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AFRICA
A Site Selection Web Exclusive, July 2018
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MAN United in Advocating for Reforms to Nigeria’s Business Environment

The president of the Manufacturers Association of Nigeria sees promise on the horizon, once obstacles in the foreground are overcome.

AFRICA
As Nigerian manufacturing faces obstacles, Nigeria’s energy sector continues to undergird the economy. The $3-billion Egina FPSO, the world's largest FPSO (floating production, storage and offloading unit) built by Samsung Heavy Industries Co. (SHI) in Korea, arrived in Lagos in January and will be fully delivered later this year after, among other steps, completion of a Nigerian local content requirement.
Photo courtesy of SHI

by CHRIS ENYI & ADAM BRUNS
Dr. Frank Udemba Jacobs, President, Manufacturers Association of Nigeria
Dr. Frank Udemba Jacobs, President, Manufacturers Association of Nigeria

In the spring Site Selection had the opportunity to interview Dr. Frank Udemba Jacobs, president of the Manufacturers Association of Nigeria(MAN). First established in 1971, the organization boasts over 3,000 members. The recently-launched ERGP (Economic Recovery and Growth Plan) by Nigeria's federal government expanded upon a blueprint conceived by MAN.

Jacobs, who has served MAN as president since August 2014, is the proprietor of the Ray Jacobs Boarding School in Mgbidi in Imo State since 1995, and also serves as chairman of the board of the Mgbidi Microfinance Bank and chairman of Jacobs Wines Limited. His term-limited tenure as MAN president will end in September 2018.

Site Selection: In sharing your view of President Muhammadu Buhari's economic development vision, what political stimulants do you need as manufacturers, since it is unarguably understandable that you need political stability to complement economic vibrancy?

Dr. Frank Udemba Jacobs: MAN appreciates the consultative approach of the Buhari-led government, which has led to increase in the level of public-private partnership for the development of Nigerian economy in recent years. In light of this, the Association would recommend for the government to consider the following stimulants to further consolidate on the recorded economic growth achievement:

  • Continuous improvement of the operating environment through the provision of infrastructures such as steady energy supply and efficient transportation network, particularly road and rail;
  • Consistency of economic policies of government;
  • Harmonization of taxes;
  • Merging of regulatory agencies that have overlapping functions;
  • Government patronage of locally made goods;
  • Proper implementation of government fiscal policy; and
  • The need to address the country's security challenges.

MAN feels strongly [about the issue of] overlapping functions among regulatory agencies, and recommends merger. A case in point is the duplication of functions at NAFDAC and SON [National Agency for Drug Administration and Control and Standards Organization of Nigeria]. MAN posits that it is absolutely time-wasting as manufacturers are subjected to go through virtually the same processes by both organizations.

MAN has an excellent relationship with the federal government as it continues, as has always been the case, to make inputs into economic issues. MAN appreciates Bill Gates' critical observation of ERGP in the area of manpower development. Nonetheless, it commends the plan and is assured that the government will embrace every constructive criticism as the EGRP is a "work-in-progress."

Site Selection: How has MAN attempted in the past to fight endemic corruption in Nigeria? Are there signs of early success under President Buhari? What do you see as the next steps?

Jacobs: There is reduction in the rate of corruption since the inception of the present administration due to continuous prosecution of the culprits by the Economic and Financial Crimes Commission [EFCC] and the Independent Corrupt Practices and Other Related Offences Commission [ICPC]. This has gone a long way to create fear and some level of caution in the minds of perpetrators.

Nigeria GDP
Graph courtesy of Nigeria National Bureau of Statistics

Also, MAN at its level has tried to fight corruption by constantly advising members to stay clear of any corrupt business activities, and it was made clear to members that MAN will not intervene or advocate for any member company caught in the act of illegal activities. The stand of MAN on corruption is made known to members at all levels of the Association's engagements with members. Hence, the Association is also of the view that the following steps should be enshrined to further increase anti-corruption gains:

  • Government should work on mechanism that can boost the economy to reduce the level of poverty, which is a major stimulant of corruption;
  • Political will to prosecute perpetrators, no matter their status, should be undertaken;
  • All government expenditures should be budgeted and extra-budgetary spending should be discouraged;
  • There should be transparency in all government procurement, contracts and employment;
  • Cash transactions should be discouraged in order to trace the movement of funds;
  • The need to reduce the administrative bottlenecks in order to cut down corruptive tendencies;
  • The literacy level must be increased. This will allow the citizens to know their rights and demand their rights.

Functionally, it is not the mandate of MAN to "fight corruption," but morally, it is obligatory to lend a voice, especially in the area of discouraging cash transactions, as it opens up gullibility on the part of perpetrators.

Site Selection: Aliko Dangote is among those who have been leading the charge for boosting domestic manufacturing in Nigeria. How well are his group's investments catalyzing further investment by others and helping to build up a manufacturing supply chain?

The investment of Alhaji Aliko Dangote, who happens to be one of the vice presidents of MAN, has gone a long way in ensuring improvement in the industry. The large production scale in the cement, sugar, tomato and fertilizer sectors has created a whole lot in the manufacturing value chains. The petrochemical sector to a great extent will relieve the country's dependency on imported products for those in plastics, paints, resins and other chemical-related industries. Dangote's foray into cement has moved the Nigerian cement industry from the mere paltry production of 2 million tons to 28 million tons per annum, with the country now a net exporter of Cement.

Dangote Business School
Dangote Group President and Chief Executive Aliko Dangote (left) is as well known for his philanthropic work across Africa as for his conglomerate’s facility investments and job creation. Here he appears with institutional and state leaders in March after donating the funds for Dangote Business School at Bayero University, Kano in northern Nigeria.
Photo courtesy of Dangote Group

There are over 14 Dangote industries/factories, and they serve as off-takers of raw materials and allied services from a wide spectrum of SMEs, including member companies of MAN. Alhaji Aliko Dangote has tremendously helped, and still is helping, with philanthropic gestures both at the national and continental levels.

Site Selection:There has been so much drive in the last year by the Federal Government of Nigeria on the "ease of doing business." To what extent has this approach succeeded, especially as it relates to MAN?

Jacobs: As has been shown by the World Bank's EODB report, we can say that Nigeria is doing fairly well in the categories of Getting Credit; Starting a Business; Dealing with Construction Permit; Paying Taxes; Registration of Property; Resolving Insolvency; Connecting Factories to Electricity; Protecting Minority Investors; and Facilitation of Trade Across Borders. However, in spite of these notable improvements in the EODB in Nigeria, the manufacturing sector is still plagued by the high cost of production resulting from the harsh operating environment caused by the following challenges:

  • Poor/multiple regulatory environment;
  • Poor tax policies/multiple taxes and levies;
  • Poor energy policies;
  • Inefficient physical infrastructure;
  • Poor trade policies;
  • Macroeconomic inefficiency (unfavorable exchange rate, high lending rate and high inflation rate); and
  • Outward oriented public procurement practice.

Therefore, our position is that a lot still needs to be done to ensure the operating environment further improves for the sector and the economy as a whole to attract more investible funds to ensure sustainable growth. Among other steps, the harmonization of multiple taxes still has not been satisfactorily addressed.

Site Selection: In 2017, Nigeria "exited" from economic recession, as it were. One of the indices for the exit was claimed to be in the manufacturing sector. Is this true? If so, how has it been proven given the visibility of imported products, high rate of unemployment and astronomical inflation rate of 12.9 percent as of the end of 2017?

Jacobs: Even as the economy exited recession in the second quarter of 2017, the manufacturing sector exited recession in the first quarter of 2017 with a positive growth rate of 1.36 percent. This was, however, short-lived, as the recession impacted negatively on the growth of the sector, which slowed down to 0.64 percent in the second quarter and quickly returned to a negative region with a growth rate of -2.85 in the third quarter of 2017.

Although the sector recorded positive 0.14 percentage growth rate in the fourth quarter of 2017 according to data released by Nigeria's National Bureau of Statistics, all indices still point to the fact that the Nigerian economy — particularly the manufacturing sector — is still struggling.

For instance, the sector is still experiencing:

  • An insignificant and negative growth rate — 0.14 percent in fourth quarter of 2017;
  • A dwindling contribution to national output — the sector contributed 7.71 percent to GDP in the Q4 of 2017;
  • Sub-optimal capacity utilization — 55 percent in the first half of 2017;
  • Low investment growth — N329.28 billion [US$912 million] in the first half of 2017 compared to 448.94 billion [US$1.24 billion] recorded in 2016; and
  • High inventory of unsold finished goods — N159.59 billion [US$442 million] in the first half of 2017 from N35.42 billion [US$98.1 million] recorded in the second half of 2016. (1 Nigerian naira = .0028 x US$1. —Ed.)

These and many more facts show that a lot still needs to be done in the manufacturing sector and the Nigerian economy to make the recorded economic growth inclusive. To sustain the momentum and manage the success so far achieved, government must gear efforts in meeting medium-term development plan framework deadlines. Need also arises in the maintenance of consistency in government policies. Smuggling — by whatever name or design — must be discouraged.

Nigerian Trade
The EU continues to be a strong trading partner with Nigeria.

Site Selection: What does MAN want to see occur in order to stabilize and strengthen Nigeria's electrical power grid?

Jacobs: The issue is not about just strengthening the national grid, it's about putting in place the necessary framework that will address the prevailing multifarious electricity-related challenges. To appreciate the magnitude of these challenges, especially as it affects the manufacturing sector, it would be necessary to share with you issues on our fact sheet on the performance of energy sector in Nigeria:

  • Nigeria has a huge population of over 180 million people (World Bank, 2013) and huge productive/manufacturing and other businesses, but now generates about 7,000 megawatts (MW) of electricity per day. By rule of thumb, Nigeria should generate at least 180,000 MW of electricity per day; that is an average of one megawatt per 1,000 persons.
  • The World Bank report in 2013 shows that Nigeria's electricity per capita was 142 kilowatts, which is far below the world average figure of 3,104.382 kilowatts in that year.
  • Over N129.95 billion [nearly US$360 million] was the estimated expenditure of manufacturers on self-generated alternative energy sources (MAN Survey, 2016/2017).
  • Over 36 percent as the share of energy cost to total cost of production in the manufacturing sector is one of the highest shares in the world.

For the manufacturing sector, the challenge of poor electricity supply is hydra-headed. The supply of electricity is inadequate, the quality is abysmally poor and the tariff is skyrocketing and largely based on estimated bills; thus, posing adverse challenges to the sector. To at least remain in business, manufacturers resort to alternative energy sources in spite of the huge cost involved. All of these culminate in a high cost of production in the sector, which is now the major reason for the poor competitiveness of locally manufactured goods, and has been responsible for sub-optimal performance of the sector. 


"For the manufacturing sector, the challenge of poor electricity supply is hydra-headed."

Back to the issue of strengthening the electricity grid and the need for a holistic approach to addressing electricity related challenges, MAN will recommend that government should:

  • Encourage more investment in electricity generation, distribution and transmission through appropriate policy incentives; and enactment of laws;
  • Upgrade and decentralize the transmission networks in the country;
  • Adopt global best practices in electricity tariff administration to promote efficiency and ensure that manufacturers should be made to pay less as they consume more electricity to reflect economies of scale.
  • Ensure adequate stakeholders' consultation before any tariff review and allow the subsisting tariff order to run its full course before any review; that minor tariff review is stopped and all electricity consumers in Nigeria, especially manufacturers, are fully metered;
  • Encourage energy mix in the country — especially solar and wind energies — with appropriate legislation that will boost the development and commercialization of these platforms;
  • Implore DISCOs [Nigeria's 11 electricity distribution companies] to reciprocate patronage by procuring local electricity meters from manufacturers. This synergy should be encouraged through appropriate legislation;
  • Quickly resolve challenges emanating from the implementation of the eligible customer regulation, especially to address the difficulty in migrating manufacturers in underserved areas consuming below the 500KVA threshold to join an eligible cluster.

So, for us as manufacturers, we commend the effort of the Government for their plan to inject N10 billion [US$27.7 million], as shown in the 2018 budget, to confront these two challenges. Because from the above facts it is obvious that any attempt to fix the power grid collapse in the country must include massive investment in the transmission lines and efforts to improve the operating environment for the GENCOs [power generation companies].

Site Selection: After the rejection of the Economic Partnership Agreement last year, what is the next chapter in trade and industrial relations with the EU?

Jacobs: Putting the record straight, the Nigerian trade statistics as released by the NBS [National Bureau of Statistics] in 2017 still shows that European countries dominate the country's sources of import. Six of the top 10 import sources are European countries, hence the country has not severed its trading ties with Europe. What we are only saying concerning the EPA is that the way the agreement is presently crafted would erode the gains that have thus far been recorded in the Nigerian manufacturing sector. Hence the need to restructure EPA in such a way that would be mutually beneficial.

Site Selection: The strong investment interest in Nigeria and other African nations from China is well documented. How would you like to see further collaboration with Chinese companies proceed now?

Jacobs: For investment among countries to be mutually beneficial, there is the need to ensure that local capacity is enhanced through such investment, because it is through such investment that we could have meaningful impact on the economy and in the lives of people of the country. Hence, to us as an association, we have always maintained the position that investment from Chinese companies and any other country must be structured in such a way that local physical and human inputs are used, and positive externalities in terms of other contributions to the Nigerian production value-chain and expertise on the management of such investment must rub off on Nigeria and her people.

Our position remains unchanged. Collaboration is no doubt good, and we will continue to negotiate with them, at least to achieve a win-win situation.

Site Selection: What is MAN's perspective on how to keep FDI focused on value-added activities that benefit Nigeria and its people in the long run, rather than falling into the resource-exploitative traps of the past?

Jacobs: It should be noted that the inflow of FDI to the country increased in the last two quarters of 2017, but the largest chunk went to the services sector, which has shown a lesser impact on the economy. MAN advocacy engagements with government and other stakeholders have always been to ensure improvement in the operating environment, particularly the infrastructure deficit confronting the country.

Undoubtedly, FDI is one of the ways to go. MAN has initiated a scheme known as Resource Based Industrialization, and the government has embraced it. This is simply saying that a factory established in Nigeria for a particular line of product should be able to utilize 100 percent local raw materials. Also, MAN encourages FDI a great deal, especially when it is juxtaposed with the fact that "it is better to have 1 percent of something than zero percent of nothing."

Site Selection: Describe specific industrial development niches in Nigeria that are perhaps less well known in the international community, but which represent opportunity for value-added investment.

Jacobs: By MAN classification, there are 14 industrial zones in Nigeria altogether. Lagos is well known for its industrial and commercial exploits amongst the comity of nations, but the development in Ogun's industrial clusters is also worthy of note by the international community. This development is made obvious by the continuous growth in the level of capacity utilization and the value of production taking place in the zone as made known in MAN Bi-annual Economic Reviews. The same can be said of Enugu/Anambra industrial zone and Kano industrial zone. These zones are emerging zones laden with incentives for investment and represent areas where investment could thrive.


"Lagos is well known for its industrial and commercial exploits amongst the comity of nations, but the development in Ogun's industrial clusters is also worthy of note by the international community."

Additionally, it must be emphasized that Nigeria is richly blessed with abundant natural resources to the extent that all these industrial zones can competitively survive, given the necessary infrastructure. Then again, there is market availability, as our population is an added advantage.

Site Selection: Is a pan-African strategy for economic development achievable? Or is it best left to regions and nations?

Jacobs: I feel the pan-African development strategy is achievable even despite the differences in resource endowment of these countries, but it takes time, and as such it has to be promoted strategically — first with gradual development of infrastructure in individual countries, and from there to those that connect countries in the continent for meaningful exchange of goods that promotes all-around benefits for trading African countries. With this mutually beneficial trade, fiscal and monetary discipline among these African countries as a whole will tend toward sustainable growth.

Our take at MAN, generally speaking, is that this approach should be taken as a focus, and must be pursued as a goal irrespective of our diversities as a continent.

Despite concerns over cuts to many projects, Nigerian President Muhammadu Buhari in June signed the 2018 Budget at the State House in Abuja.

Adam Bruns
Managing Editor of Site Selection magazine

Adam Bruns

Adam Bruns has served as managing editor of Site Selection magazine since February 2002. In the course of reporting hundreds of stories for Site Selection, Adam has visited companies and communities around the globe. A St. Louis native who grew up in the Kansas City suburbs, Adam is a 1986 alumnus of Knox College, and resided in Chicago; Midcoast Maine; Savannah, Georgia; and Lexington, Kentucky, before settling in the Greater Atlanta community of Peachtree Corners, where he lives with his wife and daughter.

   



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