1 month ago
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BY MOTOLANI OSENI
Economic and policy analysts have highlighted how Nigeria’s manufacturing sector is facing significant challenges, primarily attributed to ongoing foreign exchange volatility, high import duties, pervasive insecurity, and persistent inflation.
According to them, these factors, coupled with the exit of multinational companies (MNCs), have undermined investor confidence and contributed to the sector’s low capital performance.
These experts explained that while the manufacturing sector could experience improvement if the current instability and forex crisis are addressed, urgent fiscal policy protection is necessary.
The National Bureau of Statistics (NBS) reported a dramatic 210 percent increase in capital importation during the first quarter of 2024. However, this influx was not evenly distributed across sectors.
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The banking sector led with $2.07 billion, making up 61.24 percent of total capital inflows. The trading sector followed with $494.93 million (14.66 percent), while the manufacturing sector lagged with just $191.92 million, representing a mere 5.68 percent of total capital.
Speaking on this development, a former Director of Research and Advocacy at the Lagos Chamber of Commerce and Industry, Dr Vincent Nwani, attributed the sector’s poor performance to the departure of multinational companies.
“The image of the manufacturing sector has suffered, making it difficult for investors to commit their funds,” Nwani explained.
He added that unlike other sectors, manufacturing requires substantial, long-term investment in machinery, which cannot be easily liquidated. “These investments are often sunk costs, and it is challenging to recover even the initial amount invested.”
Nwani further suggested that a thorough analysis of capital flows would reveal a negative trend, as the NBS data did not adequately reflect outflows.
He emphasized the need for a concerted effort to address forex volatility and security issues to restore investor confidence.
“Investors need to see tangible actions from the government to stabilize the FX rate and improve security,” he noted.
While acknowledging that resolving insecurity is a long-term challenge, he stressed the importance of visible government action to deter criminal activities.
Also, a stockbroker and board member of Highcap Securities, David Adonri, echoed these concerns, stating that the low capital inflow into manufacturing in Q1 2024 was not surprising.
Adonri identified several negative factors, including inadequate production infrastructure and high insecurity, which dissuade foreign direct investment.
He criticized the federal government’s approach to manufacturing, describing it as ineffective. “The national industrial plan lacks depth, particularly in developing heavy industries, which undermines the potential of light industries,” he said.
On his part, Prof. Leo Ukpong of the American University of Nigeria, Yola, pointed out that while the increase in capital importation might seem positive, it is often short-lived.
He criticized the trend where investments, particularly in the banking sector, exploit fluctuating exchange rates for profit, rather than contributing to sustainable growth in manufacturing.
Ukpong recommended that the Federal Government implement measures to support the manufacturing sector, such as subsidizing industrial loans.
“Although this might entail some loss, it is a strategic use of tax revenue to stimulate production,” he suggested.
The ongoing challenges faced by Nigeria’s manufacturing sector underscore the urgent need for comprehensive policy interventions to stabilize the economy and restore investor confidence.
English (US) ·