With an eye on value addition and employment, Nigeria is hoping two new state-backed programmes to support manufacturers will more than double industry?s?contribution?to the economy over the next five years, although infrastructural weaknesses continue to present challenges.

unnamed (1)On February 11, the government formally unveiled two new policy initiatives to support themanufacturing sector, the Nigeria Industrial Revolution Plan (NIRP) and the National?Enterprise Development?Programme (NEDEP).

The NIRP includes a mix of?incentives,?training?and investments?as well as reinforcing the state?s policy of buying locally manufactured products, with the aim of boosting manufacturing revenue by $20bn over the next five years, and increasing its contribution to GDP from the current 4% to more than 10% in the same period. Among the sectors targeted by the NIRP are textiles and garments, leather, palm oil processing, cocoa processing, basic steel works, chemicals, petrochemicals, fertilisers and light manufacturing.

NEDEP will address challenges that many small and medium-size enterprises (SMEs) face, such as access to?finance, weak?business development?and a shortage of technical skills. The NEDEP has also led to the rollout of an N9bn ($53.5m) fund for development financing through the Bank of Industry, dedicated to SMEs, and aims to provide turnkey facilities for businesses in dedicated enterprise zones.

 

Auto industry looks promising

 

The NIRP and NEDEP programmes are the latest in a long push by the country both to increaselabour-intensive activities and diversify from its?dependency?on hydrocarbons for revenues. In recent years, Nigeria has?targeted?a number of industrial segments specifically ? ranging from agro-industrial processing to?building materials?? through a range of other dedicated policy strategies.

Among the more prominent initiatives has been a push to boost the local automotive assembly business, following last year?s roll-out of the Auto?Industry Development?Programme. Nigeria first tried to develop the sector in the 1960s and 1970s, investing in joint ventures with Peugeot, Volkswagen, and later GM, alongside private plants from UAC Leventis and Bewac. However, high costs and weak domestic demand prompted international producers to scale back or close their plants, and imports account for the vast majority of vehicles on the road today.

According to the National Automotive Council (NAC), a?government agency?that is part of theMinistry of Industry, Nigeria spent nearly $7.4bn on importing vehicle and automotive parts in 2013.

However, in recent months, a spate of?new developments?has improved the sector?s long-term outlook. Both Nissan and Hyundai have teamed up with a West African conglomerate, the Stallion Group, to assemble vehicles at a plant in Lagos.

The first Nigerian-assembled Nissan?SUVs?will be rolled out in April, according to comments by the CEO of the Japanese automaker, Carlos Ghosn, at the most recent?World Economic Forum?in Davos. Last year, Ghosn said Nissan was prepared to make Nigeria a ?significant manufacturing hub in Africa?.

The Stallion Group already uses its facility, a?former?Volkswagen?plant, to assemble?commercial vehicles?for multiple international brands. Other domestic businesses have had some success in the sector. Local conglomerate Innoson Group opened the Innoson Vehicle Plant in Anambra state in 2010. The factory assembles completely knocked down parts from Chinese, German and Japanese makers to produce around 300 units per month.

Nigeria is now trying to slow the inflow of imports, announcing last year it was planning to raise tariffs on foreign cars by up to 50%, although it subsequently said it would phase in any increase over a 10-year period.

The government is also?investing?in skills development and workforce training, announcing in August a partnership with the government of Brazil to create three auto clusters in Lagos, Anambra and Kano states. The facilities will develop local workforce capacity as part of the National Industrial Skills Development Programme, an initiative rolled out last year.

Last June, the NAC announced that it had disbursed $46m in loans aimed at developing local production, including $20m to the Peugeot Automobile Nigeria, $8m to Dunlop and $6.6m to Innoson?Vehicle?Manufacturing. Much of the funding and focus is earmarked to develop production of?automotive parts.

 

Obstacles to industrial revolution

 

In the short run, the expectation is that activity in the automotive segment will be limited to the assembly of imported parts but the longer-term goal is to produce domestic components. The government says these support industries will create 210,000 jobs at local SMEs, in addition to 70,000 skilled and semi-skilled positions at assembly facilities.

However, Nigeria faces some well-known barriers to building up an industrial base. Widespread power cuts necessitate businesses operating their own generators, which the Manufacturers Association of Nigeria says are a costly burden. According to the association, up to 65% of SMEs fail in their first three years due to the high cost of energy, a problem that also affects larger industrial operations.

While the government has forecast the manufacturing sector to contribute 10% plus of GDP in the next five years, reaching this goal will be dependent on the strengthening of the national utilities and logistics infrastructure as much as on the stimulus that may be provided by the NIRP and NEDEP.

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