Despite the challenges facing the real sector of the economy, stakeholders say a strong outlook awaits it in the coming year, MAUREEN AZUH writes
The real sector of the economy may have been positioned to experience a significant growth in 2014 going by the way the current year is ending, stakeholders have said.
The expression of optimism on the performance of the sector, which is said to be the engine room of the economy, is coming on the heels of a forecast by the International Monetary Fund that Nigeria’s Gross Domestic Product will experience a growth of 7.4 per cent in the coming year, up from the 6.2 per cent recorded in 2013.
The IMF projection was part of its latest World Economic Outlook, which found that sub-Sahara Africa recorded some level of growth in 2012 and 2013, due to increased domestic consumption.
The Federal Government had said that it had invested about N1.92tn in the sector in the last two years with agriculture, transport and water resources getting N202bn, N640bn and N126.03bn respectively.
The manufacturing sub-sector currently contributes less than five per cent to the GDP, a situation which has remained consistent in the last 10 years and is reflected in the inability of the sector to create adequate jobs.
The National Vice-President of the Nigerian Association of Small Scale Industrialists, Chief Duro Kuteyi, said the sector would get a boost from sub-sectors that were already growing rapidly, including agriculture.
Kuteyi said high interest rate may hamper the growth of GDP but that the real sector had chances of a steady growth with agriculture growing at about 10 per cent.
He said, “Looking at agriculture, which is already moving up, the next thing should be preservation of the crops and adding quality value to agricultural produce in a way that we can start to look at producing for export.
“Agriculture will move above 10 per cent, production and processing will move but below 10 per cent because the commercial banks are not structured in a way that they will provide working capital and when you look at BoI, it is able to provide only fixed assets (that is production equipment). The fact that working capital will still be expensive means the rate of achieving this GDP will still be hampered by interest rate. But I see a steady growth in the real sector, generally.”
Acting Director-General, Manufacturers Association of Nigeria, Mr. Rasheed Adegbenro, said the fact that 2013 was ending on a positive note for manufacturers and other stakeholders in the real sector was a pointer to an upward growth in the coming year.
According to him, those in the sector are not expecting too many challenges, especially with the reduction in the figure of unplanned inventory, which he said was a major problem to manufacturers.
“In the first half of 2013, unplanned inventory was N21.75bn; the figure we had for similar period in 2012 was N32.83bn; so, you could see an improvement,” he stated.
He added that manufacturers were optimistic about the sector in the coming year due to improvement in specific areas.
“We are optimistic for next year because of the way 2013 is ending, we are not expecting too much of challenges, of course there will be challenges, but if the government keeps the tempo on the programmes that were introduced this year, things will be okay.
“From our side, we recorded a measure of improvement in certain areas, which we are optimistic about, including production output, where we recorded N353.2bn in manufacturing for the first half of 2013. This was made possible due to the stability in the macro-economic indices, which encouraged improvement in some sectors particularly food and beverages, where there were remarkable improvements,” he said.
Adegbenro said certain government policy shifts also aided the growth in 2013 and would improve in the coming year, if sustained.
“There were government incentives, which were sector specific because political considerations are going out of the system unlike what happened in the past,” he said.
However, despite the optimism, there are concerns that the lack of investment in the Micro, Small and Medium Enterprises may be the albatross of growth in the secor.
The IMF had said that the Federal Government needed to do more to support the MSME, which lacks access to financing.
According to Kuteyi, MSME might record low or only a marginal increase in the coming year.
However, some stakeholders are of the opinion that with the prevailing state of infrastructure and credit conditions in the economy, the real sector may not make much progress.
The President of the Lagos Chamber of Commerce and Industry, Alhaji Remi Bello, said the fundamental challenges of weak competitiveness and low productivity would likely persist, especially with a federal budget structure that is heavily tilted towards recurrent spending.
According to Bello, the business environment is generally not conducive for manufacturing enterprise, which is why the risk of industrial investment is high and continues to get higher.
He said, “The various policy interventions have not had the desired impact on the sector. Unless there is an effective and sustained protection and support for the sector, it is difficult for any significant progress to be achieved in this regard.
“This scenario has played out in the tyre manufacturing sub-sector, the textile, the assembly plants, the battery industry, the steel plants and many more. Manufacturing business is perhaps the most challenging in the economy today. The trend has grave implications for the economy. An economy dominated by buying and selling cannot boast a bright future. Production is critical to economic progress, value addition and job creation.”
He said it was not possible to have a vibrant manufacturing sector in the face of uncontrolled dumping of cheap imports in the country, some of which are imported at 50 per cent of the cost of goods produced locally.
“Manufacturers have to worry about high energy cost because the power improvement has yet to be sustained; they have to worry about high interest rates, which is about 20 per cent and above; they have to worry about a multitude of regulatory agencies making different demands on them; they have to worry about massive smuggling and under-invoicing of imports and many more. The multinationals and other conglomerates in the sector may have the resilience to cope. But for most manufacturing SMEs, it is a nightmare,” he said.
He added that the stagnation of the sector remains the tragedy of the country’s economy because production is critical to economic and social stability.
According to the stakeholders, the way forward is to address the constraints facing the sector, which include high interest rates.
“Credit remains a major challenge for the manufacturing enterprise. Access to credit is difficult and cost of credit is outrageous. The problem is particularly acute for the small and medium manufacturing enterprises,” Bello said.
Kuteyi said the government should encourage the commercial banks to give credit at single digit to MSMEs.
“If funds are not easy to come by, then we are not addressing the issue as it should be. The finance minister said when she was presenting the budget, the situation would be taken care of, until we see the package and how it will be utilised, then we can say we are there and we are going to achieve growth.
“But as long as we still have high interest rates from the commercial banks, the growth will be marginal unless the banks are encouraged to lend to the SMEs at single digit and part of the interest paid by the government,” he said.
Adegbenro said, “Interest rate is still not the best but we believe if other elements stabilise, the economy might experience either stability or reduction in interest rate. These are things that challenge manufacturers because the higher your interest rate, the less money you have for production. They lose money on foreign exchange and power, but if these are taken care of by the government, it will impact on manufacturing.”
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