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Agriculture

From Rediscover Nigeria desk

  AGRICULTURE   The wealth of a nation is partially measured by its ability to guarantee its citizenry food security.In…

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Manufacturing

From Rediscover Nigeria's Desk

Manufacturing in Nigeria concentrates mainly on the production of consumer goods. With a population estimated today at over 156 million…

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Nigeria! Overview

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Tourism in Nigeria has huge potentials to be a major foreign exchange earner. The Obasanjo administration has created awareness among…

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Nigeria's Resources

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Nigeria's total verified external debts as at December 2010 was US$4.578 billion as against US$3.947 billion in 2009. Total scrutinized…

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Rediscover Nigeria Manufacturing

Manufactural

Manufacturing in Nigeria concentrates mainly on the production of consumer goods. With a population estimated today at over 156 million and catering for almost the entire sub-regional market of West Africa, the sector represents a very viable support for agriculture if properly harnessed.

Central Bank of Nigeria figures however indicates a decline in growth rate from 7.03% in 2009 to 6.43% for the year 2010. Available data utilizing other parameters also point a general picture of decline.

 

2009

2010

Contribution to G.D.P

4.21%

4.19%

Production Output (first half of 2009/2010)

N183.8bn

N165.7bn

Unplanned Inventory (Q1&Q2 2009/2010)

N5.15bn

N11.4 bn

Investment Profile (Jan-June)

N1,280,5892 bn

N360,232 bn

Employment (Jan-June)

998,086

996,395

Source: Manufacturers Association of Nigeria (MAN).

 

The unstable trend in manufacturing was a result of some policy inconsistencies, wholesome importation of finished products due to import liberalization in some sectors and dumping of goods by some countries. These have had serious negative effects on the manufacturing sector.

The Transformation Agenda, which government is strongly implementing along with input from the private sector, aims at improving capacity utilization to 70% and the substitution of raw materials currently imported for which Nigeria spent a total of US$6.09 billion in 2008. A total of over US$8 billion was spent on subsidizing importation of petroleum products and other raw materials and consumer goods which could reasonably be produced locally.

The negative effect of weak infrastructure especially Power and Transport, the liquidity squeeze, weak demand and trading malpractices are evident.

The increased effort of Government in pursuing the upgrade and construction of new Power Infrastructure which envisages the delivery of -10,000MW of electricity by 2013 through the National Integrated Power Projects will bring stability back to the sector.

The Central Bank of Nigeria equally made available of N200 billion Intervention fund for the development of the real sector which includes manufacturing sector with a ceiling of 7% interest rate per annum and a tenor of up to 15 years.  This breather allowed some textile/garments factories to quickly re-open shop and embark on recalling laid off staff.

There is also a N200billion Credit Guarantee Scheme to revitalize Small and Medium Enterprises which is being implemented in collaboration with banks.  The general picture in this sector may appear gloomy for now but it is expected that in the immediate future, this sector will recover fully.

Inflation affects the sector negatively. It has however declined from 13.9% in 2009 to 11.8% in 2010. Government's target is to have a single digit rate at about 9%.

CREDIT FOR MANUFACTURING

Commercial banks in Nigeria have difficulty giving long-term credit for the manufacturing sector considering that the banks have very low capitalization. Interest rate by Manufacturers Association of Nigeria (MAN) field survey indicates that it oscillates between 21 and 25% which is unfavourable to any real sector enterprise.

BANK OF INDUSTRY (BOI)

In 2009, the combined assets of the five (5) Development Finance Institutions increased by 95.8 per cent to N316.2 billion (approx. US$2.108 billion) from N161.5 billion (approx. US$1.076 billion) in 2008. BOI share of this asset base was 56.9 percent.  The Federal Mortgage Bank of Nigeria (FMBN), the Bank of Agriculture (BOA), The Nigeria Export Import Bank (NEXIM) and the Urban Development Bank (UDBN) accounted for 24.9, 12.0, 6.0 and 0.2 percent of the total respectively. In January, 2006, the Bank of Industry, BOI, launched its Paradigm Shift Initiative.  Since then, the Bank has continued to grow in its credit operations. While the total number of approved loans and investments grew by 73% from 88, as at Dec. 2005 to 731 by Dec. 2009, the value of fresh loans and investments increased by 572% from N9.86bn (approx. US$65.73 million) to N65.9bn (approx. US$439.3 million) within the same period.

The percentage of its annual lending to SMEs increased to 96% by Dec 2009, from 65% in 2005. More than N1.4bn (approx. US$933,000.00) has been approved to various cooperative groups since 2008 (comprising mainly women and youth) under a collective guarantee arrangement. The Portfolio At Risk (PAR) decreased from 65% in 2005 to an average of less than 21% in 2009.  The industry average in Nigeria is 32%. The development effectiveness of its operations has been remarkable as cumulative direct/indirect jobs created exceeded 815,000 by Dec. 2009.

BOI has advocated the development of Industrial Parks in different parts of the country to boost industrialization.  To achieve this, it is liaising with State governments.  In fact, BOI is engaging the 36 State governments.  Presently, Ekiti, Anambra, Gombe and Delta States have signed Memorandum of Understanding with the bank.

Source: Central Bank of Nigeria (CBN).

 

With the support of BOI, a major textile factory in Kaduna (Northern Nigeria) re-opened in Q2 of 2011 recalling back about 3,000 workers in factory operations and ancillary activities.

OPPORTUNITIES

Big opportunities exist for financial succour for this sector which will be able to operate efficiently, and pay bank credits at reasonable rates but the much needed loans are simply not available. Mega banks with big long-term loanable funds will find a good and welcoming environment to operate in Nigeria. There is a yawning gap between genuine demand and availability of funds to service a sector that once contributed 10% of Nigeria's G.D.P.

Equally attractive is consumer banking for manufactured products in the automobile sector, household goods and appliances manufactured locally. The middle class which was virtually wiped out during the dark days of military rule is being gradually recreated with the ongoing restructuring of the economy.

Investment in raw materials development, construction of petrochemical plants to feed the industries, provision of private sector power enclaves to service the industries in addition to bulk service transport infrastructures are very profitable areas of investment.

The manufacturing sector operates under an umbrella body known as the Manufacturers Association of Nigeria (MAN) and investment plans that are mutually beneficial can be discussed with the umbrella body.

SMALL AND MEDIUM ENTERPRISES

In 2010, the Central Bank of Nigeria established the N200 billion Small and Medium Scale Enterprises Guarantee Scheme (SMECGS) with the objectives;

I.          Fast-track the development of the Small and Medium Enterprise/manufacturing sector of the economy.

II.        Set the pace for the nation's industrialisation.

III.       Increased access to credit for Small and Medium Enterprises and Manufactures.

The Scheme also guarantees that advances by banks to the sector will enable them absorb the risks that had hindered the banking sector from granting credit to them (Small and Medium Enterprises, Manufacturers).

Covered in the Scheme are players in Manufacturing, Agricultural value chain, Processing, Packaging and Distribution of primary products and Private Educational Institutions. The Scheme grants a maximum of N100 million guarantees for working capital, term loans for equipment upgrade or refurbishment, or overdraft. By end-December 2010, the Scheme had approved 2 applications – N7.5 million for NERFUND, Abuja and N100 million for First Bank of Nigeria (FBN) Nnewi Branch.

N200 billion Small and Medium Enterprise Restructuring/Reforming Fund.

The Fund was sourced from the N500 billion debenture stock issued by the bank of Industry (BOI). Two main objectives of the fund were:

  • Improve the Financial position of Deposit Money Banks (DMBs).
  • Ensure better access to credit by manufacturing.

It is expected that all Deposit Money Banks (DMBs), DFIs and BOI will participate in the Scheme. The Scheme offered long-term loans for acquisition of plants and machinery and refinancing of existing lease of working capital.

Loan amount for a single obligor could be as much as N1.0 billion with a 7% interest rate paid quarterly. As at end December 2010, the sum of N197.59 billion had been disbursed to the participating banks for restructuring or refinancing of loans to 539 projects.

 

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