Steel giant, Aarti’s proposed  exit spells doom for Nigeria’s ailing manufacturing sector

Cynthia Ezekwe

The recent announcement by Indian steel manufacturing giant Aarti that it plans to exit the Nigerian market has sent shockwaves throughout the country’s already struggling manufacturing sector. Once viewed as a vital catalyst for economic progress, this decision has cast a shadow of uncertainty over the future of Nigeria’s manufacturing industry, as the potential exit of one of the country’s leading players threatens to further weaken an already fragile sector.

Aarti’s decision to shutter its Nigerian operations has been directly linked to a host of obstacles facing businesses in the country, ranging from poor infrastructure and inconsistent policies, to a struggling economy, a volatile currency, spiraling inflation, and exorbitant energy costs.

The ripple effects of Aarti’s exit are far-reaching and profound. As a key supplier of steel products to the construction and manufacturing sectors, Aarti’s departure not only disrupts the supply chain but also leaves a gaping hole in Nigeria’s manufacturing landscape.

The potential sale of Aarti, the Indian-owned steel manufacturer, has been the subject of speculation in the industry, with unverified sources hinting at a potential acquisition by African Industries or Bharti for a price ranging from $50 million to $100 million. While the details of the possible transaction remain shrouded in secrecy, insiders suggest that the process could be concluded within a matter of months, revealing the extent of Nigeria’s desirability as a market for foreign investors despite the country’s challenges.

In 2017, Aaarti spent $20 million to $30 million to establish a 120,000-capacity cold-rolled mill in Ota, Ogun State, to serve Nigeria’s downstream players using the steel to produce home appliances, roofing sheets, metal furniture and filing cabinets, tables and chairs, among others, however, it has been disclosed that  the company’s indebtedness was high and suppliers were worried that timelines for delivery had been missed several times, which is a major reason for its proposed exit.

On a quarter-on-quarter basis, growth in the basic metal, iron and steel subsector of the manufacturing industry slowed to 0.57 in the first quarter of 2024 from 1.1 percent in the fourth quarter of 2023. On a year-on-year basis, it grew by 0.11 percent from 0.46 to 0.57 percent.

Based on the worrisome trend, industry experts warn that the exit of multinationals is  a harbinger of worse things to come for Nigeria’s manufacturing sector, noting that foreign exchange rates will continue working against the Naira as long as Nigeria is operating an import-driven economy

The manufacturing sector in Nigeria suffered many setbacks in the past year, as the Manufacturers Association of Nigeria (MAN) has said that 767 manufacturers shut down operations in the year 2023.  This came against the backdrop of exchange rate volatility, rising inflation and other economic challenges that have worsened the investment climate.

In a media chat, Segun Ajayi-Kadir, director general of MAN, attributed the issue to  numerous challenges manufacturers face in the country’s difficult operating environment, while calling on the  government to take immediate action to address issues like poor infrastructure, inconsistent policies, and limited access to finance.

“Manufacturing in any economy is a strategic choice and the government must decide if it wants the country to be industrialised. If so, it must take all necessary steps to remove the binding constraints that hinder the sector’s performance. Nigeria has not done so, so we see closures,’’ he said.

Ajayi-Kadir also  explained that the continued naira depreciation against the dollar and the general forex volatility are forcing manufacturers to have a rethink, noting that no genuine manufacturer could operate successfully and make a profit under the current scenario, whereby the naira has been falling sharply more than expected in the country.

“These had put many manufacturers in a great dilemma in the current year as they are applying brakes on production by watching keenly events in the country to know if there would be an improvement in sales in order to create space for fresh production for the year,’’ he added.

The MAN DG  bemoaned that with the rapid depreciation of the naira in recent weeks, manufacturers have continued to grapple with high production costs which has led to decreased capacity utilisation, adding that the issue for manufacturers is further compounded by the uncleared forwards by the Central Bank of Nigeria (CBN), which have made several operators lose billions of naira.

He noted that the steel industry is highly vulnerable to the negative impact of these challenges, noting that most of the operators in the industry are struggling to survive.

Despite the apparent setbacks, Ajayi-Kadir, struck an optimistic note, emphasising that the country must turn this into an opportunity by placing the spotlight on homegrown manufacturers. With major industrial players exiting the country’s market, the MAN DG contended that the situation represents a clarion call for the country to  empower its domestic manufacturing sector

“I think there is a strong lesson to be learned here,” he said. “The big ones leaving are the multinationals, which should send a clear signal to the government. We need to be strategic in what we promote. He is unlikely to go anywhere if you have a challenged local manufacturer. That is why we say foreign direct investment is excellent, but it should come secondary to empowering the local investor, the existing manufacturers because that is what is enduring,” he added.

The MAN DG reiterated his concern about the future of the manufacturing sector in Nigeria. He urged for clear and decisive action from the government to prevent further exits and ensure the sector’s growth.

“The government should also open new windows for us to source our credit at rates that are not lower and that are not higher than five per cent. These are very quick wins that the government can do that can lower the pressure that is upon the manufacturing sector,” he said.

Jimoh Oyibo, the president of Food Beverage and Tobacco Senior Staff Association of Nigeria (FOBTOB),attributed the  mass exit of firms to multiple taxation, dwindling electricity supply, high cost of diesel, fuel and high cost of gas to power their machines.

Oyibo explained that over 325 people have lost jobs within a few months, while  calling on the government to involve industry stakeholders in policy-making decisions.

On his part, Gbenga Komolafe,  the general secretary of Federation of Informal Workers of Nigeria (FIWON) explained that the mass exodus to harsh business environments such as, electricity, inability to restock shops after sales, especially by people in the confectionary sector.

Komolafe attributed the huge loss of revenue to inability to sell finished products,  adding that non -sale of finished products as a result of lack of purchasing power of consumers, multiple taxation, inability to transport finished products are reasons for shutting down of many businesses.

Adeyemi-Smatt Oyerinde, director general of the Nigeria Employers Consultative Association of Nigeria (NECA), described the present situation of the country’s manufacturing landscape as one that calls for a serious revamp, noting that hundreds of companies have either left Nigeria, shut down, or changed their business model in just three years.

The alarming trend, Oyerinde noted, has affected notable companies like Jubilee Syringe Manufacturing, Procter & Gamble, Unilever Nigeria Plc, PZ Nigeria Plc, GSK Nigeria Plc, Sanofi Pharmaceuticals, and many others, including multinational giants like Microsoft and Equinor, adding that  the cumulative loss from unsold products has reached an estimate of  N1 trillion.

The NECA DG appealed to the federal government for urgent intervention to protect the country’s workers. With the situation rapidly deteriorating, and the specter of unemployment looming ever larger,he underscored the dire need for government action to help Nigerian workers weather this storm, advocating for policies that will preserve their jobs and alleviate the hardships of the challenging economic climate.