Manufacturers shouldn’t remain in survival mode, resilience’s no virtue —MAN DG

By Yinka Kolawole

In a recent engagement with the media on the state of Nigeria’s manufacturing sector, Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, spoke on factors that continue to constrain manufacturers, warning that their prolonged resilience could lead to incapacitation.

Excerpts.

Exchange rate as major cost pressure

The exchange rate, currently hovering around N1,400 – N1,500/$, remains a major cost pressure for businesses and consumers.

While the situation is less difficult than it was previously, the elevated exchange rate continues to affect production costs and the prices consumers pay for manufactured goods.

Relatively speaking, it is not as difficult as it used to be. But the elevated cost has continued to impact businesses. It also affects consumers, particularly in the face of declining disposable income.

A sustainable solution to foreign exchange pressure lies in improving domestic productivity and reducing the economy’s dependence on imports.

We believe that better management of the economy would allow the exchange rate to moderate. It is fundamentally an issue of productivity. If the domestic economy does not improve its productivity, the country will continue to rely heavily on imported goods, and that will keep putting pressure on the naira.

Impact of CRR, credit squeeze on manufacturers

Banks generally find it easier to lend to the government because such lending is perceived as less risky than financing manufacturers.

You cannot ask me to keep a significant amount of money in my vault or with you and, at the same time, expect me to be able to lend.

The banks find it much easier to lend to the government than to manufacturers because government lending is perceived as carrying less risk, with a lower probability of default. So manufacturers are still being crowded out, and that becomes even more significant when the CRR is high.

Resilience of manufacturers

Celebrating the ability of Nigerian businesses to survive difficult operating conditions is upsetting.

I have always said that resilience is not a virtue. You do not beat your chest because you are resilient. That is a suffering mentality.

You are supposed to be prosperous. You are supposed to be doing well. The environment in which you operate should be conducive.

Manufacturers should not be forced to operate indefinitely in survival mode, because prolonged pressure could push businesses from resilience to incapacitation.

Patronising locally manufactured products

Nigerians should patronise locally manufactured products. Excessive dependence on imports transfers jobs and economic opportunities to other countries.

When people patronise imported products from other economies, we are effectively importing poverty and exporting jobs. We are paying for the factors of production in those economies while reducing our own capacity to create jobs, pay taxes and improve 

Accumulation of unplanned inventory 

The problem of unplanned inventory could be linked to weak patronage. Unsold goods tie down manufacturers’ capital and create additional costs.

I think the figure of unplanned inventory has oscillated, sometimes being less than N2 trillion and sometimes going up to N2 trillion.

But the figure should not actually be what we celebrate. The question is: Why should I continue to accumulate unplanned inventory?

The correct name for a manufacturer should actually be a marketer because if you continue to produce without selling, your products become a burden. If you are not selling, you have to hire warehouses and pay for storage. If products cross their shelf life, you have to pay NAFDAC, SON and others to destroy them.

What should have helped you accumulate capital and improve your bottom line is therefore becoming a burden.

The issue of unplanned inventory is a very serious matter, and it speaks to the lack of patronage from the government and even from citizens. 

We should also worry about how much people are paid because that has a direct impact on their purchasing power.

Implementing Nigeria First policy

There is a need for stronger implementation of the Federal Government’s Nigeria First policy, which prioritises locally produced goods and services in public procurement where suitable local alternatives exist.

We have always spoken about the need for greater patronage of made-in-Nigeria products. Now, there is an inter-ministerial effort to create a policy framework for Nigeria First, which essentially means greater patronage of made-in-Nigeria products.

The President has already said that priority should be given to locally produced goods, so that it is only when products cannot be sourced locally that we should seek to import them.

Prioritising domestic refining

The continued issuance of licences for the importation of refined petroleum products is not ideal, Nigeria should prioritise domestic refining.

We cannot be producing crude oil, exporting it, and then asking people to import refined petroleum products.

There should be incentives that would enable local refineries to operate competitively, including possible arrangements that would make crude available to domestic refineries at prices that support affordable local refining.

NAFDAC’s approach to regulation

NAFDAC’s approach to regulating sachet alcoholic drinks is faulty. Removing legitimate products from the market could push consumers towards unregulated alternatives while putting jobs at risk. The focus should be on effective regulation rather than factory closures and seizure of products.

Honestly, I think that is a very reckless approach to regulating. If the only instrument you have is a hammer, every object will look like a nail to you.

Young people should not take alcohol, and nobody is asking them to. But the responsibility of preventing young people from consuming alcohol should not result in factory closures and job losses for adults who have a right to make their own choices.

Restricting sachet alcoholic drinks would not necessarily stop people from consuming alcohol. The issue revolves around demand rather than the size of the packaging. The fact that somebody consumes alcohol is not because it’s available in sachets. Bleach is available in sachets. Why are people not drinking it?

Only recently, I saw reports that a number of people died after consuming locally produced alcoholic beverages in a state in the South-West. That is the result we have warned about.

If somebody has a craving for alcohol and you take away the legitimate products – those that meet standards and are monitored – you push such consumers towards unwholesome alternatives. That is the effect we are seeing. I think this is a failure of regulation. The responsibility of NAFDAC is to enforce existing regulatory measures rather than target legitimate manufacturers and traders, and cause people to lose their jobs.

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