Greetings. My name is Eyitope.

I would like to learn a few things about manufacturing or production. I don't understand how a company or organisation that's into production make their profit. A person may send a prototype to China for mass production, then bring the finished goods to Nigeria for sale. I then wonder how profit is made in this case since the Nigerian Naira is used to purchase the Chinese Yen, which is much stronger than the Naira. In such case, (1) how does the business affect the economy of the country? (2) To the producer, how does he make profit? Lastly, (3) why and how come is it cheaper to manufacture abroad than at home?

Well, goods are produced in classes based on strength of materials and specifications: Class A( have strong material and high spec), B (fairly strong and high spec), C (fair material and fair spec), D(poor material n fair spec) and E( poor material n poor spec)...in China Nigerian importers only go for class D and E (buh mostly E) wic is cheap, and given dat China has work force and high tech, dis goods get manufactured as quick as possible (in d case of new products). The importer buys, bribe dia way tru our ports and sales at same price the class A of same products are sold.

Secondly, cost of production is high in Nigeria as a manufacturer has to provide all the basic amenities the govt are suppoz to provide b4 he even starts production (road for the distribution trucks, Electricity for the factory, even security) and at the end of the year d govt still Tax at the 3 tiers (federal (FIRS), State (Board of Internal Revenue) and Local Govt (Business Premises etc).

And how it affects the economy?...is wat we are both suffering now, there's no balance of trade (the goods u import from China keeps money u earned in Nigeria in China, the money looses it circulation strength becos China's not buying anytin frm us, not even crude), It kills/discourages local manufacturers sinx most imported goods are cheaper, becos d local manufacturers have to transfer the aforementioned expenses to the cost of his goods, it encourages inflation and loss of Forex(foreign exchange) as our naira will be losing value sinx no Chinese come to buy our product/goods or change Yuan to Naira (or even hoard naira and make it scarce).
Hope I attempted to answer ur question bro!
Dnt worry some better write ups are coming!
Nairaland guys will do justice to it!

Thank you. It was enlightening. But as you said, I'd anticipate more replies. Thanks again.

Nice thread! Wordproof really did answer your questions.

But i have a few input to his write-up. Companies don't pay taxes to State, they withhold personnel taxes for the state government (PAYE). So personnel taxes don't affect business cost (except maybe logistics and time from your accounting department).

As for the balance of trade, it simply a demand and supply thing: look at it this way, when you import you are creating a demand for dollars with respect to naira (because you need to change your naira to dollars), when you export you are creating a demand for naira with respect to dollars (but this is only true when you change the dollars to naira, else you haven't affected the exchange rate). In Nigeria, we import too much, from rice to vegetable oil to petroleum products: all these create a demand, a huge one compared to the few things we export (mostly agricultural products, and a few raw materials like solid minerals, charcoal etc, although the main exported product is crude oil).

All of a sudden the value of crude oil is less than 1/3 of its original value so we are currently exporting less in terms of value but our import is still these same (thus you huge increase in dollar value).

As for manufacturing, it really expensive in Nigeria; first, there are no basic amenities, then in places like China there are plenty options for anything you need, so competition (high) and prices are healthy (low). In Nigeria to build a textile factory for example, you need buy the machines from China import, transport these things to the site in Nigeria (after maybe buying the land at a high price), import the Chinese engineers to set up the machines, and train people. Finally, you will now pray for PHCN (or whatever they call themselves in your area) not to take light, or for rain not to fall, or for Avengers not to avenge, so that the prices of your product can be competitive (remember you still have to do some other logistics). So why not pay the Chinese guy and pick up your product at the port. Note, you have to do you finances to see what is financially feasible.

Anyways, I hope I didn't manage to confuse you.
PS - Apologies for any typo

No confusion at all. Thanks. I'm a mere student at the Federal University of Technology Akure (FUTA). So the above mean I'm right to say that manufactured goods in the country, which aren't exported but sold in the country, doesn't cause enough demand for the naira then.

TypeSeven:
No confusion at all. Thanks. I'm a mere student at the Federal University of Technology Akure (FUTA). So the above mean I'm right to say that manufactured goods in the country, which aren't exported but sold in the country, doesn't cause enough demand for the naira then.

Yes and no.

If it's a substation of something that would normally have been import, then you have reduced the demand of dollars and naira may appreciate (assuming the produce forms a significant amount of total imported product)

If the product was normally obtained locally, then you have done nothing because nothing has changed.

But remember, this is a very simplified way of looking at things.

Alright, thanks. But I also don't get this: There are some companies like Honeywell , Cadbury, etc that manufacture in Nigeria. I don't suppose they export the products (that is, no foreign exchange) and yet they make their profit, the same industries that I thought should better the economy. So how do these category of foreign industries (e.g. Cocal-cola in Nigeria) better the economy since they don't export their produce made in Nigeria, but still make profit in this same Nigeria ?

TypeSeven:
Alright, thanks. But I also don't get this: There are some companies like Honeywell , Cadbury, etc that manufacture in Nigeria. I don't suppose they export the products (that is, no foreign exchange) and yet they make their profit, the same industries that I thought should better the economy. So how do these category of foreign industries (e.g. Cocal-cola in Nigeria) better the economy since they don't export their produce made in Nigeria, but still make profit in this same Nigeria ?

Again, yes and no.

Profit and contribution to the economy is not a matter of import or export, it's a matter or revenue over expenses. Simply put if you make more money than you spend during a production process, then you are making profit (simplified version). Also, the fact they are making profit now doesn't mean their manufacturing process is most efficient, if for example light improves and the government make policies that is attractive to the manufacturing sector, then the efficiency increases, profit margin increases, thus, if they have competition prices drop because both will be competing for bigger market share. If the reverse is the case like increase in fuel or exchange rate, less profit margin, consequently increase in prices to stay profitable.

As for aiding the economy, there are two aspects (maybe more sef but am simplifying things): are all the raw materials obtained from Nigeria or imported and even if they don't export, if they were not there would their products be imported to meet demand. If their raw materials were imported, then they are contributing to dollar demand. If their product is not there, there is a tendency to import to meet internal demand, thus manufacturing in Nigeria may actually reduce demand for dollar by virtue of making available products that would have normally been imported and thus, increase dollars demand.

Hope the above makes sense, again forgive any typos

Perfectly understood. I'm satisfied now. Thanks.