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Rising unemployment: CPPE stresses need to stem the tide of deindustrialization

The Centre for the Promotion of Private Enterprise (CPPE) has called for urgent steps to stem the tide of deindustrialization to curb the growing unemployment and the increasing import dependence of our economy.

DR Muda Yusuf, Director/Chief Executive Officer stated this at the 4th edition of the Business Roundtable of the National Association of Small and Medium Enterprises (NASME), Lagos chapter.

Yusuf said following the collapse of many manufacturing firms (most of them are SMEs), many factory premises around the country have been taken over for activities other than manufacturing.

  • “Many factory premises have been converted to event centres, supermarkets, worship centres, warehouses for imported finished goods, restaurants, viewing centres, cinemas etc.
  • Many of our industrial estates have become a shadow of what they used to be. Evidence of all of these can be found in industrial estates located in Ilupeju, Ogba, Ikeja, Sango-Ota, Agbara and many other parts of the country both in the eastern and northern parts of the country the story is not different.
  • It is therefore imperative to take urgent steps to stem the tide of deindustrialization if we must curb the growing unemployment and the increasing import dependence of our economy,” he said.

Factors responsible for the deindustrialization

Yusuf listed some of the factors responsible for the deindustrialization including the influx of cheap and substandard products into the country which creates unfair competition for our domestically produced goods; the crisis in our foreign exchange market which has elevated the volatility in the exchange rate and which has worsened the illiquidity in the foreign exchange; the epileptic power situation; the high cost of energy especially diesel and gas and; the phenomenon of multiple taxations imposed by the three tiers of government.

Others according to him include the challenge of multiple taxation and excessive drive for revenue by agencies of government which imposes a huge burden on our manufacturing industry, especially those who are in the MSME category; poor domestic patronage of what is produced locally; paucity of basic industries to support our manufacturing enterprises.

Such basic industries include the iron and steel industry and the petrochemical industry; policy inconsistency; weak infrastructural base – power, transportation, Apapa traffic issues, railway system, and the ports, among others.

Yusuf noted that the high cost of funds, absence of long-term funds, and challenges of access to credit by MSMEs as well as other firms in the sector, because of the perception of manufacturing is very risky in the economy.

  • “Except for intervention funds, especially from the Bank of Industry (BoI), the cost of funds in the Nigerian economy has been well over 25% for small businesses. It is difficult to achieve a competitive manufacturing investment with this kind of fund.
  • The tenure of the fund is also very short, most times a maximum of one year. It is difficult to do any serious manufacturing investment with a tenure of fund of just one year or less,” he said.

Yusuf said that Small Businesses account for over 50% of the GDP but have access to only 1% of the Bank credit to the private sector adding that this demonstrates the enormity of the funding challenges that are faced by small businesses.

  • “The manufacturing sector also suffers from the challenges of weak institutions. This makes regulation ineffective – faking and counterfeiting, smuggling, under-invoicing etc.
  • Research and Development (R &D) does not attract sufficient investments needed to promote industrialization.
  • A major challenge to industrialization is the low industrial space and absence of innovation. Many industries have the challenge of getting qualified labour for their businesses. The curriculum of many tertiary institutions is not dynamic and most often, not aligned to the needs of industries, which are very dynamic. Therefore, the static curriculum cannot meet the needs of a dynamic setting,” he said.

Way forward

Yusuf noted that the systemic issues of infrastructure should be addressed as a matter of utmost priority, adding that the immediate focus should be on electricity supply and logistics.

  • “Unless we have these two critical infrastructures in place, it will be very difficult to ensure a competitive industrial sector and to make possible the transformation of the sector.
  • We should fix the foreign exchange liquidity and currency depreciation issues. MSMEs with an annual turnover of N50 million and below should be exempted from corporate tax and VAT. This is in addition to tackling the problem of multiple taxes and levies on small businesses both by state and non-state actors.
  • Structural issues on infrastructure should be addressed to improve the productivity and competitiveness of manufacturing firms. We should address concerns about unfair competition from imported finished goods. We should address regulatory and institutional problems affecting MSMEs.
  • Challenges of Access to credit, cost of credit and tenure of funds should be addressed. We should focus on labour-intensive industries to enhance job creation and promote economic inclusion.
  • We need to ensure that there is adequate investment in core industries such as Iron and steel and Petrochemicals to facilitate backward integration. We should take full advantage of the large Nigerian market to scale up our industrial capacity utilization,” he said.

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