and install a more transparent tax and customs system. In its survey it also buttresses the need to support greater productivity gains, the importance of now turning to simplifying the tax system, reducing import barriers, stabilizing macroeconomic policy and building a more transparent customs system.
Most SMEs in Nigeria die within their first five years of existence, a smaller percentage goes into extinction between the sixth and tenth year, while only about five to ten percent survive, thrive and grow to maturity. SMEs encounter issues such as insufficient capital, irregular power supply, infrastructural inadequacies (water, roads etc.), lack of focus, inadequate market research, over-concentration on one or two markets for finished products, lack of succession plan, inexperience, lack of proper book keeping, lack of proper records or lack of any records at all, inability to separate business and family or personal finances, lack of business strategy, inability to distinguish between revenue and profit, inability to procure the right plant and machinery, inability to engage or employ the right caliber of staff, and cut-throat competition. The solution to the problem of Nigerian SMEs can only be realized if both the leaders and the citizens concertedly work together.
SMEs plays an important role in the economic development of a country. Their role in terms of production, employment generation, contribution to exports & facilitating equitable distribution of income is very critical.
The SMEs broadly consists of; the traditional cottage & household industries such as khadi & village industries, handicrafts, handlooms, sericulture and coir industries as well as modern SMEs-The traditional village and cottage industries as distinguished from modern SMEs are mostly unorganized and located in rural ares and semi urban areas. They normally do not use power operated machines/appliances & use relatively lower levels of investment & technology. But they provide part time employment to a very large number of poorer sections of the society. They also supply essential products for mass consumption & exports. The modern SMEs are mostly defined in terms of the size of investment & labour force. The industries (Development & Regulation) defines SMEs having less than 50 workers with the aid of power or less than 50 workers with the aid of power. Government is extending various steps towards SMEs. In India, a unique instrument called reservation in the sense of legal ban on production by large units introduced in 1970s was for the safety and promotion of SMEs. In addition, the SMEs has been supported and encouraged by various government policies for infrastructure support, technology upgradation, preferential access to credit, preferential policy support, etc. Specific Contributions of Small Scale Sector:
The contribution of Small scale sector to the manufacturing sector and GDP as a whole is significant in terms of its share in total value added; Small scale sector performs to the manufacturing sector and GDP as a whole is significant in terms of its share in total value added; SMEs can play a role in mitigating the problem of imbalance in the balance of payment accounts through its export promotion; While the large scale industries are expected to increase the inequities of income and concentration of wealth, SMEs are expected to help widespread equal distribution of income and wealth; Small sector may provide opportunities to a large number of capable and potential entrepreneurs who are deprived of appropriate opportunities; It can help to release scarce capital towards productive use; SSI can reap the benefits of lean production and can find new cost-efficient techniques of lean production; As small units can use resources more efficiently to the full capacity without any wastage, they may have higher allocative efficiency; As the element of risk is minimum in SMEs, more resources will be employed by large number of labor force.
Small and Medium Size Enterprises (SMEs) in Sub-Saharan Africa (SSA) are talked about a lot in the framework of growing unemployment and high population rates as the region rushes past the billionth person population mark (most of which is under 30). There are a number of international forums, which have focused on developing the region’s SME sector focused mostly on two elements: (a)SMEs are vehicles to employment and job creation. (b)SMEs are key to the region’s entrepreneurial environment needs.
Development cannot happen without them; growth cannot happen without them; socio-economic paradigms shifts cannot happen without them; and poverty cannot be reduced without them. They are what produce a country’s middle class. This is their development enterprise role. Whether one is in West, East, South or Central Africa, the sectors needing development or expansion are the same — agriculture, infrastructure development (power and transportation), manufacturing, and information technology. SME stands for Small and Medium Size Enterprises, but today let’s change that acronym to Strong and Maverick Enterprises – reflecting the development enterprise space of SMEs and micro enterprises or MEs (employing 10 people or less). They are producing, designing, employing, and more importantly innovating. They are development entrepreneurs. It is very important to note that the present administration in Nigeria led by President Buhari has identified SME’s an engine of growth and catalyst for development; it is therefore devoted all the necessary attention to solve the problem of unemployment and grow the per capita income, thereby, unleashing the full potential of the manufacturing sector in Nigeria.
Ayobolu, a public affairs analyst contributed this piece from Lagos State.
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