Manufacturers Contemplate Exit As Production Cost Rises By Over 50%

If the proposed common passport by the African Union (AU) becomes a reality, Nigeria may experience another round of exodus of industrial firms to neighbouring countries where the cost of production is cheaper.

Specifically, manufacturers decried the rising cost of production, noting that overhead cost incurred in providing alternative infrastructure like power is becoming unbearable for large and small-scale industrial firms who do not have capacity to invest in gas generators.

With the Automotive Gasoline Oil (AGO), known as diesel, which used to sell between N110 to N130 per litre, now selling for N200 per litre, manufacturers note that the cost of sustaining businesses through what should be an alternative power supply is becoming unbearable.

Similarly, capacity utilisation in the nation’s manufacturing sector continued to drop from its low record of about 50 per cent following poor gas supply to industrial layouts from Transmission Company of Nigeria.
Indeed, the power sector in the last few weeks had been at the mercy of militants who blew up gas facilities and further jeopardised the Federal Government’s plan to add another 6000 Mega Watts (MW) by July.

Many industrial firms, especially those operating in the food, beverages and conglomerates sub-sector had about a decade ago, relocated to Ghana after being offered incentives like 15-year tax holiday, free land and other policy initiatives which would drive their businesses.

With African Union pursuing a path of closer integration through the launch of a common passport that will grant visa-free access to all 54-member states as well as rising cost of power, the manufacturers noted that the integration decision may see Nigerian firms exploring manufacturing opportunities in other countries.

President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs in a chat with The Guardian, noted that the proposed union will facilitate free movement of persons, goods and services around the continent, thus fostering intra-Africa trade, integration and socio-economic development.

According to him, the deal is good for the productive sector that is presently troubled due to various challenges in the operating environment.

“The absence of conducive manufacturing environment and basic infrastructure would continue to draw back the sector, except something urgent is done to reverse the situation. Power is a major cost for manufacturers and they will explore opportunities where it is cheaper to produce their goods.

“Conversion of diesel generators to gas is a viable alternative but it is not cheap for small scale industries, while gas supply has equally be hampered by continued destruction of oil and gas facilities by militants,” Jacobs added.

Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf noted that businesses are being killed everyday through poor power supply and low purchasing power from consumers.

According to him, many manufacturers are wary of the economic integration agenda as it takes a highly competitive environment to survive in an integrated economy.

“Businesses are complaining. Petrol and diesel costs are unbearable at the current rates. It is a suffocating situation and I hope the issues of ease of doing business are addressed before opening markets to other economies,” he added.

The World Bank had in its latest report on the ease of doing business ranked Nigeria low among other countries.

Nigeria, the World Bank observed, presently ranks 169 out of 189 countries examined for trade index for the year 2015.

Similarly, a recent United States Department of Agriculture (USDA) review of the agricultural situation in Benin, showed that: “Benin serves as a delivery corridor for West Africa, reaching more than 100 million people in the landlocked countries of Niger, Mali, Burkina Faso, Chad and the Northern states of Nigeria.”
USDA observed: “Benin’s relatively efficient port services and liberal trade policies mean it is an important cog in the regional trade flows to nearby countries.”

The report noted that improvements in the country’s port operations as well as some small improvements in the ease of doing business over the past years aided the flow of imports in the country.

http://guardian.ng/news/manufacturers-contemplate-exit-as-production-cost-rises-by-over-50/