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226 manufacturing companies close shop — Umoh

by August 20, 2017 General

. Says FG’s executive order not helping SMEs

By Udeme Clement

“Ikpong Umoh is the Chairman, Toiletries & Cosmetics Manufacturers Group, Manufacturers Association of Nigeria (T&C Group of MAN), the Chief Executive Officer, Stellarchem Nigeria limited. He was recently honoured with award of excellence by Financial Business, for his enormous contributions to the manufacturing sector of the economy. He spoke on new Executive Order, on the ease of dong business; measures for compliance to enhance growth of Small and Medium Enterprises (SMEs) in Nigeria.

Mr. Ikpong Umoh

As operator of SME, what is your take on the Executive Order?

The manufacturers Association of Nigeria, MAN, has determined from its current survey that about 226 companies have either closed shop or downsized between 2015 and 2016. The Federal Bureau of Statistics (FBS) also confirmed that about 4.85million jobs were lost within the same period. Nigeria is one of the poorest and most unequal countries in the world, with over 80million of 64percent of the population living below poverty line. Poverty and hunger remain high in rural areas, remote communities and among female-headed households, cutting across the six geo-political zones, with prevalence ranging from approximately 46.9percent in the South West to 74.3percent in North West and North East.

The new Executive Order sounds good but appears to have missed the focus on SMEs, as it concentrated 90percent on convenience of foreign investors. The Presidential Enabling Business Environment Council (PEBEC) needs to do wider consultations and involve genuine SMEs in the Council. For our economy to recover fast and in a sustainable way, we need an Executive Order that will take a cue from the World Bank Group to favour local SMEs 100 percent.

Toiletries and cosmetics companies in Nigeria have the capacity to produce sufficient finished cosmetics products for local consumption and for export, as they did in the 90s. We need government protection by prohibiting importation of cosmetic products into Nigeria, notwithstanidng other bilateral agreement entered into. The ease of business ranking as put together by World Bank group has SME as its focus, not for the fun of it, because SMEs have the potentials to grow a country’s Gross Domestic Product (GDP) out of recession in a more sustainable way than Foreign Direct Investments (FDIs).

According to World Bank data, the percentage contribution of SMEs to GDP in high income countries is between 50-55percent in UAE, Singapore, Quata, Denmark, Germany, France and many of the EU countries. In middle income countries, SMEs contribute between 35-40 percent ot GDP in China, India, Brazil, Malaysia, Angola, Thailand and Ghana. In low income countries, SMEs contribution to GDP is 15percent in Cambodia, Kenya and sub Saharan African countries. The recent UN report says Nigeria’s population will be 200 million by 2019 and over 400 million by 2050, becoming one of the top five populous countries in the world, so SMEs must thrive to  create more jobs for the citizens”.

How has this affected the economic growth rate?

Nigeria’s loss in Global Competitiveness is a source of worry.  In the recent report, Nigeria, the giant of Africa, dropped three notches from 124th in 2015-2016 to 127th in 2016-2017. On the other hand,other countries in Sub-Saharan Africa, like Mauritius (ranking 45th) and South Africa (47th) remain the region’s most competitive economies, climbing two places and one place, respectively. Rwanda (52nd) comes third in the region. Closely related to Global competitiveness is the ease of doing business (EODB).Based on the latest ranking released by the World Bank, Nigeria is ranked 169 among 190 countries. Some analysts see this rank as being an improvement on the previous position of 170 out of 189. When compared with other countries in the sub-region like Ghana (108),Mali (141) and Togo (154), there is nothing to cheer about Nigeria”.

Barely three months after signing the EODB into law, nothing has changed for all to see that we are moving forward.  NCS acknowledged that Nigeria’s low ranking of  14th out of 15 Economic Community of West African States (ECOWAS) economies and 182nd out of 190 economies worldwide in the ‘Trade Across Borders’ indicator must be changed .

To this end, they have introduced some reforms to achieve 24-hour cargo clearing like  a shift system for its officers and men, in order to achieve around the clock operation, scheduling  and coordinating Mandatory Joint Examinations and Sign-off Form to ensure that there is only one point of contact between importers and officials. They were quick to admit that they had some problems like inadequate power supply, bad roads, gridlock and faulty scanners might truncate the shift system”.

Some port users alluded to the fact that the low ranking is caused by avoidable delays occasioned by cumbersome documentations, Nigeria Customs required about 14 documents to clear goods while in Rwanda you need only five. NCS however denied any wrong doing, saying that no delay whatsoever is caused by Customs.

Most of the delays are actually caused by importers’ false declaration and lack of integrity. When your declarations are correct, within six hours, your goods are released. Our experience as importers of chemical raw materials for manufacturing has not changed. There are still cases of  cargoes cleared at one point and by a group of officers only to move to the gate, and an order comes from above that you have to come back for re-examination.

The point here is that Custom has three major functions namely, trade facilitation, anti-smuggling and revenue generation. Of these three, revenue generation remains the most attractive, given a revenue target of about N1.1trillion for 2017.

What can be done to save SMEs from closing shop?

Multiplicity of regulatory agencies has always resulted in high cost and difficulty of doing business. The cosmetic industries all over the world are statutorily regulated by a Food and Drug Agency like FDA in the United states and by The National Agency for Food and Drugs Administration (NAFDAC) in Nigeria. The recent empowerment of Standards organisation to regulate industries already regulated by NAFDAC is  double regulation and needs to be addressed by the Executive Order. We have the impression that the repeal of the recent SON act 14 ,2015 did not have wide consultation and implementing it definitely will wipe out our fragile SMEs”.

“Some basic and bulk raw materials for manufacturing quality cosmetic products not sourced locally and classed under HS Code 3402 are currently levied 20percent +5percent VAT, as if they were finished products, in gross violation of CET rules, which stipulates zero percent for Essential Social goods; five percent for raw materials; 10percent for intermediate goods; 20percent for final consumption goods and 35percent for specific goods, for economic development.

This high duty was a conspiracy between some multinationals among us who advised government through MAN to impose that duty, in order to protect their investments. With this duty regime in effect, there is acute scarcity of basic materials and the wheels of T&C industries slowly grounding to a halt. The Executive Order on ease of doing business, should look into this anomaly and save our members business from eventual collapse”.

SMEs need capital to fund their operations. Existing institutions like the Bank of Industry. BoI, and the Commercial Banks have  short-changed the SMEs in their funding needs, by insisting on overbearing collaterals and life-threatening conditions before granting them loans.

BoI is insisting on 250percent collateral, while commercial banks prefer to lend to government by investing in government bonds.

Nigeria being a country in dire need of development cannot overlook the important role interest rate could play in invigorating SMEs. This is probably the reason The Collateral Registry Act ,2017 was made. However, the idea is good, but implementation is going to pose a big challenge for the banks.”