High import tariffs and import bans were imposed several years ago to protect domestic manufacturing and to stimulate the production of substitutes.
Free Trade Zones have been set up in several parts of the country and attractive incentive packages now exist to promote industry.

The revival and stimulation of Nigeria’s manufacturing sector lies at the heart of strategies to diversify the Nigerian economy – away from overdependence on oil and gas.

Manufacturing contributes less than 5% to the gross domestic product and industrial capacity is operating at between 35% and 40% but the sector is growing at close to 10% per annum and forms a large part of the national and regional governments’ economic-recovery plans.

There are considerable difficulties to overcome in running industrial enterprises in Nigeria, including erratic power supply, high financing costs, a complicated import tariff regime and poor transport infrastructure.

On the other hand, Nigeria is a resource-rich country with massive market potential (private consumption is growing by 15% to 20% year-on year) and the political leadership is committed to encouraging investment in manufacturing.

The hope is that industrial concerns will drive growth, create jobs and start to reverse the country’s dependence on imports. Investment in agri-processing, for example, is seen as a way of tackling poverty and achieving food security.

While most state capitals have industrial parks or at least one major manufacturing concern, the majority of the nation’s manufacturing takes place in greater Lagos. The country’s main industrial complexes include a public-private integrated steel complex at Ajaokuta in south-central Nigeria, which cost $4-billion to build; a liquefied natural gas facility at Bonny; and three aluminium smelters and several refineries in the south-east.

Nigeria has a varied mix of manufacturing capabilities but the strongest subsectors are food and beverage (comprising 22% of the sector), cement, textiles, and household chemicals such as detergents. Other items include paints, paper, packaging, glass, plastic and furniture and there is some local assembling of imported components.

The federal government is hoping that a partnership with Singapore-based D-Link will grow beyond the assembling of computer networking components to a fully-fledged manufacturing plant. Most electrical consumables are imported from Asia.

Automotive assembly has been revitalised by the selling off of government assets, the creation of a low-interest Auto Development Fund and some tax incentives. Volkswagen, Kia and Peugeot are among the brands assembled and Chinese manufacturer Dong Feng Motors is supplying parts to a former Kano State enterprise, National Truck Manufacturers.

The strength of the drinks sector led container-glass manufacturer Frigoglass to invest in seven plants. Similarly, British American Tobacco’s success has led to packaging company Nampak committing $40-million to factory development.

Conglomerates are the biggest players in the manufacturing sector: companies like Unilever Nigeria and the Dangote Group focus primarily on consumables, with Dangote making sugar, flour, pasta, salt and cement. The other group of conglomerates (John Holts, AG Leventis Nigeria and the Dana Group) works largely with chemicals, pharmaceuticals, plastics and engineering. Dana Group’s most significant acquisition came in 2006 when it bought the Katsina Rolling Steel Mill from the federal government. The group’s revenue in 2005 was $2.55-billion.

Incentives

High import tariffs and import bans were imposed several years ago to protect domestic manufacturing and to stimulate the production of substitutes. The collapse of Nigeria’s textile industry gave ammunition to the protectionist argument. In the nine years to 2004, employment was slashed by 64% because of cheap imports. Nigeria had 124 textile manufacturers in 1994; today there are 45.

However, the tariff system was complex and not always logical. Some analysts argue that it did more to encourage smuggling than it did to promote local production. National policy is now moving away from protectionism to a more open approach. An original list of 156 products has been systematically reduced and tariffs have been simplified.

In addition, attractive incentive packages now exist to promote industry. A manufacturer who imports raw materials in order to convert them into a product for export will only pay tariffs if the exports fail to materialise. If companies do research into the use of local raw materials, they can claim 140% back. Free Trade Zones have also been set up in several parts of the country.
Special status has been accorded to industries that will serve as a catalyst for further development, the ‘Pioneer’ industries, with some investors able to enjoy long tax holidays.  The long list (which can be found NIPC website) includes textiles, industrial chemicals and non-metallic building materials such as brick and glass. 

Other targeted industries are those that will source their raw material locally, support food production or create a multiplier effect such as flat sheet mills, foundries and engineering. It is intensely irritating to many Nigerians that products such as laptops and cellphone casings are fully imported, yet they are made from petroleum by-products.

So petrochemical-based manufacturing is another focus area. Problems notwithstanding, there should be no doubt that Nigeria is very keen to attract industrial investment to its shores. As fDi, the magazine specialising in foreign direct investment states, ‘in its quest to attract foreign investment, the government does go to great lengths to smooth the way for investors’. At the forefront of that initiative is the Nigerian Investment Promotion Commission which has established a one-stop shop for potential foreign investors.

The Bureau of Public Enterprises has already sold off many state assets including paper and sugar mills, printing works and automotive assembly plants. Companies investing in Nigeria are obliged to register with the Corporate Affairs Commission which has recently established regional offices, making the process easier