We all saw it coming, what with Dunlop and Michelin pulling out. Operational costs, forex issues caused these two big tyre manufacturers to move out of our shores.
The Federal Government in 2006, reduced the tariff on imported tyres from 40 percent to 10 percent. This coupled with poor power supply led to Dunlop shutting down operations in 2008. And to pay off N8 billion in loans, the firm in 2012, decided to sell several assets which was eventually completed in 2014.
According to the Coordinator of Standard Organisation of Nigeria in Kwara at a point, Sunday Yashim, the influx of ‘tokunbo’ tyres (fairly used tyres) forced the Dunlop and Michelin tyre manufacturers in Nigeria to relocate to Ghana. Unfavorable business environment, that was it.
US multinational consumer goods company, Procter & Gamble, announced plans to terminate its on-ground operations in Nigeria, transforming the country into an import-focused market.
The Chief Financial Officer, Andre Schulten, spoke at the Morgan Stanley Global Consumer & Retail Conference in New York, citing challenges operating as a dollar-denominated organisation in Nigeria’s complex macroeconomic environment.
Despite being a $50m net sales business in Nigeria, P&G, with an $85bn overall portfolio, said that it expected minimal impact on the group’s balance sheet in terms of sales or profitability.
For Schulten, “The other reality that arises in some of these markets is that it gets increasingly difficult to operate and create US dollar value. So when you think about places like Nigeria and Argentina, it is difficult for us to operate because of the macroeconomic environment.
“So with that in mind, we are announcing a restructuring programme with the intent to adjust the operating model and adjust the portfolio to ensure that we maintain the portfolio discipline that has brought us to this point.
“The restructuring programme will largely focus on Nigeria and Argentina. We’ve announced that we will turn Nigeria into an import-only market, effectively dissolving our footprint on the ground in Nigeria and reverting to an import-only model.”
This is an age-old issue which remains our adversary. Manufacturers Association of Nigeria (MAN) has never stopped crying against it. It has become a sing song for this manufacturers’ advocacy group and other groups like Lagos Chamber of Commerce and Industry(LCCI), andNigeri.an Association of Chambers Commerce Industry and Agriculture (NACCIMA).
Only recently, MAN came up with the following recommendation which it believes will make the manufacturing sector blossom:
o Stakeholder Dialogue: The government should engage in constructive dialogue with the stakeholders in the private sector to share their concerns, provide feedback on the potential impacts of the policy changes, and collaborate on finding solutions to mitigate adverse effects on businesses.
o Policy Clarity and Predictability: The government should provide clear and consistent policies to provide certainty for businesses. Frequent policy changes and uncertainties could hinder long-term investments and growth.
o Economic Impact Assessment: The government should conduct a comprehensive economic impact assessment of the fuel subsidy removal, exchange rate changes, and other policy measures. This assessment should identify potential challenges and opportunities for the private sector and inform further adjustments to the policies if necessary.
o Access to Credit: To ensure the effective implementation of the plans to support the manufacturing sector and MSMEs, the government should provide streamlined processes for accessing credit and preferential terms that are suitable for different types of businesses.
o Infrastructure Development: The government undivided attention and priority be paid to infrastructure development projects to enhance transportation, logistics, and energy supply. These improvements will positively impact on businesses’ efficiency and reduce operational costs.
o Support for Workers: While supporting the introduction of a new national minimum wage, we emphasize the need for a balanced approach to ensure businesses can manage labor costs without compromising employment stability.
o Transparent and Efficient Implementation: We recommend transparency and efficiency in the disbursement of funds and implementation of support programmes. This will ensure that the resources reach intended beneficiaries promptly.
o Continuous Monitoring and Feedback Mechanism: Government should establish a monitoring and feedback mechanism to assess the effectiveness of the implemented policies and make necessary adjustments based on real-time feedback from businesses.
o Regulatory Reforms: We recommend regulatory reforms to improve the ease of doing business in Nigeria. Simplified and efficient regulations would attract more investments and foster a conducive business environment.
o Social Safety Nets: To mitigate the short-term impact of the policy changes on vulnerable groups, the private sector advocates for the government to implement social safety nets or targeted support programs to protect those most affected.
o Long-Term Economic Vision: The government should articulate a clear long-term economic vision that outlines the pathway to sustainable economic growth, job creation, and poverty reduction. By providing these recommendations, we aim to work collaboratively with the government to ensure that the economic reforms are balanced, sustainable, and beneficial for all stakeholders.
Other Specific Recommendations
- Prioritize forex intervention for raw materials and machinery for industries.
- Improve forex allocation to the industrial sector.
- Develop a roadmap for improved power supply, including off-grid solutions and private sector-driven independent power projects.
- Promote renewable energy sources such as solar and wind.
- Resuscitate national refineries for local fuel production.
- Review domestic gas pricing.
- Encourage investment in gas aggregation to reduce gas flaring.
- Address the oil theft to optimize crude oil production based on OPEC quotas.
- Incentivize local raw material development, especially Active Pharmaceutical Ingredients (API) and basic chemicals.
- Focus on backward integration and resource-based industrialization.
- Publish a list of approved harmonized taxes and levies for the manufacturing sector.
- Implement and enforce the harmonized taxes and levies.
- Develop a framework for transition of informal sector operators to the formal sector.
- Expand the tax base without increasing the burden on existing taxpayers.
- Invest in transportation infrastructure (road, rail, waterways) to reduce transportation costs.
- Enhance ports infrastructure and streamline operations.
- Revive rail tracks connecting ports to industrial areas.
- Promote harmonious cooperation among government agencies at ports.
- Implement a single window platform to streamline customs procedures.
- Improve efficiency in clearing machines and raw materials at national ports.
- Establish a monitoring and evaluation platform with private sector representation for development fund disbursement oversight.
- Provide credit guarantees for industrial loans from commercial banks.
- Create development funding opportunities with liberal conditions for SMEs.
- Strengthen the Bank of Industry (BOI) and Bank of Agriculture (BOA) to provide finance for the manufacturing sector.
- Make the CBN non-oil export stimulation facility accessible to the productive sector with favorable terms and conditions.
- Allow industrial policies to mature with proper monitoring and evaluation.
- Strengthen the implementation of Executive Orders 003 and 005 and monitor compliance across MDAs.
- Facilitate collaboration of fiscal and monetary authorities to formulate policy measures that will address high inflation in the country.
Why haven’t we been able to stem this problem with these myriad of observations and recommendations?
Enterprise Issues
With Siaka Momoh