How tough environment sent over 100 Nigerian factories out of business

IN the last six years, more than 100 Nigerian factories have shut down operations due to a harsh operating environment that makes manufacturing business difficult.

Some of the factories were hard hit by foreign exchange scarcity, while others were either stymied by poor power supply or low patronage by consumers.

Economy Post also found that some firms were also exiting manufacturing business and moving onto more lucrative sectors such as oil and gas, mining, retail, among others.

The list of shut-down companies include: Kenfrancis Farms, Louis Carter Industries, Moak Industries, Freeman Industries, Quick Born Industries, Arabi Industries, Kamdy Industries, Locus Metals, Gorgeous Metal, Mother’s Pride and Brief Line International.

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Others are: Super Trust Chill Limited, Errand Products, Technoflex Limited, Deli Foods, Champion Foods and Allied Limited, Gornpisco Group, Sky Aluminium, Industrial and Foam Equipment, Mufex Industries, Universal Rubber and Peak Aluminium, among many others.

Source: MAN

Procter & Gamble closed its $300 million manufacturing plant at Agbara, Ogun State, in 2017, owing to harsh operating environment in Nigeria.

The ICIR mentioned other companies that have shut down recently to include: Grief Industries, Federated Steel, Iso Glass, Nasco Fibre, Standard Biscuits, among others.

The Punch also named MZM, Supercor Industries, Nipol Industries, Stone Industries, as some of the firms that have shut down recently.

Economy Post learnt from both the Manufacturers Association of Nigeria (MAN) and other groups that the number of factories that have shut down in Africa’s most populous nation in the last 6 years is more than 100. The majority of them are small-scale industries.

FX, power top reasons for shutdown

There were many reasons for the shutdown of the factories. However, the majority of them tapped foreign exchange scarcity and high cost of power as major reasons for their closure.

Moak Industries, a bottled water producer based in Ogun State, was once a manufacturer of “Meridian Waters.” The firm supplied water to residents of Sango-Ota and beyond.

However, its Managing Director, Mr Olatunde Akintunde, told Economy Post that the cost of raw materials led to its closure in 2021, noting that the rise in prices was fuelled by foreign exchange scarcity.

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“The cost of raw materials tripled because of high dollar cost. As a result of that, we had to shut down to stop losing money,” Mr Akintunde said.

Gornpisco Group was a manufacturer of ball pens for four years until 2019 when it could no longer afford to purchase its raw materials due to dollar scarcity.

Its Chief Executive Officer, Mr Lotanna Ikedi, noted that the cost of inputs rose sharply by more than 45 percent and his firm could not pass the cost onto the consumers.

“We could not compete, so we had to exit the market. It has been tough operating in Nigeria and we hope the government will take note of this and support manufacturers in the country,” Mr Ikedi counselled.

Louis Carter Industries was based in Nnewi, Anambra State. It was a major manufacturer of plastic gallons, buckets and wash hand basins. However, like many others, it closed down in 2017 owing to high cost of self-generated power.

“We were providing our own power because we were not getting electricity supplies from Enugu Electricity Distribution Company. At a point, our cost of production doubled and it was hard to even sell, given the tough competition in the market,” General Manager of Louis Carter Industries, Mr Ndubuisi Okoli, said. P& G ‘s $300m diaper plant, Agbara

Divestments going on

Several manufacturers are also responding by divesting to more lucrative sectors. Economy Post learnt from manufacturers that Ibeto Group has exited manufacturing for the oil and gas business.

Kenfrancis Farms has also exited manufacturing and agro processing for exports and oil/gas business. Its Managing Director, Mr Ifeanyi Okeleke, told Economy Post that he had no more interest in local manufacturing.

“Nobody goes into business to lose. We can no longer continue with the manufacturing segment because it is no more lucrative for us. In fact, we incurred losses for three quarters before shutting down by early 2018,” he said.

A Lagos-based nylon maker, Freeborn Industries, said it had exited the business for import and sale of retail products.

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“We are now in retail business. I am not sure the government is interested in making Nigeria a manufacturing hub,” Chief Executive Officer of the defunct Freeborn Industries, Mr Abubakar Dokwai, told Economy Post.

High cost of energy

The manufacturing sector is beset by a number of problems: high cost of diesel, dollar scarcity, poor infrastructure, low patronage, faking, among others.

Diesel cost has crossed N1,000 per litre, just as petrol hovers between N613 and N700 per litre.

Source: MAN

Members of MAN spent N25 billion on alternative power supply in 2014, N59 billion in 2015, N129.95 billion in 2016, N117.38 billion in 2017, N93.11 billion in 2018, and N61.38 billion in 2019. In 2020, cost of alternative power was N81.91 billion, falling to N71.22 billion in 2021 but rising to N144 billion in 2022. In the first half of 2023, cost of alternative power stood at N60.47 billion.

Manufacturers self-generate about 13,000 megawatts of electricity, according to MAN.

High Interest Rate

The cost of funds is high in Nigeria, according to businesses. The monetary policy rate (MPR), which is the benchmark interest rate in Nigeria, is 18.75 percent. Banks lend at rates ranging from 20 percent to 35 percent to manufacturers and other businesses. In 2016, the average interest rate to manufacturers was 22.35 percent, rising to 24 percent by the first half of 2023.

“Undoubtedly, one of the major hurdles confronting the manufacturing sector in the country is the high cost of obtaining funds. The lending rates offered by commercial banks to industries are significantly influenced by the continuous upward adjustments in the Monetary Policy Rate,” MAN said on its H1 2023 Economic Review.

Chief Executive Officer of Centre for Promotion of Private Enterprise, Dr Muda Yusuf, said the lending rate in the economy was very high and detrimental to investment and economic growth, noting that the new Central Bank of Nigeria (CBN) Governor, Mr Yemi Cardoso, must do something about rate increases.

“Small and medium enterprises pay as high as 30 percent interest on loans. For non-bank financial institutions, the rates are even more atrocious. This is not conducive for investment growth and job creation. Bringing down interest rate will require a mix of monetary and fiscal policies,” he said.

FX crunch is real

Manufacturers need the foreign exchange to import raw and packaging materials. However, the dollar and even the euro are scarce in banks. This is informed by low inflows from crude oil, which is the major source of the country’s foreign exchange.

The cost of a dollar has hovered between N800 and N990 in the official market and between N1,000 to N1,350 at the parallel market in the last one month. The CBN has responded by clearing banks’ forward deals and removing 43 items from the list of products prohibited from the FX market.

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However, there is yet no respite because Africa’s most populous nation isn’t earning enough FX.

“Export has stalled due to poor implementation of the Export Expansion Grant (EEG) and we can’t compete,” said a Lagos-based exporter, Ms Ann Umeh.

“We need to talk about helping Nigerian manufacturers export more products to bring in FX,” she added.

An lecturer of economics at Covenant University, Prof Jonathan Aremu, said the only sustainable way of boosting FX inflows was through a strong support for the manufacturing sector.

Insecurity, poor infrastructure

Insecurity is hurting manufacturers in all parts of the country. From the North-East to the South-East, manufacturers are hard hit by Boko Haram or unknown gunmen, who are kidnapping and enforcing rules that are harming businesses.

Coupled with this is the poor road network, which now makes transportation of inputs and finished products expensive. Manufacturers say it is more expensive to move goods from Lagos to Maiduguri than from Lagos to China.

“Apart from what you pay the truck drivers, you settle more than 100 security officials on the road, and settle agberos. Many times, your truck break down or tumble due to bad roads. This explains why many are not interested in manufacturing,” said a North-East-based manufacturer, who pleaded anonymity because he is also a politician

Making Nigeria a production hub

MAN has suggested measures that should be taken by the government to make Nigeria a manufacturing hub and stop incessant closure of factories.

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The group said the Nigerian government must fix the FX problem to enable local manufacturers to import inputs.

“There is a need to prioritize forex intervention for raw materials and machinery for industries, while improving forex allocation to the industrial sector. The government must develop a roadmap for improved power supply, including off-grid solutions and
private sector-driven independent power projects,” MAN said.

“It is also critical to promote renewable energy sources such as solar and wind, while resuscitating national refineries for local fuel production. We must review domestic gas pricing, focus on backward integration and resource-based industrialization, while publishing a list of approved harmonized taxes and levies for the manufacturing sector,” the group added.

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