Shortage of forex, huge challenge to industrial sector –MAN DG


The Director-General of the Manufacturers Association of Nigeria, Mr. Remi Ogunmefun, outlines the implications of inconsistent policies, among other challenges facing manufacturers in the country. In this interview with OLUKEMI ADEBOYE, the industrialist urges the Federal Government to support and enlarge the capital base of development banks in Nigeria.

Uba Group

In 2013, with the rebasing exercise, the Nigerian economy was declared the largest in Africa, in terms of its Gross Domestic Product. How would you asess the economy today?

The Nigerian economy, as you are aware, became the largest in Africa in terms of its GDP as established in 2013, with the rebasing exercise. It is still a high-yielding economy with high returns on investment. The economy, though a high consumption one, creates an incentive for investors. However, like every other developing world, the economy has its challenges. Currently, it is grappling with shortage of forex, which is a huge challenge to the industrial sector that depends so much on imported raw-materials for production. With the challenges notwithstanding, the economy still holds much potential for investment returns.

Recently, the Nigerian Electricity Regulatory Commission announced that it would increase electricity tariff by February 1, 2016. What is your take on this and the effect on your operations?

Increasing the tariff at this point will further escalate the cost of production in the sector and further lower the competitiveness of locally made goods. MAN is always following with keen interest, issues relating to electricity supply and tariff. This is because of the high share of energy cost to total cost of production in the sector, which stands at over 40 per cent. Already, electricity supply from the distribution companies has been consistently abysmal, which has not in any way provided a concrete solution to the energy needs of the manufacturing sector. This assertion is supported by the huge expenditure by manufacturers on alternative energy source, which stood at N73.11 million on a monthly average in 2014.

Were you carried along in the process of increasing the electricity tariff?

We were not consulted and we won’t fold our arms on that.

What is your next move?

We have several cases in court on similar issues and they are ongoing. We have been putting our heads together with our lawyer for the possible next step. Also, the Federal Inland Revenue Service proposed the presumptive tax for small industries.

Considering the poor infrastructure base, is this timely?

Most of the developed economies are big because of the contribution of small businesses to their GDP and employment generation. The small industry is a special class of business, which, in fact, should be treated with caution. An interesting feature of this class of business is that it is much less capital intensive and yet a key driver of employment. Unfortunately, notwithstanding being less capital intensive, they are faced with the prevailing harsh business environment brought about by the acute shortage of economic infrastructure such as power supply; high cost and unfavourable terms of credit among others. Interestingly, a presumptive tax, which is a form of assessing tax liabilities, using indirect methods, may be ideal to get more people into the tax bracket. But it must be done in a way that small industries will not be taxed unfairly and inefficiently.

One of the key advantages of the Nigerian economy is its population, which does not translate into food on the table of the common man. What is the missing link?

Indeed, population is power and is capable of leading to significant economic growth and development. This is evidenced from the Asian Tigers, including China. However, the missing link in the Nigerian context is that a significant proportion of the huge population (about 170 million) are human capital deficient; they lack the basic skills needed for employment and entrepreneurship that will drive economic growth, and by extension, development. Unless there are proactive efforts geared towards ensuring the development of human capital in the country through education, skill acquisition and training, the huge population will remain grossly inactive while poverty will keep growing.

With the new interest rate regime, some banks still do not grant credit to SMEs. What is your take on this?

Well, it is important to make things clear at this point. The reason the commercial banks frown at lending to SMEs is not principally due to illiquidity. They do not lend to the SMEs due to the high risk of repayment default; the scales of business of the SMEs, which are usually unattractive to the banks is another consideration. In addition, many of the SMEs do not keep proper accounting records and often times are unincorporated. On the above tenets, even if the reduction in Monetary Policy Rate from 13 per cent to 11 per cent, and Cash Reserve Ratio

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