During the cake cutting ceremony to mark the 50th Anniversary of the Manufacturers Association of  Nigeria (MAN) recently, many were optimistic when the Minister of Industry, Trade and Investments, Mr. Niyi Adebayo was making his remarks that the Manufacturing sector has huge potentials.

The Nigerian Economic Summit Group in its 2021 Macro Economic Outlook noted that manufacturing has huge potential to attract foreign direct investments into the country, but pointed out some reforms needed to achieve this.

Few days after Adebayo’s remarks, the Nigerian Economic Summit Group (NESG), report on 2021 Macroeconomic Outlook titled: “The Four Priorities for the Nigerian Economy in 2021 and Beyond,” giving credence to his assertion.The report stated that the manufacturing sector of the Nigerian economy is one of the six sectors with the potentials to attract more private sector investments, create jobs and reduce poverty in Nigeria.

It also x-rayed how Nigeria could attract investments into manufacturing through reforms and governmental actions that would make the sector attractive to private investments.

It stated that in terms of investment, the intersection of market opportunities and government support policies such as the Free Trade Zone’s and pioneer status incentives among others have resulted in the inflow of investments into the manufacturing sector in the past.

For example, over the years, companies such as the Nestle Nigeria Plc, the Dangote Group, the BUA Group, the PZ, the Beloxxi Industries, etc have invested in key areas of the sector, namely food processing, motor vehicle production, oil refinery, oil palm and cement due to the federal government’s private sector friendly policies like the Sugar Plan and the Automotive Industry Plan.

The NESG also cited a research conducted by the Nigerian Investment Promotion Commission’s (NIPC) on investment opportunities across different sub-areas in manufacturing in the country, which showed that the wheat, maize, sorghum, poultry, piggery, cassava, rice, renewable energy value chains and other sub-sectors such as pharmaceuticals and oil refining have huge investment potential for the private sector.

Other conditions that favoured the manufacturing sector include Nigeria’s large arable land, strategic geographical location in Africa, large market on account of its population of over 200 million people and opportunities presented by the African Continental Free Trade Area (AfCFTA).

The NESG said: “Nigeria’s reliance on imports, its large market and the coming into effect of the AfCFTA agreement present a huge opportunity for investment in the manufacturing sector, especially in areas such as agro-processing and light manufacturing.”

It, argued that government’s support is required to make the inflow of private investments into the manufacturing sector a reality as Nigeria’s recent experiences have shown that significant investments in manufacturing sector were realised when there is an intersection of market opportunities and government support.

Therefore, it recommended that the federal and state governments should come up with industrial policy and sectorial plans for identified priority areas in the manufacturing sector. Besides, the government should also demonstrate commitment in implementing existing plans, provide targeted infrastructure and address the challenge of insecurity in the country.

The report described Nigeria’s manufacturing sector as an untapped gold mine that could be answer to the country’s quest for improved foreign exchange earnings apart from the sale of crude oil that is currently the mainstay of Nigeria’s foreign exchange supply.

It stated that based on nominal GDP figures released by the National Bureau of Statistics (NBS), Nigeria’s manufacturing sector was valued at N19.54 trillion in 2020 against N16.78 trillion it commanded in 2019.

The manufacturing sector’s share of nominal GDP was below 10 per cent between 2015 and 2018 despite improving economic growth figures. But its share of the GDP increased to 11.6 per cent in 2019 and 12.8 per cent in 2020. The increase in 2020 was attributed mainly to high inflationary rate and large decline in the output of critical sectors as a result of the restrictions placed to control the spread of COVID-19 pandemic disease.

But the NESG, however, warned that opportunities are not enough to attract significant investment into the Nigerian manufacturing sector, especially given the country’s history of policy inconsistency.

“To attract significant investments and narrow the gap between potential and actual investments, federal government support for the sector is of utmost importance. Drawing from the experience of the few sub-sectors in manufacturing that have attracted investments in the last few decades, government support in the form of developing sector plans and intervening to resolve specific challenges faced by investors in the sector have been instrumental in attracting investment.

“When these two conditions are available, investors are more assured to make significant investments amidst structural challenges such as inadequate power supply and infrastructure deficit. Even when issues of policy inconsistency and regulatory heavy-handedness arise, they are often resolved while investors are protected by the government.

“A clear example is the development of the National Sugar Master Plan (NSMP) in 2012 and the commitment of the federal government to ensure self-sufficiency in the sugar industry. According to the National Sugar Development Council, over N157 billion has been invested in the sugar sector through the backward integration strategy since the implementation of the plan Master Plan.

“Industries such as cement and motor vehicle have also benefitted from government’s commitments, which are often shown by import restrictions, access to foreign exchange, industry coordination and political support from the Presidency,” the NESG report said.

The report also recommended some crucial actions required from the Nigerian government to attract significant investment into the manufacturing sector, which included the development of an industrial policy and sectorial plans for identified priority areas.

It said: “As revealed earlier, the few sub-sectors in manufacturing that have attracted private investment are those that enjoyed significant government support. As a way forward, the federal and state governments need to identify priority areas in the manufacturing sector and communicate this to investors.

“This must be followed by the development of an industrial policy and sectoral master plans that set clear goals, identify linkages, and devise strategies of attracting and maintaining investments in the sector. Not only will this create some level of certainty for potential investors, it will also highlight clear roles of stakeholders in achieving set goals.

The NESG also argued that sectoral development plans must be backed by the government’s commitment to ensure implementation.

It also tasked the Federal Ministry of Industry, Trade and Investment, and the Federal Ministry of Agriculture to be at the forefront of the implementation process by working with support from the Presidency to ensure positive results.

Moreover, stakeholders in the private sector must constantly hold the government accountable, monitor implementation and show the implications of lack of government commitment on both economic and social goals of improving the GDP and reducing unemployment and poverty.

The report also urged the government to address insecurity challenges in the country, which it identified as the biggest threat to investment in Nigeria.

It noted that both the Presidency and the National Assembly must provide security agencies with adequate resources to tackle the insurgency, banditry and other forms of social vices, adding that There must be clear key performance indicators and heads of security agencies must be sanctioned when they fail to meet relevant goals.

The government should also provide targeted infrastructure as “inadequate infrastructure has consistently featured as a limiting factor facing businesses in Nigeria. In several instances, all that is required to attract investment into certain areas of the manufacturing sector is to build new ports, market access roads, port access roads and provide adequate electricity. This must be considered as a priority of the federal and state governments.”

The NESG, however, pointed out that governments should demonstrate commitment in embracing public-private partnership models in developing infrastructure in consideration of the limitations associated with government finances and Nigeria’s large infrastructure deficit.

It identified access roads to sea ports and markets, rail, dry ports, seaports and renewable energy as priority infrastructures the country need to attract investment into the manufacturing sector.

The report also highlighted that the manufacturing sector in the country is dominated by informal players that are mostly micro, small, and medium enterprises.

According to data from the NBS, the sector is Nigeria’s third highest employer of labour with at least 5.4 million individuals in 2017, which represented seven per cent of Nigeria’s labour force.

However, only three out of 13 sub-sectors in the manufacturing segment of the economy accounted for 77 per cent of total manufacturing output in Nigeria in 2020. These three sectors were cement (17.6 per cent); food, beverage and tobacco (37.1 per cent) and textile, apparel and footwear (22.0 per cent).

This implied that the remaining 10 sub-sectors contributed a combined share of 23 per cent to manufacturing output in the year.

“Among the 13 sub-sectors, food, beverage and tobacco; chemical and pharmaceutical products and cement have been the best performing in the past four years in terms of output expansion. Average output growth in these industries were 2.2 per cent, 1.1 per cent and 2.3 per cent respectively, from 2017 to 2020.

“Growth of these sectors has been driven mainly by two factors, namely the availability demand and supportive government policy. For chemical and pharmaceutical products, higher demand for pharmaceutical products occasioned by the COVID-19 pandemic played a great part in improving the sector’s output,” the report said.

At present, according to the NESG, Nigeria has been unable to satisfy its local demand for most of its manufactured goods due to the low productivity level of the sector. This has created room for some countries in the Economic Community of West African States (ECOWAS) to import manufactured goods and re-export them to Nigeria.

In addition, available statistics also suggested that Nigeria is not producing enough manufactured goods for exports. Moreover, the structure of Nigeria’s manufacturing sector reflected weak diversification and the existence of untapped areas in manufacturing, thus, signifying numerous investment opportunities.

Despite the numerous opportunities in the sector, the quantum of investment in the manufacturing sector has been sub-optimal. In the last eight years, only N5.73 trillion (US$15.87 billion) has been invested in the sector. Specifically for FDI, the wide gap between announced investment and actual investment points to the low confidence level of investors in the real sector.

Between 2019 and 2020, investment announced stood at US$46.4 billion, with the manufacturing sector accounting for 25 per cent (US$11.56 billion) of these announced investments.

The NESG posited that policy and regulatory inconsistency are the major reasons for Nigerian manufacturing sector not to attract significant investments compared to other countries.