With at least $6.7bn spent on the importation of manufactured goods into the country in the first half of the year, EDIDIONG IKPOTO examines how increasing imports highlight challenges confronting local manufacturers

The former Acting Governor of the Central Bank of Nigeria, Adebisi Shonubi, two weeks ago, promised that the apex bank was making plans to clear the foreign exchange backlogs in the next ‘one or two weeks.’

At the time, the forex backlogs, which were the unmet demand by investors and exporters, were estimated at $10bn and had resulted in heavy losses to many firms.

The bulk of those forex backlogs were dollar requests from manufacturers and importers purchasing finished goods and raw material inputs from abroad.

According to analysed data sourced from the National Bureau of Statistics, at least $6.7bn was spent on the importation of manufactured goods in the first six months of 2023,

An analysis of the Foreign Trade Statistics reports published by the NBS indicated that the value of manufactured goods traded stood at N2.5tn in the first half of the year.

Going by NBS data, this implies the country spent about $2.9bn (N2.39tn) on the importation of manufactured goods in Q1.

On the flip side, in Q1, the export component of total trade accounted for just N131bn, indicating that over N2.3tn (94.7 per cent) of total trade of manufactured goods was imported.

The country’s low export returns have been attributed non-remittance of proceeds by many exporters through banks.

This takes the total exports of manufactured goods to $285m, as against the $6.7bn gulped by imports during the same period.

Further analysis of the data showed that in the second quarter of the year, the value of manufactured goods traded stood at N3.2tn, the export component accounted only for 93 per cent (N212bn) of total trade, while imports were valued at N3tn.

That meant that $3.8bn was spent on manufactured imports while $461m was repatriated as earnings via exports of manufactured goods.

Cumulatively, at least $6.7bn was spent on imports of manufactured goods while only $746m was earned via manufactured goods exports in the first half of the year.

The major goods imported during the period included used vehicles, with diesel or semi-diesel engines from the United States and United Arab Emirates, machines for reception, conversion and transmission of voice, images or data from China and ‘Other medicament not elsewhere specified’ from India.

A look at the NBS data implies that Nigeria’s drive for backward integration of raw materials or consumption of locally made products is still a far cry from realisation.

The data, to a large extent, also shows that the forex scarcity that has been a bane to the economy has been a self-inflicted injury.

Over the years, one challenge that has remained a constant for manufacturers has been the scarcity of foreign exchange, which is key for industries that rely on input from outside the country for production needs.

While experts and policymakers have spoken extensively about this challenge of forex illiquidity, one crucial detail that has often been mooted has been the fact that Nigeria’s production level, despite its huge potential, has remained low.

Much of the blame for this lack of productivity has been directed towards the government for failing to provide the right infrastructure and framework for industrial entities in the country to thrive.

In its Bi-Annual Economic Report, the Manufacturers Association of Nigeria expressed worry that capacity utilisation in the sector had been on a consistent decline.

According to the report, capacity utilisation in the manufacturing sector declined to 54.9 per cent from 59 per cent recorded in the corresponding half of 2021; indicating a 4.1 percentage points decline during the period.

Quarter-on-quarter, it declined by 3 percentage points when compared with 57.9 per cent recorded in the first half of the year. Manufacturing capacity utilisation averaged 56.4 percent in 2022 as against 55.9 per cent average in 2021.

The report also noted that there was increase in local raw materials utilisation in the sector during the period due to increased difficulty in sourcing forex, which compelled manufacturers to look more inward for raw materials notwithstanding the associated huge cost.

The report partly read, “Inventory of unsold finished products in the manufacturing sector increased to N282.56bn in the second half of 2022 up from N169.75bn recorded in the corresponding half of 2021; thus, indicating N112.81bn or 66 per cent increase over the period.

“It also increased by N85.46bn or 51 per cent when compared with N187.1bn recorded in the first half of the year. Inventory of unsold goods in the sector totalled N469.66bn in 2022 as against N384.58bn recorded in 2021.

“The high inventory recorded in the period is attributed to low purchasing power in the economy due to declining real income of households following the continuous increase in inflationary pressures in the country. This is worsened by the Naira Redesign policy which began in the last quarter of 2022.”

In its recently released Manufacturers CEOs Confidence Index, MAN noted operating environment of its members had worsened as major performance indicators of the manufacturing sector all recorded unfavourable changes.

It said, “Amidst the harsh business-operating environment evidenced by poor macroeconomic indices, the underperformance was largely driven by the slow recovery from the cash crunch, high cost of energy, high transportation cost and partially by the abrupt removal of subsidy that took effect towards the end of the second quarter of 2023.”

Due to the increasingly harsh operating environment, MCCI declined to 52.7 points in the second quarter of 2023 from 54.1 points recorded in the first quarter of 2023.

According to MAN, the economic turmoil disrupted the manufacturing value chain, escalated the cost of manufacturing operations and resulted in the reduction in manufacturing patronage.

In the course of the survey for the MCCI, manufacturers had the opportunity to identify and rank the current challenges of the manufacturing sector in order of severity of impact.

Based on ranking, the high cost of energy was top on the list of major manufacturing challenges.

That was followed by the high cost of credit/inadequacy of loanable funds, multiple taxes/charges/levies/same tax policy for local producers and importers, unavailability of raw materials/delay in receiving imported raw materials/high cost of raw materials and scarcity of forex/high exchange rate/poor allocation of forex.

In its recommendation, MAN said it was essential to tackle problems relating to low productivity and limited export diversification, excessive import-dependent production structure and dilapidated capital goods industry.

While speaking exclusively with The PUNCH, the President of the Manufacturers Association of Nigeria, Francis Meshioye, said that lack of support from the government towards the manufacturing industry accounted significantly for why manufacturers were unable to compete with their global counterparts.

Asked why manufacturers were not producing more in order to ease the burden of sourcing for forex for importation purposes, Meshioye said, “We tell our members to export more, but all these things are based on competitive advantages. If you want to export a product, it is fine, but at what cost are you going to export it? What will be your price? If the cost is astronomically high, it will be difficult to export. It is a circle.

“Of course, the export base should be good enough to support the floating exchange rate, but we need to have a good economic base to do that.

“Yes, we encourage our members to continue to export, but it is necessary to emphasise that the government needs to look at why manufacturers cannot export as expected. They can call manufacturers to a roundtable.”

According to Meshioye, manufacturers can look at those products that can generate money, and ask what the impediments to exports are.

“That would be fantastic. We need to boost our export base. It should be robust. The more we export, the more forex we earn. And the more forex we earn, the more we have to source our importation needs.”

Speaking further, Meshioye implored the government to implement policies that would motivate and stimulate manufacturing.

“If we stimulate investments in manufacturing, we will definitely churn out more products. So, these products will find their way out of Nigeria legally, and we will get forex to defend the naira,” he added.

In the same vein, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, said Nigeria’s over-reliance on importation had exacerbated the protracted forex crisis that had bedevilled the economy.

He added that more attention needed to be paid to import substitution and leveraging the country’s competitive advantage to boost exports and repatriate more foreign exchange earnings.

Yusuf said, “You cannot have a manufacturing sector that is so heavily import-dependent. We should have a deliberate policy to ensure that the materials that we import are produced locally. That will require active government support in those areas.”

Leave a Reply

Your email address will not be published. Required fields are marked *