Sharp upswing for locally produced commodities on low consumption, smuggling, counterfeiting

Inventories of unsold finished goods, locally manufactured in Nigeria rose by 255 percent to a total of N321.12 billion in 2017 from adverse influences of low real consumption rate in the economy, a result of high inflation rate; smuggling and counterfeiting, the Manufacturers Association of Nigeria has said in a report reviewing the economic indices that shaped commodities’ performance in 2017.

The poor development was also attributed to the weakness in the economy occasioned by the delayed passage of the national budget in 2017, a situation that is likely to repeat this year as the budget is yet to get presidential consent.

The second half of the year under review recorded an increase of N126.11 billion from N35.42 billion in the corresponding period in 2016 to N161.53 billion. It also increased by N1.94 billion when compared with N159.59 billion recorded in the preceding half.

Giving a sectoral analysis of the category of commodities that constitute the unsold inventories, the report indicated that basic metal, iron, and steel fabricated metal group covered N31.39 billion or 19.4 percent; chemical and pharmaceutical sector N25.87 billion or 16.0 percent, food, beverage and tobacco N20.7 billion or 12.8 percent and domestic and industrial plastic, rubber & foam N20.54 billion or 12.7 percent.

Basic metal, iron, and steel fabricated metal rose to N31.39 billion in the review period from N5.53 in the second half of 2016, indicating N25.85 billion increase. It also increased by N21.59 billion when compared with N9.8 billion recorded in the preceding half.

The rise in the sector was generally attributed to the glut in global market following US protection of its steel sector, and poor market condition in Nigeria’ steel market as the prevailing market price offered less compensation on the cost of production in the period under review.

Muda-Yusuf, the director-general Lagos Chamber of Commerce and Industry (LCCI), reacting to the analysis in a telephone interview with business a.m., said the indices reflected a disenchanting reality that the Nigerian manufacturing sector is one of the most vulnerable sectors in the Nigerian economy, noting that the operating environment for manufacturing has made the sector very uncompetitive.

Over the years the sector has been grappling with challenges of high energy cost, exchange rate, inflation, high-interest rate, dumping and counterfeiting, smuggling and weak purchasing power, which the DG explained has been responsible for the persistently less than 10 percent contribution of manufacturing to the gross domestic product, (GDP).

He also faulted the sector for overly relying on importation for raw material and other input sourcing, saying it was one of the factors that make the sector vulnerable, especially to an external wave of events.

On the path of the government, there are certain strong interventions and policy formulation needed to be embarked on to effectively scale up production capacity and address the concerns of manufacturers, Yusuf said, stressing that it is imperative to create the incentive for the manufacturing sector to be more inward-looking because the greater the degree of backward integration, the better will be the competitiveness of the sector.

“Although this may take some time, you need to deal with infrastructure issues. There is no country that has industrialized without infrastructure. It is critical if we really want to move the manufacturing sector forward. That is why if you look at the sector; the most successful are the behemoths. All the medium and small firms are really gasping for breath because they cannot withstand the shocks of the investment environment. Then we need to look at the funding environment, it is difficult to promote the manufacturing enterprise with an interest rate of between 25 to 30 percent, in some cases 35 percent. So there is also a need to expand the scope of intervention fund for the manufacturing sector so that they can have funds that are more competitive,” he said.

He further suggested that the government should adopt an attitude of supporting the sector through the patronage of what is produced locally, explaining that it is easier for the government to do so as a major player in the economy with the capacity for huge procurement than to persuade the citizen to do it.

Touching on the need for security agencies to be more effective at the ports and border in order to minimize the problem of smuggling and dumping and counterfeiting, he suggested the introduction of stricter sanctions against businesses or individuals or companies that indulge either in smuggling or counterfeiting products existing in the country.

According to the report, inter-zonal activities showed that significant proportion of inventory was observed in Ogun zone with N60.59 billion value, Ikeja zone of Lagos N46.15 billion and Apapa zone N39.16 billion.

The situation in Ogun state was particularly ascribed to the poor road network, in that most industries in Nigeria such as iron and steel, cement as well as plastics are located in the zone. The inventory in the zone rose marginally to N60.59 billion in the period from N6.07 billion in 2016; indicating N54.52 billion increase over the period. It however declined by N5.77 billion when compared with N66.36 billion recorded in the preceding half.

Regarding the value of manufactured products, the association’s estimate stood at N5.03 trillion against N5.02 trillion recorded, an increase of N27 million when compared with N4.76 trillion recorded in the preceding half.

Production totaled N9.79 trillion in 2017 against N8.78 trillion total of 2016; indicating N0.01 trillion increase over the period. The production performance of the sector in 2017 was due to the relative stability in the forex market and improvement in the general ease-of-doing-business within the review period.

Sectoral analysis revealed that, production increased in textile, wearing apparel, carpet, leather and leather products; non-metallic mineral products; electrical and electronics; and basic metal, iron and steel sectoral groups.

Production in textile and related products increased to N25.03 billion from N24.9 billion recorded in the second half of 2016; showing N0.13 billion increase over the period, while the value of production in the sector totaled N48.21 billion in 2017 against N43.59 billion recorded in 2016.

In the non-metallic and mineral products sector, production increased to N88.87 billion in the review period from N82.44 billion in 2016; indicating N6.43 billion. It also increased by N7.89 billion or 9.7 percent when compared with N80.98 billion recorded in the preceding half, while the value of production totaled N169.85 billion in 2017 as against N150.74 billion in 2016.

Electrical and electronics production value in the period under review increased to N60.47 billion from N52.93 billion recorded in 2016, indicating N7.5 billion or 14.2 percent increase over the period. The value of production in the sector increased to N112.36 billion in 2017 from N100.72 billion, indicating N11.64 billion or 11.6 percent increase over the period.

Basic metal, iron and steel production increased to N207.12 billion from N202.98 billion recorded in the corresponding period of 2016; thereby indicating N4.14 billion or 2.0 percent increase over the period.

It also increased by N5.79 billion or 2.9 percent when compared with N201.33 billion recorded in the preceding half. Production value in the sector increased to N408.46 billion in 2017 from N337.25 billion recorded in 2016; thereby indicting N71.21 billion or 35.4 percent increase over the period.

Analysis across industrial zones revealed that production value increased in Apapa, Imo, Abia, Edo, Rivers, Oyo, Ondo, Osun, Ekiti, Kano, Sharada, Challawa, and Kaduna, while Ogun and Ikeja declined in the period under review.

In respect of local sourcing of raw materials, the trend was sustained among manufacturers in the second half of 2017, due to increased implementation of resource-based industrialisation and backward integration policy of the government. The utilization increased in all sectors to 65 percent from 59.98 percent in 2016; indicating 5.71 percentage point increase over the period.

In the woods and wood products sector, raw-material usage increased to 70.1 percent from 58.75 percent in 2016, an 11.35 percentage point increase over the period; whereas chemical and pharmaceutical sector increased local raw-materials utilization to 62.6 percent in the second half of 2017 from 55.39 percent recorded in the corresponding half of 2016; indicating a 7.21 percentage point increase over the period.

Raw material sourcing in the sector averaged 58.9 percent in 2017 as against 44.4 percent recorded in 2016, indicating 14.5 percentage point increase. Local raw-materials in non-metallic mineral products sectoral group increased to 70.5 percent from 60.08 percent, indicating 10.4 percentage point increase over the period. It also increased by 10.6 percentage point when compared with 59.9 percent recorded in the preceding half. Local raw-materials utilization averaged 65.2 percent in the sector in 2017 as against 63.5 percent average of 2016; thus indicating 1.7 percentage point increase over the period.

For the motor vehicle and miscellaneous assembly, sourcing rose to 59.4 percent in the second half of 2017 from 49.9 percent in 2016; while on the annual basis, it averaged 49.7 percent in 2017 as against 34.8 percent recorded in 2016; thereby indicating 14.9 percentage point increase over the period.

In the second half of 2017, utilization in domestic and industrial plastics, rubber and foam increased to 65.8 percent; electrical and electronics increased to 64.1 percent, while food, beverage, and tobacco sectoral group stood at 69.3 percent.

Analysis based on industrial zones showed that utilization increased in Edo, Imo, and Kano, Ogun, Lagos, and Kwara. Conversely, Kaduna, Enugu/Anambra, Rivers and Abuja zones declined in the utilization of local raw-materials in the review period.