Okoye: Manufacturing Sector Beset by Inadequate, High Cost of Credit

The Nigeria Employers Consultative Association recently elected the Chief Executive Officer of Juhel Nigeria Limited, Dr. Ifeanyi Okoye, as its president and chairman of council. Okoye shares his thoughts on the economy in this exclusive interview. Dike Onwuamaeze brings the excerpts

Congratulations on your recent election as President and Chairman of the Council of the Nigeria Employers Consultative Association (NECA). How did you receive the election?  

As mentioned in my acceptance speech, I am committed to advancing the course of NECA member-companies and in deed the organised private sector. With the support of our members and colleagues in the management committee, we can achieve more and reposition the private sector as the true engine of development. This reflects my excitement about being elected the President of NECA. Are there economic challenges? Yes, there are! Are the challenges surmountable? Yes, they are also surmountable! But we will work with all stakeholders to ensure that our country will continue in the path of sustained and inclusive growth.

What should members of NECA and Nigerian business community expect from your leadership?     

The core mandate of the association is advocacy, specifically aimed at influencing the creation of a business-friendly environment for organised businesses. We would continue to deepen our engagement with all the tiers of government and the business community to ensure that all that are needed to be done are done and on time too. The imperative for sustained growth cannot be over-emphasised, thus, we will continue to leverage all opportunities and partnerships within and outside the country to keep the private sector sustainable and competitive.

You are coming in at the time the federal government, organised businesses and organised labour have concluded the new minimum wage. What is your view on the N70,000 minimum wage? 

Even though the N70,000 new minimum wage that has been signed into law by President Bola Ahmed Tinubu did not align with our position of N62,000, we are however committed to implementing the new law. It is instructive to note that the government must also play its part in facilitating an environment that will enable the private sector to pay. Beyond the approved figure of N70,000, the need for rapid economic growth is very important. With the current increasing cost of doing business and cost of living, there’s a lot to be done to strengthen the Naira and the economy generally. Without addressing the fundamentals of the economy, the high cost of living will continue to neutralise the value of whatever figure is approved.

Recently, the federal government removed duties and VAT on importation of raw materials for the pharmaceutical industries and others. Are these enough or do you expect more?

First, we want to commend the federal government again for this measure, which will no doubt moderate the cost of pharmaceutical products in the country. The saying that health is wealth is true and all efforts to reduce the cost of drugs should be commended. Notwithstanding the government’s intervention in the pharmaceutical industry, the business community awaits the prompt implementation of the relieve and expects a robust stakeholder’s engagement (public and private).  This will ensure that all relevant government agencies (the Nigeria Customs Service, FIRS, etc) will be on the same page in the implementation while bonafide private sector beneficiaries are determined. 

Some of the multinationals that exited from Nigeria are players in the pharmaceutical industry. What is your concern about this trend?

What is going on is called capital flight in economics, which is tragic for economic growth and employment sustenance. The trend is not a good trajectory for the country.  I am not surprised that the pharmaceutical sector is most affected as the sector utilises a significant proportion of foreign raw-materials and other inputs, say 50 per cent notwithstanding the persistent shortage of forex. For years, capacity utilisation in the sector has been one of the lowest among other sectors as it averaged a sub-optimal 56.8 per cent from 2021 to 2023. Unfortunately, the recent implementation of total floating exchange rate regime was the last straw that broke the camel’s back. It is, therefore, important that government review the foreign exchange policy and implement a regime that is proven to support businesses.

What is the NECA’s reaction to President Bola Tinubu’s Economic Stabilisation Programme (ESP), especially the N650 billion short term facilities for manufacturers and others?

The President’s Economic Stabilisation Programme is targeted at food security, improved power supply, enhanced social welfare and healthcare, increased energy production etc.  These are the core challenges of businesses in the economy, which I believe the programme can address. The manufacturing sector is beset by inadequate and high-cost credit supply. No doubt therefore, the N650 billion short term facilities will go a long way to support the sector, provided the final interest rate is liberal and is enjoyed by bonafide manufacturing companies. We await the full implementation to see how it goes.

How would you react to the proposed Manufacturing Stabilisation Fund to rejuvenate 250 companies with 9 to 11 interest rate long term facilities for large manufacturers and others?

 As earlier pointed out, the manufacturing sector has credit challenges across all categories – MSMEs and large companies.  The commercial bank’s short term lending rate is about 30 per cent, therefore, a long-term facility with interest rate between 9.0 and 11 per cent will no doubt create investment expansion and boost manufacturing activities in the country, particularly when complemented with sound infrastructure development, including electricity, etc. However, to achieve the objective of the facility, it is important that the manufacturing sector is thoroughly consulted to identify bonafide manufacturers accompanied with proper implementation. 

What is your reaction to increasing Nigeria’s on-grid electricity from 4.5 gigawatts to 6.0 gigawatts within six months as announced by the federal government?

Electricity production in Nigeria is heavily challenged across all value chains, be it generation, transmission and distribution. This accounts for the mere 4000MW daily supply, which unfortunately suffers collapse often.  Ideally, if we assume that the population of Nigeria is 200 million by the rule of thumb, we should have at least 200,000MW daily supply. Meanwhile, focus has been on transmission and distribution which have repeatedly failed to evacuate total generation due to limited facility.  Increasing on-grid electricity from 4.5GW (4500MW) to 6.0GW (6000MW) is desirable, which will mean that evacuation challenges would be significantly resolved through significant investment in transmission and distribution.

The federal government has communicated its intention to suspend sugar tax on non-alcoholic beverages for six months. What is your view on this?

Unfortunately, the call for government to impose additional 20 per cent tax on the final price of carbonated soft drinks is spearheaded by internationally funded Non-Governmental Organisations (NGOs) operating in the country. It is purely an interest-driven proposal by some unscrupulous individuals that have never invested in factory business in Nigeria.

The Non-alcoholic beverage sector is the major employer of labour and contributor to the Government’s revenue in addition to their rooted Corporate Social Responsibility (CSR). However, NECA has commended the   government for the six months’ suspension, but recommended that it should be completely jettisoned.  We believe that there are other ways of addressing the issue, which would require concerted stakeholders’ consultation.

The federal government is about to have a supplementary budget. What is the implication of federal government appetite for increased spending and borrowing?

There is no doubt that the supplementary budget will lead to increased borrowing by the federal government either from overseas lenders and/or local facility. Whichever way, it will be detrimental to both foreign and domestic investments.

The country’s Debt-to-GDP-Ratio is standing at 52.9 per cent, which is above the 50 per cent World Bank/IMF benchmark for developing countries. Also debt, Debt-Service-to-Revenue reached 73.5 per cent in 2023 and may even be more now.  These indices present serious warnings for the country.

The country is fast reaching debt-overhang and no serious investor will bring capital to a debt-ridden economy. It is, therefore, important that government should moderate the cost of governance so as to reduce borrowing, particularly if it cannot improve revenue at this point.