Manufacturing In a Depressed Economy

A robust manufacturing sector is fundamental to the diversification of the economy. But the sector, which is credited with the greatest capacity to create jobs, generate wealth and engender sustainable growth and revenue expansion, is at the crossroads. The fiscal and monetary policies and lack of infrastructure are taking a huge toll on manufacturing, with the fear that more companies may close shop, if steps are not taken to stem the tide.

Despite their resolve and will to survive, manufacturers face bleak prospects. The challenging fiscal and monetary policy environment and lack of supportive infrastructure have continued to put tremendous pressure on businesses, resulting in declining productivity and competitiveness.

For instance, because of lack of infrastructure, particularly power, manufacturers spend an estimated N500 billion yearly to run and maintain their power plants, according to the Chairman, Economic Policy Committee (EPC) of the Manufacturers Association of Nigeria (MAN), Reginald Ike Odiah, an engineer.

Odiah, who is Managing Director/Chief Executive Officer, Bennett Industries Limited, said the huge cost of providing alternative electricity is responsible for high production cost. He said it is also responsible for the low contribution by the real sector, especially manufacturing to the Gross Domestic Product (GDP).

For instance, while Nigeria’s real sector contribution to GDP stands at 9.5 per cent, those of the United States of America (US) and China stand at 35.6 per cent and 49.5 per cent. “Manufacturing cost in Nigeria is twice that of Ghana, four times that of South Africa and Europe, and nine times that of China and Malaysia,” the industrialist said.

Odiah, who spoke at a forum organised by MAN in Lagos, also said the high cost of production is the reason local and foreign investors lost interest in investing in the country, closure of factories and migration of the few surviving ones to greener pastures. He said this has resulted in job losses, with attendant insecurity and rising crimes.

Also, because of rising energy cost, most manufacturing firms in Nigeria are contending with falling profit margin, which remains a major threat to business sustainability and global competitiveness.

The President of MAN, Dr. Frank Jacobs, lamented that manufacturers are paying for electricity not consumed.

“In spite of the poor energy situation in the country, NERC has maintained increased electricity charges not considering its implication on the economy, especially the productive sector,” Jacobs said, adding that in spite of the high tariff from the Nigeria Electricity Regulatory Commission (NERC), manufacturers spend much on alternative energy sources for production. Read more…

By CHIKODI OKEREOCHA

Culled from The Nation