Why Rise in Cost of Imported Goods Won’t Boost Nigeria’s Manufacturing

ManufacturersLAGOS, Nigeria (May 1, 2014) - Nissan became the first major manufacturer to build a car in Nigeria.
  • Why Rise in Cost of Imported Goods Won’t Boost Nigeria’s Manufacturing

As global shipping companies are working on plans to mitigate the projected rise in cost of shipment in 2020 when the United Nations shipping agency, the International Maritime Organization (IMO), is expected to start enforcing its demand for low sulphur emission marine vessels globally, local manufacturing sector of most economies would expand as the cost of imported goods increases.

Unfortunately, Nigeria’s manufacturing sector would suffer substantial contraction due to the sector overexpose to diesel, a low sulphur fuel used to power most electricity generators by companies in Nigeria.

Experts predicted that the increase in demand for low sulphur fuel would lead to an equal increase in demand for diesel as shipping firms are expected to switch to diesel and other low sulphur fuel in 2020 before they devise a lasting solution to the new requirement.

Nations like Nigeria without stable power supply, where companies have to generate their own electricity, would suffer the most as not only the cost of imported goods that represents 90 per cent of its consumption would rise but also the local production currently being pushed by the Federal Government to increase job creation.

Local companies would have to pay more to produce a unit item and in turns pass the increase to VAT-saddled consumers. Suggesting that Nigeria’s consumer prices may surge in 2020, eroding the progress made so far.

The Chairman of the Manufacturing Association of Nigeria, Economic Policy Committee, Mr Paul Gbededo, explained that “Power is still the biggest challenge to manufacturers, especially the ones in the Small and Medium Enterprises sector, because they rely almost totally on public power supply.

“The big firms generate their own electricity most of the time and the cost of generating this power increases the cost of production and therefore the products may not be competitive even in Nigeria.

“That is why solving the issue of electricity will see us becoming more competitive and easing the pain of manufacturers.”

While this could have been an opportunity to further government diversification agenda and compel Nigerians to buy local substitute products, it would, in fact, worsen current situation of things as the few local manufacturers may struggle to keep their factories open and if they manage to do so, it would be at a higher operating cost.

Abayomi Awe, the Chief Operating Officer at Rehoboth Chops & Confectioneries Ltd, a bakery that uses giant diesel-powered ovens to bake hundreds of loaves of bread daily, said his company uses generator for at least 20 hours per day due to the unstable power supply in the country.

“It becomes difficult for us to expand if the price of diesel goes up,” he said as bakers scrambled to pull finished loaves from steaming ovens. “It might result in some companies, some bakeries like ours, shutting down.”

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya; Email: [email protected]

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