Manufacturers dump Nigeria, move operations abroad

SOME local and foreign manufacturers are dumping Nigeria and moving operations to other parts of the world with better operating environment, Economy Post has found.

Technoflex Company Limited, previously a member of the Manufacturers Association of Nigeria (MAN), was a player in the industrial plastic and foam sub-sector. However, its owner, Mr Obiora Okafor, recently shut down the company and relocated operations to the United States owing to the rising production costs in Nigeria.

Foreign exchange crunch, multiple taxation and energy expenses forced the manufacturer out of Nigeria, according to those familiar with the Onitsha, Anambra-based firm.

Similarly, a company named Tatula Limited used to operate in Asaba axis in Delta State. A producer of leather products, Tatula Limited relocated its operations to China in 2022 due to a combination of scarcity of raw materials, high production cost and foreign exchange crunch.

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Its Managing Director, Mr Abbas Yagudu, told Economy Post that the firm would no longer operate in Nigeria owing to a myriad of problems besetting the industrial sector of Africa’s most populous nation.

“We are here because it is much better. Interest rate is less than five percent and the operating environment is better. You can predict the number of taxes you will pay and know how much to part with. It is not a perfect place, but it is still much better than Nigeria,” he said.

The company now produces and sells to Nigerian importers.

More so, Kenfrancis Limited, a player in the agro processing industry, has relocated part of its operations to Ghana. Even though the Ghanaian economy is challenged, the company said cost of operations was still much lower.

“The cost of production is still better. There is certainty in terms of tax, credit, policies and all that, but you do not have that in Nigeria. So, what we are doing is to reduce the risk exposure to Nigeria and invest in other similar economies where things seem better,” Chief Executive Officer, Mr Francis Okeleke, told Economy Post.

Last Thursday, GlaxoSmithKline had announced plans to cease operations in Nigeria, ending its 51-year-old production operations in Africa’s biggest economy.

The producer of Panadol and Sensodyne said it would adopt a distributor-led model, rather than produce locally.

“In our published Q2 results we disclosed that the GSK UK Group has informed GlaxoSmithKline Consumer Nigeria PLC of its strategic intent to cease commercialization of its prescription medicines and vaccines in Nigeria through the GSK local operating companies and transition to a third-party direct distribution model for its pharmaceutical products,” the company said in August 2023.

These are not the only companies that have moved their operations to other countries. Some Lagos-based Chinese firms such as Grief, Universal Steel, and Industrial and Farm Equipment have all shut down and moved back to their countries.

Investment is falling

Investment in the manufacturing sector is falling. In 2014, investors pumped N691.77 billion into the manufacturing sector. Things have not been the same since then, as investment in the sector decreased to N496.11 billion in 2019 and to N118.52 billion in 2020.

in 2021, investment rose to N305.02 billion and to N323.98 billion in 2022. In the first half of 2013, investment in the sector stood at N192.89 billion.

Source: MAN, Economy Post

In other words, between 2014 and 2022, investment in the manufacturing sector fell by 53.3 percent.

READ ALSO: How tough environment sent over 100 Nigerian factories out of business

“Several companies in our sub-sector have gone under or exited the manufacturing sector because it is no longer exciting to be in the business. You can count them with your fingers because many are exiting due to poor policies over the years,” said Chairman of Qualitek Industries, Engineer Oluyinka Kufile, who is a major player in aluminium and steel sector.

Companies shutting down

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, Economy Post earlier reported.

The list of shut-down companies include: 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.

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.

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

Challenges persist

There are several reasons for their exit ranging from foreign exchange crisis to high energy prices and cost of funds.

Diesel price has crossed N1,000 per litre, just as petrol hovers between N617 and N700 per litre at petrol stations. Gas price is also very high and is sold in dollar.

Source: MAN, Economy Post

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.

Also, the cost of a dollar has hovered between N750 and N990 in the official market and between N1,000 to N1,350 at the parallel market in the last one month. The Central Bank of Nigeria (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 forex.

“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 forex,” she added.

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 pegged by the CBN at 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.

Policy somersaults and inconsistencies are also key issues hurting the sector, forcing manufacturers to exit.

Way forward

What can Nigeria do to reduce factory closures and retain investors? There are several available solutions, but most experts want politicians to make the operating environment friendly.

Chief Executive Officer of Centre for Promotion of Private Enterprise, Dr Muda Yusuf, said the entire economy must be rejigged, arguing that there must be a new energy policy.

He noted that manufacturers were not competitive owing to high energy cost, high interest rate, poor infrastructure and logistics as well as policy flip-flops.

“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.

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In a statement signed by MAN Director-General, Mr Segun Ajayi-Kadir, the association said foreign exchange intervention for raw materials and machinery for industries must first be prioritised.

“We must improve 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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  1. Whilst staying fixated on the Western capitalist model, believing that there is no option, we need to shift our mind to how to moderate the model to address the local context of the Nigerian/African market challenge. Our financial education is fraught with misunderstanding of how prosperity is built in a sustainable manner. Rental extraction by the minority elite is not sustainable neither is the existing democratic model.


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