ERGP: Power Sector Woes, Forex Scarcity, Others, Constrained FG From Achieving Manufacturing Target-Investigation
The Federal Government could not achieve its target to grow Nigeria’s manufacturing sector by 10.6 per cent by 2020 based on its projections contained in the Economic Recovery and Growth Plan.
The shortfall came despite the over N35.99trn credit injected into the manufacturing sector between the first quarter of 2017 and the third quarter of 2020.
The FG had in 2017 launched ERGP with focus of building a resilient economy outside the oil sector, with a seven per cent target growth in the Gross Domestic Product over the period.
The target of the plan for the manufacturing sector was to accelerate growth in the short term through policies to improve the usage of existing capacity, through increased availability of foreign exchange.
The manufacturing sector according to the National Bureau of Statistics comprises thirteen activities which include: Oil Refining; Cement; Food, Beverages and Tobacco; Textile, Apparel, and Footwear; Wood and Wood products; Pulp Paper and Paper products; Chemical and Pharmaceutical products.
Also, the sector is made up of non-metallic Products, Plastic and Rubber products; Electrical and Electronic, Basic Metal and Iron and Steel; Motor Vehicles and Assembly; and Other Manufacturing.
As at the time the ERGP was drafted, the growth in the sector stood at 4.38 per cent in the third quarter of 2016, while in the full year it fell to 4.32per cent.
The Federal Government had said the persistent contraction in the sector was due to infrastructural bottlenecks and an uncompetitive business environment, which was expected to be tackled over the four year lifespan of the ERGP.
The government had blamed the contraction recorded in previous years particularly the 4.38 per cent in the third quarter of 2016 on the difficulty of accessing foreign exchange to import intermediate goods and raw materials, and falling consumer demand.
Poor infrastructure and an unfriendly business environment were also mentioned by the FG as the reason for the slow growth in the manufacturing sector.
Consequently, FG said the major strategy adopted by the ERGP was to accelerate the implementation of the National Industrial Revolution Plan through Special Economic Zones.
According to FG, the ERGP was expected to focus on priority sectors to generate jobs, promote exports, boost growth and upgrade skills to create 1.5 million jobs by 2020.
It was learnt that a revitalized manufacturing sector would create jobs, stimulate foreign exchange earnings and grow micro, small and medium enterprises.
Based on the plan, FG said the manufacturing sector will grow from 5.8 per cent contraction to 10.6 per cent by the end of 2020. The sector’s average annual growth was estimated at 8.5 per cent according to the plan.
But findings by THE WHISTLER revealed that as of the end of the third quarter of 2020, the manufacturing sector fell to -1.15 per cent, against the set target growth of 10.6 per cent in 2020.
According to the NBS latest report, the 8.93 per cent was recorded in the third quarter of 2020.
In 2019, the sector’s growth in the fourth quarter was 8.74 per cent, while the real annual growth stood at 0.77 per cent in 2019. The sector’s contribution to the GDP was 9.06 per cent in 2019.
In the fourth quarter of 2018, the real GDP growth in the manufacturing sector was recorded at 2.35 per cent, while the annual growth rate was 2.09 per cent in2018.
The sector’s contribution to real GDP in the fourth quarter 2018 was 9.20 per cent.
In 2017, the real GDP growth in the manufacturing sector in the fourth quarter of that year was 0.14 per cent, while annual growth went down to -0.21 per cent by the end of 2017.
Real contribution of the sector to the GDP in 2017 fourth quarter is 8.88 per cent with an annual contribution of 9.18 per cent in 2017. The contribution was lower than the growth rate before the ERGP came into place which was 9.28 per cent in 2016.
Reacting to the development, the Director-General, Lagos Chamber of Commerce and Industry, Muda Yusuf told THE WHISTLER that since the introduction of the ERGP, the challenges facing the sector has not been addressed to allow the sector grow at the projected pace.
The DG said, “The issue is that the challenges that the manufacturing sector has been facing and is still facing have not changed. That is why there has not been any significant improvement in the sector and the daily challenges are challenges of infrastructure because manufacturing depends a lot on the quality of infrastructure.
“The power situation between then and now has not improved significantly; the transportation infrastructure has not improved significantly, talking of the roads, the rail ways.
“The ports situation has even degenerated and the manufacturers also have a lot to do with the ports, because they import a lot of raw materials and machinery.
“So I think the main issue has to do with the cost of the operating environment of the manufactures.”
The LCCI boss admitted that over the years there has been lots of funding and support from the government to the manufactures.
On Government’s target to improve the supply of foreign exchange, he said the case has become worse than expected.
“Foreign exchange has become a major issue for them. A lot of them are not able to get foreign exchange to import raw materials. Over the last few years, there had been serious depreciation in the exchange rate which is also affecting their cost of production, because majority of them, over 80 per cent are heavily dependent on imported raw materials.
“So, as exchange rate depreciates, it affects their cost and as their cost goes up, some of them may not be able to survive,” said Yusuf.
The LCCI Boss said this is because the manufacturers cannot pass on all the forex related costs to consumers.
He said companies that are able to survive in the sector are only struggling, adding that “in the midst of all of these , they are facing competition from all manner of products coming from the Asia, especially China.”
Yusuf said the flooding of the market with such products is also affecting the market share of struggling local manufacturers.
He also listed taxations, levies and custom duties as other critical impediments to the growth of the sector.