Manufacturing: KPMG Cautions Against Adopting Devt Plans from Other Nations

James Emejo in Abuja

Partner and Chief Economist, KPMG Nigeria, Dr. Yemi Kale, has warned copying and adopting out-dated development plans of countries supposedly dominating the manufacturing space must be applied with caution.

Kale also stressed that addressing the country’s infrastructure challenges would require sustained expenditure of $14.2 billion annually or 12 per cent of GDP over the next decade, adding that Nigeria currently spends $5.9 billion yearly.

Speaking on “Manufacturing for Prosperity: A Roadmap for Industrial Growth in Nigeria,” which was presented at the just concluded 29th Nigerian Economic Summit (NES#29), the former Chief Executive, National Bureau of Statistics (NBS) said most available plans currently being taunted as appropriate in fixing the Nigerian manufacturing sector are often out-dated and “do not reflect the shifts from traditional manufacturing approaches, apart from not reflecting the unique challenges of Nigeria”.

He said the country’s manufacturing sector lacked depth as most of its growth are driven by few sub-sectors.

Kale noted that only three sub-sectors accounted for about 76 per cent of manufacturing GDP in 2022 while growing global Environmental, Social and Governance (ESG) concerns and technological shifts are gradually making products of sub-sectors including plastic and rubber products, motor vehicles, and assembly less attractive.

He said geopolitical tensions and de-globalisation, particularly the Russia/Ukraine War, US-China tensions, Taiwan-China conflict, Israel – Palestine dispute, and military coups in some African countries pose major external risks to the manufacturing sector – their implication for fuel and other input costs.

According to him, greenfield FDI has continued to decline in 2023, stressing that the economic turmoil of 2022 as well as the implementation of international taxes will turn out important risk drivers for FDI levels.

He said though the sector remained crucial for employment opportunities, stimulation of favourable trade balances as well as economic diversification and reduced dependency on oil, import substitution and export promotion as well as boost in government revenue among others, the policy environment was not favourable for MSMEs amid concerns around multiple taxation, ease of doing business and security architecture.

He also pointed out that OPEC cuts could trigger another energy and commodity price surge which may further increase the operating cost of the manufacturing sector.

According to him, Nigeria’s infrastructure deficit amounts to 30 per cent of GDP compared to the 70 per cent international benchmark set by World Bank reflecting a 40 per cent gap.

However, he pointed out that to successfully unlock the full potential of the manufacturing sector to drive prosperity in Nigeria, there is a need to emphasize the deployment of technology and R&D in all manufacturing processes.

The KPMG chief economist said in a highly competitive and constantly evolving global market, there was also the need to constantly rethink and adapt local marketing, branding and sales models to enable the sector compete more efficiently in the global space.

According to him, MSMEs remained vulnerable to macroeconomic shocks including inflation and devaluation and lacked the sophistication to detect demographic shifts and preferences and develop effective responses.

Creating a linkage among high inflation, high production costs and demand destruction, Kale, further explained that by mounting an upward pressure on production costs and lowering consumer purchasing power, inflation complicates investment decisions by bringing higher uncertainties to manufacturing which is already exposed to market risks.

Moreover, he said heavy tax burden on the manufacturing industry, increases operational costs, discourages investments, increases compliance complexities and lowers competitiveness.

He said, “The dearth of credit limits the ability of the manufacturing sector to raise finance for expansion. In addition, widespread insecurity disrupts input supply chains and raise the prices of critical inputs

“The policy environment also adversely impacts the manufacturing sector. These usually take the form of poor policy design and implementation, bureaucratic delays and policy inconsistencies caused by changes in government.”