For over four decades, no one knew how Dunlop Nigeria had been struggling to manufacture and sell its Made in Nigeria truck and car tyres. Having struggled to survive for 47 years, in 2008, the popular tyre manufacturing company permanently placed a huge padlock on its factory located in Ikeja, Lagos.
Yes, the subsidiary of the Dunlop Group shut down operations in Nigeria, rendered thousands jobless and brought an end to the token it adds to the nation’s economy. Why did Dunlop Tyre leave? The reasons are not far fetched; inconsistent government tariff policies and poor power supply. And these are the same reasons why many other Nigerian manufacturing companies are leaving the country.
Nigeria holds the record for the first African producer of cement and once notably ran factories across the agro-industry, electrical and petroleum equipment. Following the discovery of oil, and its boom in the 70s, the country’s economic growth has remained solely dependent on the oil industry.
According to World Bank projections, by 2050 Nigeria’s population is likely to hit around 400 million, with about seven new cities springing up.
With the expected growth and Nigeria’s worsening economic stand, the country needs to revisit the abandoned manufacturing sector.
The Nigerian manufacturing sector so far
Throughout the 1990s and 2000s, Nigeria’s overreliance on oil export made production from the manufacturing sector drop significantly. Most manufacturing firms were not export-orientated and they lacked competitive efficiency, causing the competitive companies to relocate their factories abroad. A few key industries such as beverages, textiles, cement, and tobacco kept the sector afloat but even those companies were operating at half of their capacity.
While agriculture’s relative share of GDP was falling, manufacturing’s contribution rose from 4.4 percent in 1959 to 9.4 percent in 1970, before falling during the oil boom to 7.0 percent in 1973, increasing to 11.4 percent in 1981, and declining to 10.0 percent in 1988.
The Nigerian Enterprises Promotion decrees of 1972, 1977, and 1981 limited foreign ownership shares in various industries, thereby shifting the manufacturing sector from foreign majority ownership in the 1960s to indigenous majority ownership in the mid-1970s and late 1970s. Foreigners were obligated to sell ownership shares to Nigerians.
Fast forward to the period between 2000 and 2008, Nigeria experienced its worst situation in manufacturing as 820 companies shut down or suspended production (Data presented in this paragraph are taken from the Manufacturers Association of Nigeria (2009). The data further revealed how the textile and garment sub-sector was the worst-hit. At its peak, the textile industry alone employed nearly 700,000 people (making it the second-largest employer of labour in Nigeria after the government) and had a turnover of $8.95 billion. The industry witnessed a catastrophic collapse from 175 factories in the mid-1980s to ten factories in stable condition in 2004.
However, the Nigerian manufacturing sector expanded for nine straight months beginning in April 2017, according to the Purchasing Managers’ Index report of the Central Bank of Nigeria (CBN). Some economic analysts attribute this recent growth in the manufacturing and non-manufacturing sectors of the economy in the last nine months to the CBN’s release of a new foreign exchange policy in February to stem the widening gap between the inter-bank foreign exchange and parallel market rates.
Some manufacturing companies stood fast. Dangote Group, founded by Aliko Dangote, runs a diversified conglomerate with an annual group turnover above US$3 billion (2016). The company has multiple operations across Nigeria and other African countries that sell commodities such as cement, spaghetti, seasoning cubes, and flour.
Another notable example of a thriving manufacturing SME in Nigeria’s manufacturing sector is Reel Fruit, owned by Affiong Williams. They are a first-of-its-kind snack company that offers dried fruit snacks made here in Nigeria (the fruits are dried in Ogun state but are packaged at their top-notch facility in Lagos). They have a range of 5 products which include Mango, Cashew, Banana, Pineapple, and Coconut.
Some of the challenges facing manufacturing in Nigeria (the reason why manufacturing companies leave Nigeria)
l Policy/Political Instability and Insecurity
Traditionally, in Nigeria, the first thing every new administration does is to scrap all policies of the outgoing government. This makes the nation an environment of uncertainties for businesses.
Insecurity on the other hand has also held business on the ground. At the moment, the violent activities of Boko Haram terrorists, armed Fulani herdsmen, and bandits have remained a constant trait to investors.
l Preference of Foreign Goods and the Production of Sub-Standard Products
Nigerians see locally produced goods as inferior; hence, they prefer foreign products. Consumers are not to be blamed entirely because most ingenious products may not compete favourably with those imported in terms of quality.
Despite the “Buy Naija” campaign that is flagged to encourage the patronage of made in Nigeria products, Nigerians still prefer to go for imported products that they see as better.
Omotayo (2009) in his research, “the analysis of Nigeria’s perception of foreign products” found that Nigerians perceive foreign products to be of better quality, technologically advanced, and competitively priced than Nigerian products.
l Lack of Adequate Funds
Manufacturing companies require finance to flag-off and stay afloat. Funds are needed upon start-up, for expansion, to increase productions, and for the recruitment of more manpower.
Unfortunately, most manufacturing companies do not have access to enough funds to enable such a smooth sail.
Bank loans are not an option because they require hard to provide collateral with interest rates as huge as 25 to 40%. This leaves most manufacturers battling with debt repayment for years after managing to meet the bank requirements.
l Unskilled Manpower
We wrote about the unemployability of Nigerian graduates in our previous publication. When employees are not up and doing in one way or another, the backlash is felt by the factory.
Most staff who work in most Nigerian manufacturing industries lack requisite skills which are vital to the production of quality products that can compete favourably with imported products.
l High Naira-Dollar Exchange Rate and Inadequate Raw Material
An economic expert once recounted how Nigeria’s shoe, clothing and auto exports collapsed because the country’s fledgling non-oil industry ran out of dollars to import raw materials.
The naira seems to be in constant log ahead with the dollar. The high rate at which manufacturers get dollars with which they import some production materials has adversely affected the cost of production. To cushion things, manufacturers tend to increase the price of products which end up reducing patronage and in most cases, pushing them out of the market.
Nigeria’s agricultural sector on the other hand is moribund and poorly managed. Subsistence farming is what Nigerians are known for, which is mostly handled by the aged and uneducated. As a result, manufacturing companies rely on importation to get the raw materials they need for production.
This heaps unbearable expenditure stress on manufacturing industries.
In the southeastern town of Aba, known as the ‘Japan of Africa’ until the 1970s, more than 2,000 shoemakers closed because they couldn’t afford the imported glue or synthetic leather.
The Aba shoemakers’ association once had nearly 6,000 members led by Goodluck Nmeri, many of whom have now been forced to abandon the trade.
A lot of them right now are using Keke, okada, that type of motorcycle. Some of them joined other vocations.
l Cumbersome Government Protocols
The complex and difficult registration and documentation processes presented by the government for business start-up or running in Nigeria is a discouraging factor for most intending and existing manufacturing industries.
l Dependence on Imported Production Equipment
Nigeria imports just about anything, from machines to expatriates and technologies. All these cost manufacturers a fortune which deter potential entrepreneurs from floating their industries.
In 2018, IVM, the country’s main vehicle assembly plant fired several employees due to a lack of parts from Japan, China, and Germany, which make up a large portion of the contents of the vehicles they produce.
”Last year our production capacity was 4000 vehicles for all models, this year we expected to get up to 6000, but unfortunately, due to the issue of exchange rates, the supply of foreign currency, we haven’t moved much.” Said Innocent Chukwuma, Chairman of IVM.
l Late Payment by Customers
Most manufacturing industries allow buyers to buy on credit. These buyers pay up their debts late and sometimes manufacturers must spend money on debt recovery measures. This attitude costs these industries and negatively affects their effort and progress.
l High Production costs
Businesses (including those in manufacturing) succeed when they can increase revenue through cost minimization and profit maximization.
Most manufacturing companies in Nigeria spend a lot of money on production due to many factors such as unavailability of raw materials, power, cumbersome production process, etc.
l Infrastructural Deficit
Nigeria has never had it right in the area of infrastructure, and this has remained a core challenge that stares manufacturing industries at the face. Fluctuating power supply leaves manufacturers with no other option than to recourse to alternative power supplies which are cost-effective.
Bad roads and lack of facilities also brawl against the smooth running of manufacturing Coys.
All these and many other factors discourage business startups and prompt existing manufacturers to spend more.
What is the way out?
The poor state of the manufacturing sector, in particular, is a blow to President Muhammadu Buhari, making it difficult for his policy to wean Nigeria from its dependence on the sale of crude oil, which accounts for 70% of government revenues. Hence, this administration must make conscious efforts to address all the challenges clogging the wheels of the manufacturing sector
The government-backed central bank has pushed banks to give more loans to businesses, but few lenders are taking the risk these days. The government should take up the responsibility and make collateral-free loans available to manufacturing firms.
As an entrepreneur in the manufacturing industry, one must be aware that government policies play a major role in the management and improvement of the sector, especially if your organization engages in inter-country trade. Staying up to date on these policies is one sure way to give your business the edge it requires in the market and avoid being left behind.
After learning to stay up-to-date on policies, also make sure to evolve as the economy does. Understand that some of your processes might need to be changed or production diversified due to market trends. Following trusted, regular industry reports on these is very important.