10 Problems of Nigeria Industrial Sector and Possible Solutions

Eradication or drastic reduction in unemployment rate requires high rate of industrialization. Reduction of unemployment rate is just one of the few benefits getting tagged along by industrialization.

Economic growth and development, improved infrastructures, technological advancement and diversification of economies all have a direct relationship with industrialization.

Taking a developed country such as South Korea into consideration. The economy of South Korea is the 4^th largest in Asia and the 11^th largest in the world. They have a mixed economy which is dominated by family-owned conglomerates called chaebol, typical example is the Samsung family.

Their main industries are the electronics (LG, Samsung), telecommunications (SK group) and automobile (Hyundai-kia) industries. As at this 2018, South Korea is ranked the 4^th easiest country in the world to do business with.

We can’t compare industrialization in South Korea with that of Nigeria, why? This is because the major problems serving as stumbling block to industrialization in Nigeria has been taken care of over there. They have a reliable power supply, skilled manpower, technology and favorable government policies etc.

Bringing Nigeria into focus now, according to Central Bank of Nigeria-CBN (2000:61-95), before independence in 1960, the Nigerian economy was mainly agrarian both in production for domestic consumption and exports.

Early manufacturing activities predating independence were limited to semi-processing of primary agricultural products as adjuncts to the trading activities of foreign companies.

The Agro-based manufacturing units that were established included vegetable oil extraction and refining plants, starch making, tobacco processing, pottery, raffia crafts, mat making, saw milling. Then followed by textiles, breweries, cement, rubber processing and plastic products.

Post-independence Nigeria witnessed national development plans, which provided the conceptual framework for the development objectives, strategies for industrialization, government participation in the process of industrialization, and the fiscal and related policies for influencing industrial development.

Overtime, the overall manufacturing capacity utilization which fluctuated between 70 and 75 % between 1975 to 1980 as a result of the over-valued Naira and substantial supply of imported raw material dropped to 37% in 1985, recorded 45% in 2005 and declined by 3.3% in 2006. The sectors’ share in the gross domestic product fell persistently from 9.2% in 1981-85 to 8.3% for period 1986-90, 7.5% in 1991-95 and 6.3% in 1996-98.

2005 CBN report on sectoral share in GDP recorded unimpressive growth in the industrial sector where manufacturing industry belongs. Agriculture 42%, services 15%, wholesale trade and retail trade 14% building and construction 1% and industry 28%.

Now, let’s consider the possible factors that are responsible for this deceleration in industrialization.

Problems of the Nigerian Industrial Sector

#1. Power Crisis

Power failure has been a problem in Nigeria since day one. It is quite unfortunate that after the privatization of the power company, we still haven’t witnessed any outstanding improvement in power supply.

Electricity is a very important and indispensable tool to industrialization. Most manufacturing processes are automated, computers and machines are not powered by water but by electricity, and in a situation where this driving force is dysfunctional, there is bound to be an impediment to most if not all industrial activities.

Nigeria now records a high rate of generators importation. Data on Genset Import/Export Trade obtained by Vanguard from the United Nation Statistic Division, showed that manufacturers of generators brought into the country different brands of generators worth $51.055 million in 2014/2015 and this figure is projected to hit $450 million by 2020.

Further analysis of the data, showed that Nigeria is the second biggest market for generator driven economy in Africa, after Egypt whose import stood at $58.6 million. And why wouldn’t Nigeria rank second when our streetlights are even powered by generators themselves.

Obviously, the reason for this high import rate is due to the long years of epileptic power supply to industries, homes, schools, hospitals etc.

#2. Misappropriation of Funds by Government

Some time ago, the federal government approved N3.9billion for power transmission infrastructure, weeks after the approval of N1.3billion for manpower development and training of 3,700 people under National Power Sector Apprenticeship Scheme (NAPSAS). And then I questioned myself, why is government still spending so much money on power projects after privatizing the Power Holding Company of Nigeria (PHCN)?

From my own understanding and dictionary meaning of the word “Privatization”, it entails the removal of something (PHCN) from governments control and placing it in private control or ownership; but why are they still getting involved? These are funds which could have been used to remedy other situations such as bad roads in order to favour industrialization.

#3. Excessive Dependence of Nigerians on Imported Goods

Nigerians are being overly dependent on imported and “made in abroad” goods, regardless of the quality and safety. This particular observation has led to the exploitation of consumers by Nigerian based manufacturers and suppliers.

Some manufacturers now affiliate with Chinese companies to produce substandard products which is then shipped down to Nigeria.

The ones fortunate enough to produce theirs within Nigeria now resort to the replacement of the right country of production with a foreign country. You now get to see shoes coupled by a shoemaker at your backyard wearing tags such as “made in Italy”, “made in China” and you wonder, why the lies? It’s quite obvious because that’s what Nigerians like and want, they prefer “made in Italy/china” to “made in Nigeria” and shoemakers must sell their products right? So they just exploit Nigerian’s taste to sell theirs.

#4. Lack of Finance

Setting up a company or industry is nothing compared to renting a shop and stocking it with imported products. Though both require capital and a good financial strength but it is more pronounced in industrial setup. Lack of finance by skilled and potential entrepreneurs therefore constitutes one of the major problem to industrialization.

#5. Classification of Manufacturing Industry as High Risk Area for Bank Lending

I refused to describe this problem under lack of finance because, it is a serious problem on its own. The capability of companies to make investments in modern machines, information technology and human resources development have been limited greatly by the lack of access to funds, and yet, these tools are very crucial to the reduction of production costs, raise of productivity, improvement of competitiveness, and expansion of operations.

Low investment have discouraged banks to invest very largely in this sector, owing partly to the mismatch between short-term nature of banks funds and the medium to long-term nature of funds needed by industries.

Also because of the risky nature of this sector, banks intend to lend to low-risk ventures such as commerce which records high returns. Lending to the manufacturing sectors attracts a high rate of interest which is not profitable for the industry.

#6. The Issue of Globalization

Being a king within your country is not enough. But then, what happens when you can’t even be considered a king or prince in your own country? Of course, you can’t challenge the international markets.  During an interview done by vanguard with Mr. Tella Sulaimon Ibikunle, the Managing Director of IPWA Plc., manufacturers of industrial coatings, marine and building paints.

He was asked how much a locally made paint product needs to get European Quality Certification, in his response, he elucidated that “it means the company making the product must spend as much as $50,000. This translates to about N8.5million for certification of just one product to meet acceptable European quality standard”.  Of course we know that only a few local companies can afford this amount of money. This hinders globalization and industrialization as a whole.

#7. High Cost of Production

There are records of many Nigerian companies which offered good products and services but went bankrupt and subsequently closed down. In fact, the Nigerian Chambers of Commerce (NCC) once announced the close down of about 800 companies between 2009 and 2011.

Increasing high cost of production is being recorded by most business organizations in the sector due largely to poor performing infrastructural facilities, high bank interest rate, and high foreign exchange rate, low effective demand for goods, liquidity squeezes and fallen capacity utilization rates. Inflation has contributed in no small measure to high cost of production. This constitutes a disincentive to saving for future use and retards investment and growth.

#8. Poor Infrastructures

Like earlier discussed, the existence of non-epileptic power supply in Nigeria would have gone a long way to boost industrialization. Also, the availability of good roads to ease and ensure the safe transportation of raw materials and inputs from one region to another would have been beneficial to the industrial sector.

The lack of rail transport system has led to the use of heavy duty trucks and trailers to traverse the limited good roads in the country which then contributes to the increased amount of potholes, traffic accidents and crashed road structures such as traffic lights by these heavy trailers.

#9. Inadequate Skilled Manpower and Raw Materials

As a result of the decrease in agricultural output which serves as the basic raw materials for the food companies, these companies now resort to the importation of these raw materials from other countries which will then add to the cost of production and price of such a commodity.

Furthermore, the skilled labour force required in industries are inadequate, partly due to the low level of technological advancement in Nigeria, which could have gone a long way to expose most people and help them gain versatility in various aspects of the industry.

#10. Political Instability, Terrorism and Production of Substandard Products

Terrorism discourages foreign investors from making any sort of investment in Nigeria while the frequently changed government policies discourage industrial development. When the local companies keeps on producing and offering substandard and sometimes adulterated products for sale, Nigerians cannot be blame for the high importation rate.

SEE: Problems and Prospects of Industrialization in Nigeria

Solutions to the Problems of Nigerian Industrial Sector

#1. Government should pay more attention to solving the power crisis problem plaguing Nigeria for years now. They should allow and support industries to setup their own local power generating systems.

#2. Funds should be approved for application in the remedy of crucial problems; these may directly and indirectly favour the industrial sector.

#3. Banks should grant loans to young entrepreneurs and startups to help them push forward their plans.

#4. In order to discourage importation, locally made products should focus more on quality and durability rather than quantity and profit.

#5. Roads, railways, airports and seaports should be constructed by the government to ease safe transportation of products and overdependence on road transports.

#6. Government policies should be such which will encourage industrialization rather than do otherwise.

#7. Any company in need of skilled manpower should recruit and train the unskilled ones with potentials.

REFERENCES

Central Bank of Nigeria (2006) Economic Report for the first half of 2006

Central Bank of Nigeria (2005) Annual Report and Statement of Accounts

Central Bank of Nigeria (2000) “The Changing Structure of the Nigerian Economy and   Implications for Development “Realm Communications limited, Lagos. ISBN 978-047-126-X

Dr.adegbie, folajimi F. et al. “The challenges and prospects of the manufacturing sector of Nigerian economy”.

Vanguard Newspaper: problems crippling manufacturing in Nigeria by Ibikunle, IPWA Plc MD

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