Harsh operating environment claims 834 Nigerian manufacturing companies

http://www.punchng.com/Articl.aspx?theartic=Art20101031539615

By Layi Adeloye
Sunday, 31 Oct 2010

A total of 834 manufacturing companies closed shop in 2009 as a result of their inability to continue to cope with the challenges posed by the harsh operating environment in Nigeria.


Besides, about half of the remaining operating firms have been classified as “ailing,” a situation that poses a great threat to the survival of manufacturing in the country in the next few years.


According to a survey carried out as part of its membership operational audit in January 2010 by the Manufacturers Association of Nigeria, the 834 figure represents the cumulative aggregate of firms that shut down their operations in 2009 across the country.


An update on the trend has been scheduled to be carried out in November this year. Importantly, the aim of the fresh survey is to know how many companies have stopped operation between December 2009 and November 2010.


The MAN survey usually covers five manufacturing enclaves, into which the country is divided, in terms of manufacturing activities. These include the Lagos, Northern, South-East, South-South and South-West areas.


The report of the survey, exclusively obtained by our correspondent in Lagos, showed that in 2009, a total of 176 firms became terminally sick and collapsed in the Northern area, comprising the Kano and Kaduna states manufacturing axis.


In the South-East area, which comprises Anambra, Enugu, Imo and Abia states, a total of 178 companies closed shop during the period, while in the South-South area, which consists of Rivers, Cross River and Akwa Ibom states, 46 companies shut down operations before December 2009.


According to the survey, the South-West area, which comprises Oyo, Ogun, Osun, Ondo, Ekiti, Kogi and Kwara states, lost 225 member companies during the year.


It said the Lagos area, covering Ikeja, Apapa, Ikorodu and other industrial divisions in the state, followed closely with 214 manufacturing firms closing shop before the end of 2009.


The preponderance of the failed companies in the South West and Lagos industrial areas was, however, explained in terms of the two areas having the largest concentration of industries in the country and the introduction of some negative policies by some state governments in the areas. For instance, the survey revealed that the South-West manufacturing axis suffered the highest casualty in terms of operational stoppage, owing dominantly to the impacts of some negative policies of some state governments in the zone in recent times, especially policies bordering on multiple taxation and levies.


It was, however, silent on the number of firms that had relocated from Nigeria to neighbouring countries as a result of the hostile operating environment in the last few years. But investigations by our correspondent revealed that information on such firms had always been scanty and difficult to get as a result of the unwillingness of the managements of such firms to make it public.


MAN, however, declined to give specific names of companies that have closed down.


A source, who preferred not to be named, said some of the affected companies were still under receivership and would not want their names mentioned to avoid problems, especially with their bankers.


The huge number of closed manufacturing firms has worsened the country‘s growing unemployment rate and may hamper economic growth, according to experts.


An economic analyst and former United Nations Development Programme‘s top economist, Dr. Warea Thomas, said, ”The fact is that when a company stops operation, the workers there become the frontline victims. If 834 firms were officially given by MAN to have closed shop in 2009, it is easy to speculate that not less than 83,400 jobs were lost in that year alone, if we assume that they were all medium-size manufacturing firms, with each having 100 workers.


”Apart from job losses, the depletion to the national Gross Domestic Product and a scare syndrome it creates to the outside investment market are serious reasons why the government should consider tackling the problems associated with the declining trend headlong.”


A top industry player, who spoke in confidence to our correspondent, said, “Because divestment from Nigeria to other countries is a survival strategy, most of them (mainly multinationals and big companies), go into the neighbouring countries, and start operating under different names. The reason is that they are wary of what the Federal Government‘s move may be against them, if the move is made public.”


The President of MAN, Chief Kola Jamodu, had, at an interactive session with journalists in Lagos, penultimate Wednesday, identified the problems of the manufacturing sector as institutional and policy challenges, ”which rest mainly with the various tiers of government to tackle.”


According to him, the most debilitating among the challenges faced by manufacturers include poor power supply, dilapidated infrastructure, policy inconsistency, multiple taxation and lack of adequate take-off incentives for new businesses, among others.


”A situation, where the manufacturer is the government onto himself; providing power, water, roads and other infrastructure, and at the same time, paying a plethora of taxes and levies that are not coordinated, is enough to kill any business.


”The problem is often compounded by the government‘s penchant for reversing industrial policies haphazardly from time to time. These, coupled with the general poverty in the land, place serious strain on manufacturing firms,” he said.


The National President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Dr. Simon Okolo, said the current malaise in the Nigerian manufacturing sector was rooted in the Structural Adjustment Programme, introduced by former president Ibrahim Babangida‘s administration in 1986.


He said, ”The introduction of the obnoxious SAP and the devaluation of the Nigerian currency (naira) by the Babangida government (especially with some of the conditions of the International Monetary Fund loan) in 1986 posed a grave danger to manufacturers, as those of them that used imported raw materials could no longer conveniently do so due to the prohibitive cost of imported goods as a result of the naira devaluation.


”Another factor responsible for the collapse of Nigerian companies, especially in the manufacturing sector, has also remained policy inconsistencies on the part of the government. The crippling investment climate, worsened by infrastructure deficit, is a complementary factor that nails the coffin in the head.”


The immediate past President, Lagos Chamber of Commerce and Industry, Otunba Solomon Onafowokan, blamed the trend of collapsing industries on successive administrations‘ lack of political will to tackle the protracted power and infrastructure problems in the country, among others.


Jamodu said efforts to salvage the situation underscored MAN‘s incursion into floating an Independent Power Project that would take care of the power needs of its members.


On the implication of the collapsing industrial firms on the nation, the Director-General, MAN, Mr. Jide Mike, said the trend had worsened the unemployment situation in the country. The March 2006 edition of MAN Newsletter, the official mouthpiece of the association, had put job losses in the sector between 1983 and January 2006 as ”approximately 4.2 million”.


But MAN says between 2006 and 2010, despite inadequate official statistics, over one million additional jobs have been lost in view of the continually failing firms.


Amid the collapsing industries and businesses, the Federal Government recently said, however, that it was targeting a three per cent reduction in unemployment rate in one year. According to the Minister of Finance, Mr. Olusegun Aganga, who spoke with journalists on the sidelines of the last World Bank/International Monetary Fund meetings in Washington, DC, United States, the current unemployment rate of 19.7 per cent is high in a country of 150 million people.


He had therefore said that the government was planning to create as many jobs as possible, but added that he could not give a figure of how many jobs would be created, until the employment creation committee, which was considering workable strategies, came out with its target.


He had noted that the majority of Nigeria‘s population, between the ages of 15 and 24 years, were jobless, adding that 49 per cent of unemployed Nigerians lived in the urban region.