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Manufacturers Present Tinubu with a Must-Do List to Accomplish in 100 Days

Following the swearing-in of President Bola Tinubu as Nigeria’s 16th Head of State, the Director General of the Manufacturers Association of Nigeria (MAN), Mr Segun Ajayi-Kadir in this interview, speaks on the expectations of manufacturers from the new administration on how to tackle the numerous challenges confronting the sector.

Dissecting President’s inaugural speech

Even though we have to critically consider the inaugural speech of the President, I would like to make the following comments as our immediate reaction. I would like to start by congratulating President Bola Ahmed Tinubu on his assumption of leadership of the country. As you would imagine, change in administration is usually greeted with expectations and as an advocacy group, we surely look forward to a number of policy changes and decisions.

It is therefore highly commendable and an assurance of better days ahead to hear the President saying that his industrial policy will utilize the full range of fiscal measures to promote domestic manufacturing and lessen import dependency. For me, this is a positive development. It is an unmistakable indication of a far-sighted strategic choice, one that is borne out of a deep reflection on the current inclement manufacturing environment and the need to stop the drift into the inglorious de-industrialization of the Nigerian economy.

What is most gratifying is that it came from the President from day one. The issues of multiple and often times punitive taxation; conflicting and contradictory fiscal and monetary policy measures; skewed and poor management of the foreign exchange regime and the long overdue stoppage of the fuel subsidy were addressed in the President’s speech and I believe they resonate with manufacturers in particular and the business community in general.

A marching order, so to say, is needed to move the Central Bank of Nigeria, CBN, towards a unified exchange rate. I am glad that the President was very clear on this. We also expect that, in line with his promise to enable a supportive fiscal policy regime, the President will order a reversal of the unwarranted violation of the government‘s three-year excise escalation roadmap on alcoholic beverages and tobacco.

As we have shown, the latest hike as contained in the 2023 Fiscal Policy Measures, FPM, is not only going to ruin the affected sectors, it will be counterproductive for government revenue in the near future. Our infrastructure has remained inadequate and so the ongoing efforts of the government have to be intensified and this again was mentioned by the newly inaugurated President.

Low hanging fruits

In line with this optimistic beginning, I would like to add other low hanging ripened fruits for the President. One, in addition to pursuing the unification of the exchange rate, CBN should be prevailed upon to take effective action to give priority to the allocations of foreign exchange to the productive sector, particularly to manufacturers to import raw materials, spares and machinery that are not locally available. Two, the administration must direct the Nigerian Electricity Regulatory Commission, NERC, to admit all qualified applicant companies into the Eligible Customer Scheme in order to allow them access to power as stipulated in the Electric Power Sector Reform Act 2005.

Three, the new government should direct all relevant agencies of government to ensure that the electronic call-up system at ports aimed at redressing the congestion works without fail. Four, we need to revisit the Finance Bill 2022 to ensure it includes the critical inputs of the organized private sector, especially the jettisoning of the highly objectionable removal of the 10% investment allowance on the acquisition of plants & machinery (in the Company Income-tax Act, section 32). Additionally, the government needs to ensure that the imposition of the 0.5% levy on eligible imports from third countries is limited to goods that we have the capacity to produce locally and quite importantly, exclude raw materials that are not locally available.

The input of the organised private sector on the CEMA bill should also be taken on board before the amendment bill is signed into law. Five, the government must announce a special policy initiative to address the revival of closed and distressed industries, particularly in the northeast where 60% of our member companies have closed. The government must craft and announce a special policy initiative to leverage Diaspora expertise and investment to address evidence gaps and help to boost the performance of the economy. All ministries, departments and agencies, MDAs, of government must unfailingly comply with Executive Order 003 on the patronage of made-in-Nigeria products.

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In this regard, there should be the strict application of the margin of preference, effective monitoring and periodic evaluation of compliance and appropriate sanctions meted out to MDAs acting in breach of the executive order. Lastly, Tinubu should announce a special policy initiative to de-risk manufacturing and unleash adequate funding for the sector through effective funding of special lending windows.

Expectations of manufacturers

A change in administration is usually greeted with expectations, particularly when it was preceded by electioneering campaigns when promises were made by the candidates of the various political parties. Though MAN is an advocacy group and apolitical, we have expectations from the new government and look forward to working with them to accelerate the economic development of Nigeria, particularly the manufacturing sector. This is more reason why MAN’s blueprint for the accelerated development of manufacturing in Nigeria was widely circulated to the leading political parties during the campaign season.

Our expectations, as manufacturers, are coming against the backdrop of a reduction in the Manufacturers CEO Confidence Index (MCCI) in the last quarter of 2022. As you are aware, the MCCI is a quarterly survey of MAN to gauge the pulse of the operators and trends in the manufacturing sector.

In the latest survey for the fourth quarter of 2022, aggregate index score declined from 55.4 points in Q3 2022 to 55.0 in Q4 2022. This shows that CEOs of manufacturing industries have less confidence in the economy. So, we should expect that there is minimal down-time in governance. The new administration should settle down and make the needed appointments in good time and select the right people.

Rejigging the economy

I think that there should be a realization that the economy is in a parlous state and needs a quick rejig. We need to reset our priorities and stop the haemorrhage. Let us take a look at the key economic indicators: The inflation rate is 22.22% as of April 2023 and the Naira exchanges for the dollar officially at about N465 and on the streets, which is by far the most patronized by economic actors is about N750. On interest rate, the monetary policy rate (MPR) is 18.5% set in May 2023, while the lending rate is about 28%, to most manufacturers, the latter is the norm. We have unemployment, which is prevalent amongst the youth at 33.3%, even as the GDP annual growth rate is about 3.52%. Today, the government debt to GDP ratio is 37% from 34.5% last year.

There is also the evident inadequacy of needed infrastructure and the myriad of macroeconomic challenges that has constituted binding constraints to the performance of the economy. With this background, the new government should not be under any illusion about the need to stop the drift and hit the ground running. There are low-hanging fruits, there is also the long-term perspective for stabilizing and growing the economy. I would suggest that the President should set specific deliverables to be accomplished within the first 100 days in office, a must-do list within the 1st 100 days.

Ineffective monetary policy

The recent MPR increase is the 7th in a trend and the inflation rate continues to rise despite the increases. This is a clear indication that the policy tightening is not effective in curbing the inflationary pressures and more needs to be done.

It is evident that the continuous and consistent increase in MPR is not yielding the desired growth in the economy. The Nigerian economy remains fragile and bedevilled with numerous challenges that inhibit growth. Therefore, the monetary authority needs to pay closer attention to rethink the policy mix, bearing in mind the parlous state of the economy, especially the effect of a high MPR on the manufacturing sector and the economy.

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The increase will compound the imminent recession in the manufacturing sector and negatively impact its operations in so many ways, including: Increase in the cost of borrowing that will further discourage investments in the sector; high cost of production which will lead to higher commodity prices and inventory of unsold manufactured products; decline in capacity utilization owing to high-interest rate and reduction in sales; reduction in the output of the sector which will further reduce the national productivity and per capita income; reduction in manufacturing employment, thereby fueling insecurity and social vices; decline in government revenue as a result of low productivity of the manufacturing sector and the resulting low taxes; reduction in the inflow of investment owing to increase in the cost of borrowing for manufacturing investment; and high product prices owing to rising factor costs, which will, in turn, render the sector less uncompetitive.

Taming inflation

We are persuaded that monetary authority is oblivious to the fact that the failure of its tightening policy to address the inflationary pressure is because the hike in inflation is largely caused by a combination of familiar challenges, including low output which is attributed to the instability of macroeconomic variables, inconsistent and lacklustre fiscal policy regime, incoherent industrial policies, challenging and expensive operating environment, exploitative regulation, external shocks and poor exchange rate management. Therefore, there is a need to address the identified root causes of inflation and refrain from intensifying policy choices that hamper the performance of the real sectors of the economy.

The interrelationship among macroeconomic variables is essential in policy formulation, as the movements of interest rate, inflation rate and exchange rate have a direct impact on investment, employment and output of any economy.

According to the conventional monetary framework that was adopted by the CBN, an increase in MPR should increase interest rates and by extension attract financial investment. However, it will also increase the cost of borrowing, crowd out more investments in the real sector and lower the output of the manufacturing sector.

Therefore, it is necessary for the government to think outside the conventional monetary policy framework and take pragmatic steps to quell the inflationary pressure and reposition the economy. In light of the aforementioned, we recommend that as the cost of lending from commercial banks is expected to increase with the increase in MPR, it is important that priority attention should be given to improving the size of the available special funding windows and making them accessible to the industries at liberal conditionality.

The Federal Ministry of Finance, Budget and National Planning and the Central Bank of Nigeria should collaborate to develop an implementable, non-contradictory and well-synthesized monetary and fiscal policy that supports domestic manufacturing and the productive sector in general. By doing this, the supply of goods and local production will increase relative to current demand thereby improving aggregate output.

Immediate and concrete action should be taken to address the manufacturers’ forex needs in order to support and sustain production. There is no doubt that prioritizing the allocation of forex to the manufacturing sector to procure raw materials, machines and spare parts that are not available locally is the way to go.

This government must implement strategies to encourage local raw material development and procurement, enhance infrastructure development, obviate prohibitive electricity tariffs, and increase productivity in key industries like manufacturing; tackle smuggling and insecurity by stepping up capacity building and providing sufficient security equipment and technology for monitoring and intelligence gathering.

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