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Business News

Manufacturing sector in Nigeria and the reality of a “new normal”

The rise in unemployment caused by the pandemic might affect enthusiasm towards the event.

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Manufacturing sector in Nigeria and the reality of a "new normal"

Across the globe, there is a pervading awareness that things will never be the same in the post-pandemic era. Already, some business ventures that were once considered the ‘crème’ of the global economy have taken serious hits in unimaginable measures, and some of the little ones which were regarded as below the rung, are fast rising to match up.

With the new social rules in place, some businesses have come to the sad realisation that they may have to remain closed for much longer than they expected. Even for those businesses that have been allowed to reopen their operations as the world enters a phased and gradual reopening, obvious adjustments still have to be made – including limited physical contact, among others.

In a recent interview, the President of the Manufacturers Association of Nigeria (MAN), Engineer Mansur Ahmed, noted that these new developments have added significant complications to the manufacturing processes and operations.

READ MORE: Manufacturing: Activity levels pick up albeit readings still below water

For one, the 8-week nation-wide lockdown kept most manufacturing companies shut, or at best operating at significantly lower capacity for the best part of Q2. The result of this was reflected in the sector’s indices, both in terms of output and employment.

Resuming operations after the lockdown, the manufacturers have had to deal with the challenges of a completely changed system of operation–one which we now commonly recognise as the “new normal.”

A major change in operation can be seen in the sourcing for raw materials. Besides having to deal with the immediate impact of the border closure on operations, there is now the uncertainty of foreign exchange and its impact on the costs of importation (or smuggling of materials when borders are closed).

Nairametrics wrote about a recent CNBC interview where Partner and Head of Consumer & Industrial Markets at KPMG Nigeria, Obi Goodluck, stated that most Nigerian manufacturers had been compelled to source raw materials locally or risk being shut down completely.

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READ MORE: COVID-19: The ‘New Normal’ for Nigerian aviation industry

Goodluck explained that prior to the pandemic, most of the Nigerian manufacturing companies imported a significant percentage of their materials from China, but the pandemic had disrupted that supply chain thus compelling them to look for alternatives.

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“Specifically from the Nigerian point of view, we will no longer reply on importation of raw materials. As it were, this pandemic started from China and over 80% of Nigeria’s raw material imports come from China and the Asian countries. With the lockdown even in China, that became an issue. As such, companies had to come up with alternative and innovative means of raw material sourcing. Those who already imported raw materials prior to the lockdown relied on their stock until they ran out…”

These alternatives are not just intended to serve as an immediate alternative but can forestall the possibility of such in the future.

Manufacturing companies have also had to rethink the way they transport goods to their customers, in view of the non-pharmaceutical safety rules put in place. One of the regulations in place presently is ensuring minimal physical contact in the processes.

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By implications, companies have to rework the way they move their products to the consumers and this has largely impacted on the logistics costs. It also means that deliveries and logistics is ‘the next big thing’ in the Nigerian market.

READ MORE: Innoson reacts to FG order to relocate manufacturing plant to Lagos, Kaduna in order not to lose license 

Having to deal with all these changes at a time when thousands have lost their jobs and primary sources of income is even more of a difficult situation. People generally have less purchasing power now than they did before the pandemic, and so weighing of priorities and opportunity costs will always come to play.

Worse still, they would be paying even more now for the same items, given the extra factors at play in the production process. For instance 1kg sachet of Dangote granulated sugar which sold for N250 before the lockdown, now sells between N800 and N900 per unit, while the 250g sachet which sold for N100 before the lockdown now sells between N250 to N300.

Right now, the manufacturing sector is in that small space between the rock and a hard place, and manufacturers are going to have to make some difficult decisions going forward.

One suggestion that comes highly recommended among experts in the industry is backward integration. At the CBN roundtable discussion in April this year, Nigeria’s richest man, Aliko Dangote had also suggested in his keynote address that backward integration was about the surest way to hasten the long-awaited diversification of the economy.

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READ ALSO: CAC: Certificate of incorporation will now be delivered via email or courier

There were concerns about how fast the industry could integrate with the agricultural sector so that more of the local produce went into the industries, but the manufacturers were optimistic that this could be worked out in time to enable them enjoy waivers and benefits in the African Continental Free Trade Agreement (AfCFTA).

It was agreed that the backward integration would require some support moves from the government in creating the right financing and regulatory environment for industries, so that they could integrate more local input in their processes and products and strengthen the supply chain.

READ ALSO: Analysis: Nestlé strong but exposed.

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The MAN president had already assured that the CBN promised that investment in the sector would go towards supporting manufacturers to go into backward integration. If the financial sector could also review its regulations to capture current realities and the needs of the manufacturing sector, more could be achieved in less time.

The Economic Sustainability Plan of the federal government also captures quite a lot to show that the manufacturing industry has a place in the government’s plan, but a seamless implementation remains to be seen. The struggle to ensure that Nigeria produces what Nigerians consume is still on.

In light of new realities, the Unified Exchange Rate proposed by the Central Bank of Nigeria (CBN) could also help to create some stability in the FX. Once the exchange rate is more certain and stable, businesses and investors can make definite plans on imports and exports.

Instead of the current situation where the manufacturing sector contributes less than 10% of the GDP, Nigeria is definitely capable of having a manufacturing sector that contributes as much as 25% or more to her GDP, and this should be the target.

Ruth Okwumbu has a MSc. and BSc. in Mass Communication from the University of Nigeria, Nsukka, and Delta state university respectively. Prior to her role as analyst at Nairametrics, she had a progressive six year writing career.As a Business Analyst with Narametrics, she focuses on profiles of top business executives, founders, startups and the drama surrounding their successes and challenges. You may contact her via [email protected]

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Real Estate and Construction

Why rents increased by 60% in Lagos, border towns

Factors responsible for the hike are rising cost of building materials, lack of transparency between asking and achievable prices.

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Rents across Lagos (Mainland and Island) and Ogun State have increased by over 60% between December 2020 and April 2021.

Findings by Nairametrics revealed that while rent had increased by over 30% in some Lagos border towns like Sango-Ota, Arepo and Magboro, property owners across Yaba, Magodo, Ikoyi, and Lekki axis also inflated their rents by about 33% within the same period.

For instance, rents for one-bedroom (self-contain) and two-bedroom apartments, which are the most sought after in Magboro (one of the Lagos border towns) have increased from an average of N120,000 and N160,000 to N200,000 and N260,000 respectively. This represents a 33.33% and 30% increase respectively.

Similarly, rents in some key areas in Lagos Mainland are not cheaper. In Magodo phase 2, property owners charged between N1 million and N1.2 million for a 2-bedroom apartment, but now, a potential tenant is required to pay between N1.3 million and N1.56 million as rent (depending on how old the house is), an increase of approximately 30%.

Though rents appear relatively cheaper in Surulere, especially around Aguda, they also increased within the period under review. While rent on two-bedroom apartments and three-bedroom in Aguda has gone up from N850,000 and N1 million to N1.2 million and N1.4 million respectively, around Ogunlana drive, two-bedroom apartments that were let out at N950,000 now cost about N1.2 million.

Meanwhile, rents around the Lekki axis have also gone northward, as new tenants are forced to pay more before occupying houses. A 4-bedroom semi-detached house without boys quarters in Lekki Phase 1 and Ajah, which used to cost N3.8 million and N2 million, has risen to N4.5 million and N2.5 million respectively.

In Sangotedo, rent on three-bedroom flats has also increased from N1.2 million as of December 2020 to N1.6 million.

Why the rise?

Industry experts, who spoke with Nairametrics in separate interviews, explained that there are several factors responsible for the development and agreed that some of the reasons are not fundamentally strong.

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Paul Bamigbola, Chairman, Nigerian Institute of Estate Surveyors and Valuers (NIESV), Lagos Chapter, told Nairametrics that a significant factor responsible for the hike is the rising cost of building materials.

According to him, property owners now spend more to build houses, as the cost of cement, iron rods, sanitary wares and tiles, among others, have all risen significantly.

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For instance, the cost of steel, which was sold at N234,000 per tonne as of March 2020, had increased to N380,000 at the end of March 2021. This represents a 62% increase within the period under review.

Dangote Cement increased from N2,600 to N3,800 (though it is sold at N3,600 in some areas in Lagos), Lafarge Cement and BUA Cement increased from N2,400 and N2,250 to N3,600 and N3,250 respectively within the same period.

Bamigbola said, “The high cost of acquiring land, including the actual cost of building, also adds to the reasons property prices in Lagos are high.”

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But when our analyst pointed out to Bamigbola that the hike also affected old houses, he said, “To also increase the rents, most of the owners of the old house renovate the houses a little before letting them out. They do that to increase the rent to about N400,000 if the owners of new houses charge N500,000.”

Another factor responsible for the hike, especially in Lagos, is the lack of formal housing. With over 3.8 million households in Lagos, up to 2.1 million households are without formal housing. This presents a supply gap of over 55%.

Chief Executive Officer, Richfield Limited, a real estate company, Samson Odegbami in a recent interview with Nairametrics said, “As typical in every market, excess demand drives up prices. This could make landlords, who frequently get requests for their available spaces, increase the prices and let out or sell the property to the highest bidder.

Estate Intel, in its report, stated that the lack of transparency between asking and achievable prices was also another factor.

It added that the multiple agents and developers involved in marketing properties typically list these properties for significantly higher amounts than what they are willing to accept.

It stated, “We expect developers or agents to aim to achieve the highest possible price, with a window for negotiation, leaving a wider than usual spread between asking and achievable prices.
A large spread between asking and achievable rent makes average market rent seem artificially high and encourages other developers to hold fast on those artificially listed prices, keeping average rents or sale prices high.”

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Bottomline

Based on the experts’ views, the rent prices could be very misleading, especially because most of the properties on the listed platforms in Nigeria are priced well above what is achievable.

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Business News

NCC discloses application requirements for Proof of Concept trial license

The NCC stated that it had been inundated with requests related to trial frequencies for the purpose of verification of certain concepts.

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NCC Building, MTN, Glo, Airtel, 9mobile, NCC, Acquisition, Teleology

The National Communications Commission (NCC) has released application requirements for trial frequencies in certain spectrum brands under the Proof of Concept (POC) Trial license.

This was disclosed on Wednesday, April 14, 2021, in a statement signed by the Director of Public Affairs, Dr Ikechukwu Adinde; and made public on the Commission’s verified Twitter account, @NgComCommission.

The NCC stated that it had been inundated with requests related to trial frequencies for the purpose of verification of certain concepts.

The requirements listed by the NCC include:

  • The PoC trial license application must only be granted to Original Equipment Manufacturers(OEMS)/Vendors, or operators in conjunction with their Original Equipment Manufacturers.
  • PoC trial shall not exceed a period of three months effective from the date of approval.
  • Equipment for Proof of Concept must be ‘Type-approved’ by the Commission.
  • Appropriate Spectrum fees must be paid in accordance with the NCC’s regulations.

In case you missed it

Nairametrics reported that Nigerian telco giant MTN recently announced its acquisition of an additional 10MHZ spectrum in the 800MHz band from Intercellular Nigeria Limited.

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