After decades of stop-start economic plans and inconsistent government policies on foreign exchange, Nigerian manufacturers have learnt to be pragmatic. The opportunities of a growing and aspirational consumer market are offset by supply chain challenges and high costs resulting from woeful infrastructure. Uneasy and expensive relationships with regulatory bodies, the trials of dealing with corrupt officials and occasional security challenges can make it a stressful experience for any chief executive.
Despite these drawbacks, some of the world’s largest consumer goods companies have reaped the benefit of their investment in Nigeria during better years, resulting in strong earnings and dividends. Small businesses set up over the years by Indian, Lebanese and Hong Kong Chinese families have prospered, often by supplying those multinationals with locally manufactured goods, especially packaging. Businesses that have taken a longer-term view, continued to invest and been patient through the leaner years have built the know-how to withstand political and economic unpredictability. Nevertheless, after a decade of comfortable double-digit growth, even the most experienced managers are now panicking.
I am often asked for advice by prospective investors who are eager to understand how to manage three main challenges: security, corruption and government red tape.
The past year has seen a fourth concern added to the list: scarcity of foreign exchange. Practised executives have long learnt how to manage the security and corruption concerns — two areas where President Muhammadu Buhari has made genuine if spasmodic progress. However, when it comes to bureaucracy and foreign exchange availability — topics inextricably linked in the minds of manufacturers and investors — life has rarely been more difficult.
Nigeria has been calling for more locally produced goods for years. Various governments have experimented with duty rates and threatened import bans to persuade investors to develop large-scale agriculture and food manufacturers to use more local materials. There have been genuine attempts to do so but overall the “grown in Nigeria” movement has stalled.
Collapsed transport infrastructure makes distribution difficult so that more than half of the produce, particularly from the north, fails to make it to market. Corrupt regulatory and customs officials disrupt attempts to export and the government has cancelled export incentives due to their misuse. Inconsistent policy and failure to co-ordinate across ministries contributes to the manufacturing sector’s failure to be competitive.
Under President Buhari, political clamour for locally produced goods has increased but government policies have deepened manufacturers’ woes. The low oil price means there is a shortage of foreign exchange, but the distressingly opaque foreign exchange system militates against producers in favour of central bank cronies.
What is depressing is that while food and beverage companies are straining to increase locally sourced inputs and there is an abundance of start-ups making local fruit- and vegetable-based products, much packaging is imported and now in short supply. Several local card and plastic pack makers have closed down and the two largest have warned their customers they will run out of material in weeks.
Official statements from the ministry of finance that the economy has been in a recession for two quarters ignore sectorial differences. Manufacturing has been in decline for five consecutive quarters and is down to around 6 per cent of gross domestic product having previously been 9 per cent. Economists suggest that Nigeria will need the sector to be running at double that rate if it is to contribute to a recovery.
Experienced managers know that weathering a storm will eventually lead to calmer waters, but Nigeria needs to attract more investment into the real economy now.
The writer has 20 years’ experience of running companies in Nigeria