MAN reels out strategies to boost implementation of ease of doing business policy

Notwithstanding the availability of the funding windows by the Central Bank of Nigeria and other agencies, the country’s manufacturing sector, still suffers from plethora of challenges such as scarcity of investible funds, high lending rate, multiple taxes/levies, delay in clearance of cargoes, high and undue demurrage, poor port equipment, among others, while government agencies prefer foreign products to local ones, reports the Editor, Gentechnews, Tony Nwakaegho.

 The manufacturing sector under the aegis of the Manufacturers Association of Nigeria (MAN), in Nigeria has been groaning due to the difficulty in sourcing forex for importation of raw-materials and machines that are not locally available.

The recent index report second quarter (Q2)2021 released by MAN disclosed that since the onset of COVID-19 pandemic in the early quarter of 2020, the severity of forex challenge has intensified, particularly as the value of the Naira deteriorated.

Unfortunately, the body said that even with gradual return to normalcy of business activities and the increasing recovery of forex earning as crude oil prices improved, acute shortage of forex persisted.

On the size of Loan to the Sector, the Association’s report noted that lending to the real and the manufacturing sectors have dwindled over the years due to the increased presence of the government in the Nigerian Money market, stressing that Government Treasury Bill, Bonds, Sukuk, among others have almost crowded out private sector borrowing in the market.

It is therefore pertinent; they advised that government balances its participation at money market with the interest of the private sector.

To reduce poor access to funds the report recommended “recapitalization of Bank of Industry (BOI) and Bank of Agriculture (BOA) to adequately meet the industry credit need at single digit interest rate; Providing  a Credit guarantee for industrial loans from commercial banks; Direct intervention from the CBN Governor  to ensure that MAN members access the funds, particularly the N1trillion COVID-19 Stimulus Package; Update Manufacturers with the current feasibility  of  the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMED) and N300 billion Real Sector Support Facility (RSSF) and  how they can be accessed.

“Capital expenditure has consistently been low over the years.  In addition, the capital budget funds are often misapplied and misappropriated leading to delay in completion and abandonment of capital project in the country. Meaning, Government as a matter of urgency needs to sustain the prevailing upscaling of capital expenditure budget while minimizing budget on recurrent expenditure.  “Government also needs to ensure timely and adequate release of capital project contract sums to contractors to guarantee seamless implementation and prevent avoidable stoppages.  In addition, Government should review the extant capital project contract award processes and establish an effective monitoring and evaluation mechanisms to ensure that projects awarded are timely and fully completed, “the report explained.

The report noted the new CBN policy that stopped allocation of forex to the Bureau De Change (BDC) segment of the foreign exchange market for operational incongruities further increased the responsibilities of Commercials Bank in handling forex sales and applications in the economy.

It recommended that the Banks should build more capacities through designate desks for handling the streaming applications and Form M to ensure seamless and timely processing of forex application by manufacturers; granting concessional forex allocation at the official forex market to manufacturers for importation of productive inputs that are not locally available; unify the various forex windows in the country and allocating all available forex productively.

On the issue of regulation, the report from the body affirmed that multiple and overregulation by Government agencies have depressing effect on manufacturing productivity.

They argued that manufacturers have suffered multiple regulations on a single manufacturing process occasioned by the agencies of the Federal, State and Local Governments.

They opined that since the Federal Government has in its possession the Steve Orasanye Commission report on Harmonization and Rationalization of Government Agencies, it is important to commence full implementation of the content of the report backed with proper monitoring and evaluation.

The Manufacturing Chief Executive Officers, (CEOs) have also agreed that multiple taxes and levies charged by Government agencies have depressing effect on manufacturing production.

According to the CEOs, apart from the approved list of taxes and levies to be charged to companies as compiled by the Joint Tax Board (JTB), there are a large number of outside taxes, levies and fees that are charged to manufacturers by the revenue generating agencies of the government.

They therefore charged the Government to publish the list of taxes and levies compiled by the JTB and ensure that all charges to the manufacturing sector are legal.

They also recommended the reversal of the Value Added Tax Rate back to the pre 2020 Finance Act rate to improve the disposable income of Nigerian workers, stimulate consumption, promote an upsurge in demand and increase production output.

The Manufacturers have enumerated in the report the persistent inefficient operations of the Nigerian National ports in terms of accessibility and timely clearance of cargoes.

They lamented that the challenges at the national port are hydra-headed, ranging from the gridlock on the access road, delay in clearance of cargoes, high and undue demurrage, poor port equipment, among others.

The national ports, the report explained, serve as the gateway of national economy and so the efficient operation of the national ports is critical to industrialization and seamless operation of the manufacturing sector.

To address this unfriendly situation, they canvassed that the government needs to review the current status of the ports and address all port related challenges.

Unfortunately, notwithstanding the various port reforms by the government, they said, it is important to consider developing other ports outside Lagos State so as to decongest the Apapa and Tincan ports.

They further recommended improving on the time taken to clear container/cargoes clearance at the ports; installing  sound  trade facilitation equipment at the ports  such as scanners, etc, reducing the various port charges and removing  demurrage for undue delayed clearance;  resuscitating available rail tracks and constructing new ones and  linking them to  industrial hubs.

The report mentioned the Backward Integration (BI) and Resource-based Industrialization programmes of the government which was aimed at developing local raw-materials for industry use, but noted that the initiatives kicked-off promisingly, but slowed as government attention waned.

In addition, the Association observed that the much talk about development of local raw-materials reverberates during forex crisis and goes cold with the trickling in of forex.

Consequently, the MAN’s report harped on the need for government to refocus on the intertwined Programmes of Backward Integration and Resource-based Industrialization.

“These programmes should be directed towards the selection and development of key natural resources including solids minerals that provide high inter-industry linkages.

“It is also important that government encourages private sector investment in the development of local raw-materials with appropriate incentives and funding supports. And further encouraged the investment in the development of machines; iron and steel; petrochemical sectors to support manufacturing,” they emphasized.

Recall, the Federal Government had created the Executive 003 in recognition of the need for government establishments to give first choice to the made in Nigeria products in public procurements, but patronage of Nigerian manufactured products has always been an issue.

However, the report pointed out that there was no perceptible monitoring and evaluation procedure to enforce adherence by Ministry, Department and Agencies (MDAs) to the Executive Order.

“The general thinking has always been that government establishments do not adhere to the Executive Order during procurement.

“It is therefore important for government to consider strengthening the Executive Order by making it justiciable through legislation to ensure that all government establishments procure available Nigerian products first before sourcing from other countries,” they argued.

On the level of unsold manufactured products, it was discovered that during the entire year 2020 which marked the high-point of COVID-19 pandemic that aggregate consumption was at the lowest ebb due to loss of household and firm purchasing power resulting from unpaid salaries and contract sums.

It therefore advised that moving forward, it important that government provides a contingent buffer through appropriate saving to mitigate shortage of fund in similarly periods as CoVID-19.

“It is also important to promote industrial development in the country to assimilate the unemployed Nigerians, particularly those displaced by the COVID-19 pandemic. Government should also improve purchasing power in the country by carrying out ardent monetary and exchange rate management so as to allow the persistent inflationary pressure to decelerate,” it added.

The report scrutinized the effect on cost of production and distribution and disclosed that the increased fuel pump prices; and the sluggishness in the development of raw-materials locally accounted for the increased cost of manufacturing production and transportation logistics expenditures in the second quarter of 2021.

The report mulled that it is critically important that Government reviews its foreign exchange management procedures to ensure that all available forex are productively deployed into the economy.

It added that government should also ensure that adequate forex is allocated to the manufacturing sector through a preferential arrangement to enable the sector procure raw-materials and machinery that are not produced in the country at the moment.

The MAN’s report indicated that the regulation is capable of addressing to a large extent the current electricity challenge of the manufacturing sector, but noted that unfortunately, the Distribution Companies and their cohorts are doing everything within their powers to frustrate the initiatives.

“Therefore, we encourage the government to continue with the plan and create a platform where all stakeholders within NESI will deliberate on the implementation of the regulation and resolve all pending issues that have affected the seamless running of the Eligible Customer initiative; reviewing the current increment in electricity tariff as well as encourage investment in the electricity value chain, Generation, Transmission and Distribution.

The report also disclosed that there has been unbridled double regulation of Chemical materials by the Standards Organization of Nigeria (SON) and the National Agency for Food and Drug Administration and Control.

“We encourage the Government to streamline NAFDAC with the control of only for related chemical materials, while SON oversees non-food related ones,” the report recommended.

They charged the government to explore established means of addressing industry related issues and desist from using unorthodox means that is susceptible to excessive use of initiatives and subject to abuse; like the Police Authorities harassing manufacturers on issues such as debt owed to DisCos, CO2 Emission and others that are completely out of the scope of their mandate, for rent seeking purposes.

They urged government to fully implement the   report of the Steve Orasanye Committee on the Restructuring and Rationalization of the Federal Government Agencies, parastatal and Commissions as well as direct all Regulatory Agencies, especially NAFDAC to reduce the administrative charges to manufacturing companies by 50%.

Industry analyst opined that employment creation is a critical stronghold of the manufacturing sector in that through jobs, the sector is able to contribute to the society’s stability in terms of good standards of living.  However, the report under review indicated that manufacturing employment in the country remained very low in the second quarter of 2021 due to harsh macroeconomic environment.

According to the report “Production, capacity utilization and investment were all low in the quarter resulting to low employment level. Therefore, it is crucially important that government embarks on measures that will trigger investment and increased production so that the sector can create more jobs moving forward.”

On the impact of COVID-19 on volume of sales, the report sounds cheering as sales volume had increased in the period, just as was reported in the first quarter of the year, but macroeconomic environment in the second quarter remained harsh particularly as high inflation and unemployed persisted, leading low purchasing power of household and firms input procurement in the quarter.

It, therefore, suggested that it is important for the government to entrench proper monetary and fiscal management, particularly in the tax area in order to prop up consumption in the economy.

On impact of COVID-19 on shipping cost, the manufacturers reported high and multiple ports charges as the reason for high cost of shipment in the quarter under review, which was reinforced by the effect of erosion on the Naira value.

The report also charged the government to review the various charges at the national ports to ensure that only legal charges are paid on the cargo clearance processes by manufacturers.

The aggregate performance index of the economy in the second quarter of 2021, according to the report, consolidated on the achievement made in the first quarter after a very difficult period accessioned by the onslaught of COVID-19 pandemic.

“In the quarter under review, businesses activities appeared to have further stabilized.  Consequently, even though the macroeconomic variables (exchange rate, lending rate and inflation rate) are still very much unfavourable, businesses are able to maintain operation, particularly at the level it was in 2019 before COVID-19 came in 2020,” the report noted.

However, the impact of macroeconomic environment on movement in key manufacturing indicators (production & Distribution cost, capacity utilization, volume of production, Investment, Employment, Sales volume and Cost of shipment) was also investigated during the MCCI fieldwork in the quarter under review and the outcome was as follows:

1. Production and distribution costs increased by 21% in the second quarter of 2021 as against 22% increased first quarter of the year; thus, indication 1% decline over the quarters.
2. Capacity utilization declined by 8% in second quarter of the year as against 4% decline recorded in the first quarter.

iii.  Volume of production also declined by 8% in the second quarter of 2021  viz-a-viz 5% decline in the first quarter of the year.

1. Manufacturing investment declined by 15% in the second quarter of 2021 as against 17% recorded in the preceding quarter.
2. Employment declined by 9% in the second quarter of the year as against 14% declined recorded in the first quarter.
3. Sales volume declined by 8% in the second quarter of the year compared with 8% decline recorded in the first quarter.

vii. Cost of shipping increased by 20% in the second quarter of the year as against 26% increase observed in the first quarter.

By and large, it was observed that from the various trends the distortionary effect of COVID-19 pandemic on the macroeconomy is  fast retreating while the economy moves back to  the condition before the onset of the pandemic.

The report, however, noted that while production and distribution expenses are contracting, manufacturing investment and employment improving marginal in the quarter under review,  capacity utilization, production and sales are still sluggish which is attributed to  the erosion firms’ budget and households’ income by the persistent  high inflationary pressure on  the economy