Nigerian environment too harsh for manufacturing – Oshinowo

The manufacturing sector, particularly the small and medium enterprises sector, holds the key to Nigeria’s economic transformation. But as much as the entreprenuerial spirit tries to redefine the economic landscape and wake-up the giant in Nigeria, it no doubt has a myriad of problems to contend with.

However, Dr Olusegun Oshinowo, Director General, Nigeria Employers Consultative Association (NECA), the organisation, whose members bear much of the debilitating pains, recently confirmed that the cost of doing business in Nigeria is high and quite challenging. According to him, much of the problems come from inefficiency in the management of fiscal policies of government. He speaks more on various issues plagueing the real sector of the economy. Excerpts:

Appraisal of 2012 fiscal year

Basically, it is the same old story. There has not been any significant improvement in the nation’s productive base. I can tell you that capacity utilisation has not risen significantly beyond what it used to be. The real sector actually is yet to wake-up and contribute significantly to the GDP, even though government statistics indicate that we’ve posted a reasonable GDP growth of 6.5 to 7 per cent. The key contributor to that growth in terms of sector is not the real sector or the manufacturing sector.

The manufacturing sector is still grappling with basic problems of insufficient infrastructure and high cost of funds. So, to a large extent, one cannot really say that year 2012 was significantly better than the previous years. For instance, the economy is still predominantly dominated by the oil and gas sector. Though, agriculture is said to have made significant contribution to the GDP, the truth is that some of us very much doubt that. But given the fact that agriculture is still not mechanised, one would have expected significant improvement in the agricultural sector to have translated to improved employment, but we cannot really see that.

If we are saying the economy has done pretty well, one would have expected that it would translate into higher employment or reduced unemployment. Despite the numbers, we cannot really put our fingers on it in terms of what the captains of this economy – the managers of this economy – are making us to believe and, the reality on the ground, especially what I will call wrong focus of judging the health of our economy by the performances of the big players, and multinationals.

When people go through the newspapers and they see the results of the multinationals, and because some of them have posted healthy balance sheets, they equate it to a healthy economy. I think that’s simply erroneous because for every multinational, there would be a thousand SMEs. We should be asking ourselves, ‘how are those SMEs faring. And, indeed, if we are to collect data of the mortality rate of SMEs, we would really be shocked about the number of businesses that must have gone under in the last 10 years. So, in one breath, it’s pretty difficult for new businesses to come on stream in this environment.

How 2012 eroded business confidence

Well, we’ve got to be hopeful, we’ve got to be hopeful because there has been some  improvement in the power supply, though not too significant. But we must acknowledge the fact that there has been some improvement, even if the improvement were invoked. The token improvement is not significant enough to actually impact on the productive base of the economy and that is the truth. So, we have to be careful in celebrating the token improvement. We will acknowledge it and it is important.

Truth demands that we acknowledge that there has been some improvement. But the improvements are not significant enough to bring about an enabling environment for Nigerian businesses.  So there is still a big issue there, until we are able to create a climate, a context where the improvement in power will be that significant as to impact on the productive base of the economy, then we can talk of an improvement. The power reform is on track, even though slow, it has suffered some hiccups, but we hope they could probably fastrack the reform. They need to fastrack the reform of the power sector.

Impact of power shortages on manufacturing

We are not as competitive as we ought to be from the micro perspective to the national view of our economy, we are not as competitive as we should be for the economy because of the high cost of doing business here. The cost of doing business is high, hence we are not as competitive as we should be. Secondly, it has an inflation element because whatever cost any manufacturer, or business incurred, in making sure that it guarantees the source of power, would be passed on to the consumers, so there is inflationary element there.

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There is an inflationary element there. It has a transfer cost to cost of fund, in accessing fund from the bank because Central Bank (CBN) is extremely careful in beating the interest rate below inflation. There is a kind of connectivity which our inability to get the power sector right has caused in terms of huge inefficiency. So its quite key to our moving forward. It’s extremely key to our moving forward.

How FG can improve economy

Well, we must give them kudos for the way they are managing the exchange rate of the naira, which has been quite stable. To a large extent people can plan and make their projection. In that regard, they have done very well. Again to some extent, they’ve been able to manage the benchmark for some funds from the CBN. But when you look at the fiscal policy aspect, there are still a lot of challenges that government needs to tackle. Take the case of taxation, multi level taxation has a lot of implication on cost of living.

Some people will want to argue that on account of our governance structure, you cannot avoid multiple level of taxation. Yes to some extent that is true, because our constitution has empowered federal, state and local governments to charge levies. But there is a difference between multiple level taxation and full variation of taxation. I think there are duplications of some of the taxes, and I am talking from the fiscal aspect now and that in itself is not good for business. I think sometime ago, Manufacturing Association of Nigeria (MAN), in fact did a survey of the numbers of taxation which businesses have to grapple with and it was a very long list of taxes.

When you even compare some of those statistics, you could easily see duplication in some of those things. So one would expect government to take a look at that area and streamline them. Yes we do appreciate the fact that the other tiers of government are pressed for resources and are trying to improve their Internal Generated Revenue (IGR), but it should not be at the detriment of the continental price and entrepreneurship, there must be a healthy balance between the two.

The second issue has to do with cost of governance because when you look at your budget, what percentage have you allocated to recurrent expenditure, vis-a-vis capital expenditure. Capital expenditure is required to improve infrastructure. Meanwhile recurrent expenditure is taking the lion share of available resources. That equally has implication for growing the economy and the private sector because if the infrastructure is not in the right state, it would increase the cost of doing business and will make the environment unattractive for foreign businesses.

Implications of security challenges on business climate

The Boko Haram issue is really a national problem and we must recognise that. Yes, we conducted a survey on how the Boko Haram has impacted on the businesses of our members to the extent that some of them have had to close down their outlets and relocated to safer destinations in order to still access the market. The truth of all these is that the market is still there for those products, but it’s no longer safe for owners of businesses to continue to do businesses in some parts of the country. Yes quite a number of businesses had to close shop, but that has not stopped them from accessing the market.

Though to a large extent one cannot really say that it has impacted significantly on turnover, the only thing is that most businesses have had to sit down and come out with a new model for accessing that market without subjecting their employees and their assets to unnecessary risks in such environment. So we must recognise that fact. Again I also want to believe that quite a number of migration from the worst affected part of this country to other parts and most businesses would have taken that into account in terms of where to move their products to because in those worst hit areas one would expect less consumers in those areas.


But those consumers hardly would want to relocate to a place not too far from where they have been used to. So at the end of the day I will not want to believe that the impact is that significant for a business to lose revenue.

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Influx of foreign products

We are an unserious country because we’ve not gotten our priorities right. We are an unserious country that has failed to recognise the connection between employment and industrialisation. That’s why I say we are an unserious country. A country that will promote a policy that will create employment outside its shore, cannot but be an unserious country. That’s just the truth about it.

Yes of course I am aware of our WTO commitment, but there is a way by which we can manage that in order to take full benefit of our huge market and translate it into employment for our youths. What I am about to say is not new because a lot of workers have known about it. Way back in 1985, I could remember, there was a workshop, which was held at ASCON in Badagry, the purpose of which was how we can promote local production of some of the products we used to import.

Eventually they labelled the  outcome of that workshop, ‘Imported Raw Materials Revision Programme’ and the whole idea was to energise domestic productive capacity to substitute imported raw materials and imported products. And a lot of plans were drawn with time frame. If we have followed that, the level of our unemployment today would have improved than what we are talking now. I could remember some of the issues that were covered in the imported raw materials issue. Take sugar for instance, then Nigeria was importing close to about 900,000 to 1 million metric tons of sugar, and we had only two or three refinery if my recollection will serve me right. We have Savannah Sugar, and Nigeria Sugar Company in Bacita. Those were the only two, refining sugar, so the bulk of the sugar were either being imported in cube form or granulated form.

Those that were imported in granulated form, they were later cubed, but the real issue is that there was a plan that would ensure that in 20 years from that point would have reduced the quantity of sugar imported. If we have done that, it would have multiplied the number of the refineries. That would have created significant employment. There was also a time if you recollect when government banned the importation of malted barley and the breweries were forced into backward integration. The breweries went to the middle belt to acquire large acres of land to cultivate maize and sorgum and shortly after that Nigeria became a leading country in sorgum technology.

Then the initial position was that it’s not possible. But on account of survival, the breweries started with integration, they invested in malted technology for malt, sorgum and maize. We created our own here, then what has happened to those ideas. So if we are talking about our market being saturated with those finished product, it’s because the demand is still there. You cannot deprive people access to what they will get, you can’t deny them access to what the will have. Can your local economy produce it?

That is the starting point, what quantity can your local economy produce?. Like the case of sugar which I mentioned, we are importing close to about 95 per cent to 97 per cent, which borne out of need and so nobody should be blamed for that because the household and factory require sugar. The answer to it if you want to reduce it is to create an environment where local producers would be encouraged to produce those things. So there are two aspects to it, including protecting the local producers. It is only when you protect the local producers that you will be able to guarantee employment for your citizens.

Secondly you need to guard between your demand and domestic capacity. Thirdly you need to sit down with local producers and agree on plans that will ensure that over a time frame the local producers can be able to cover the gap between demand and supply. There are various ways by which government can do that which may include using import duties, or using special levies without necessarily placing a ban on those things to encourage local producers to graduate from one level of production to the other until they will be able to account for probably 95 per cent or 97 per cent of the local need. If we follow that path, we will be talking of a far more industrialised Nigeria now.

Those are two examples of policy options we should have embraced to fully harness our huge market, we should have gotten to where we are . That’s what we have, it’s an advantage to this economy, our huge market but instead it’s foreign economies that are taking advantage of the huge market by providing employment to those places where those products are being exported.

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Expatriate quota problem

First we must recognise the fact that there are rules and regulations governing the issue of expatriate quota. Every company that is doing business in this environment that requires expatriates must respect these regulations. Yes we have rules, we have regulations, we have laws that any company that wants expatriate quota ought to comply with. Secondly we must recognise the fact that we have an institution, whose duty is to ensure that anyone that has brought in an expatriate into this country has complied with the law of the land. So all those things about the quality of the expatriates, all those things about the need to develop Nigerians to take over from the expatriates. It is the responsibility of the institution that has been set up to make sure that those who have brought in the expatriates comply with the law.

Now we cannot actually say that there is 100 per cent compliance with the law as an organization but we preach to our members to comply with the law of the land. We are not the inspector, we don’t even have the capacity to inspect, and beyond the fact that we don’t have the capacity to inspect, we don’t have the statutory backing to do that job and we equally don’t have the authority to compel them. So we often depend on advice and moral suation to get them to comply. The question we should be asking really is that the institutional and body that has been set up to make sure that any company that has gotten an expatriate into the country, how far have they feared. That’s the question we should be asking.

Employee/employer relationship

Our industrial relations practice is just like our economy. They are on crutches, they are limping! That is the truth about it. Our law, our structure have not kept pace with economy dynamics. A lot happenings in the economy over the past 25 to 30 years that the current leaders framework has not been able to acts disciplined, of course you don’t expect it to act disciplined. So on account of that, industrial relations system as far as I am concerned is going through a phase of decadence.

Its going through a phase of decadence and just as we are talking of reform in all sectors of the economy, industrial relations system of Nigeria requires reform and all the signs are there to indicate that our system requires reform, when you look at the high incidence of strike in this environment, when you look at failed or failing collective bargaining, structure in the public sector, when you look at the gradual irrelevance of the industry wide collective bargaining structure, nobody needs to be told that our system requires reform. When you equally look at the diminishing capacity of the Ministry of Labour to carry out its responsibilities, nobody needs to be told that our industrial relations practices are in moribound state.

When you look at the failure of tripartite body, like the National Labour and Advisory Committee to meet based on the constitution, nobody needs to be told that our system is in bad shape. What we’ve been given really to see is that the rules of law cannot be reported on account of that decadence. Rights of employees and rights of employers are under seige.

I said rights of employees in which case there are employers that are doing things which they should not do and there are also trade unions that are doing what they should not do as far as employers’ rights are concerned. Those are really big issues that nobody seem to be addressing.  That’s the pain of it. Nobody has come forward to say I want to champion reform in the area of industrial relations. Now the question I want to ask is that as one of the tripods. NECA has done was to alert the Federal Ministry of Labour on the decadence state of industrial relations in Nigeria and the imperatives for reform and nothing has been done. It is indeed sad that nothing has been done.



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