Contraband goods affecting local products – Yusuf

The Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, takes a look at the Nigerian business climate and offers survival tips to businesses in the light of the prevailing economic situation, in this interview with ANNA OKON

What is your assessment of the state of the Nigerian business environment?

The Nigerian business environment offers tremendous opportunities for investors by virtue of the size of the economy and the size of its market and the fact that we have enterprising population and resourceful entrepreneurs.

We also have natural and human resources. Little wonder that a lot of investors from Asia and Europe are here to take advantage of the large market size.

What are the major challenges in the business climate?

One thing that stands out clearly is the challenge of infrastructure. The private sector has been complaining about this for years but we don’t seem to have made much progress concerning the infrastructure. This is affecting the productivity of the private sector; it is affecting the operating cost of production and the capacity to compete.

Even though you are in Nigeria, you are competing with China, Malaysia and India because all their products are here. Unless we are competitive, there will always be challenge of business sustainability. That is why particularly our small scale industrialists have a lot of challenges competing because the cost of production is very high.

Though infrastructure remains the number one problem, there are also issues about finance. The cost of borrowing is very high and the continuous tightening of monetary policy by the Central Bank of Nigeria is not helping the situation. Apart from the cost of funding, access to funding, particularly by small businesses is a big issue because many of them cannot meet the requirements of the banks.

Many businesses also have problems with the regulators. They believe that many of the regulators are high handed; they impose very high charges and fees, which are making their products very expensive. Many of them are very bureaucratic and some of the officials are also corrupt. The regulators have virtually the powers of life and death over the businesses. There is no proper dispute resolution method. Once they take a decision on you, that decision is final.

Then there are issues with logistics. To move products around the country, you have to do it by road and the roads are not good. The rail system is not functioning well.

We also have the security problems in some parts of the country. This is affecting not just those within those areas but those who are outside because their products cannot be moved easily to those locations. Some of them have lost as much as 30 per cent of their markets because of the problem of insecurity in the North.

People also complain a lot about the Nigeria Customs Service particularly in respect to valuation of cargo. There is a lot of arbitrariness. At the Lagos Chamber, we had to write to the Federal Government; we also wrote to the Comptroller General of Customs and the Minister of Finance complaining about the arbitrariness in the valuation of cargo.

Customs, perhaps in the drive for more revenue, has been reviewing most of the value of cargos coming into the country and this has constituted a lot of delay. Sometimes, it even leads to extortion of some of the importers.

Even the importation of all sorts of products from abroad is affecting manufacturers. They produce products and the same products find their way into the country in adulterated forms. They make it difficult for firms to thrive.

China has used the principle of cheap goods to a great advantage, what is stopping Nigeria from doing the same?

Most of the cheap Chinese goods have quality issues but the basic point is that the cost of production in Nigeria is high. The operating environment is too difficult and if your cost of production is high, you cannot compete. If you have a country where the institutions that are supposed to protect you are also not effective or they are compromising, then you have a problem.

Many of those products ideally should not even be allowed into the country. Some of them are even contraband; some of them are supposed to attract high duty but because the systems are compromised, these products are in the market place and virtually crowding out the locally produced products.

In China, because they also produce very large quantity, they have taken advantage of the economies of scale which reduce price. They have a large economy; they have a large domestic market and they are targeting export very aggressively. But because we have very weak institutions, even products that are not supposed to come in are coming in.

What are the concerns with ECOWAS tariffs and what are the benefits to manufacturers?

The Common Economic Tariff is another stage of economic integration because the whole idea is to promote the integration of the West African sub region. The advantage of economic integration is that it provides a larger market for businesses within the sub region.

The system allows investors in a particular region to take advantage of the entire market in the entire sub region and to enjoy the benefits of economy of scale. It also allows labour to move freely.

But if you are within that setup and you are not competitive, then the regime will penalise you. Ghana, Cote D’voire and Senegal are countries producing in a more competitive environment. The cost of production is low and they have the freedom to go into any market within the sub region. If you are here and you are borrowing at 30 per cent, of course you will lose market to other competitors in the sub region. For enterprises in Nigeria to take advantage of the CET, we need to create environment for them to be competitive; otherwise, they will lose out in the process.

Do you see the market being competitive this year?

I don’t see it happening. It is going to be a major challenge for businesses here, particularly those in the manufacturing because what will happen is that there is going to be a general reduction in tariff. Sometimes, these things are even compromised. We have seen instances which the customs people too have complained about; products from Asia are taken to the neighbouring countries and re-labelled as if they were produced in those countries so that they can take advantage of the tariff in the sub region.

We need to strengthen the institutions that are meant to ensure the rules that govern the CET are kept.

In the light of the impact of the fall in oil prices and devaluation of the naira, what measures should businesses adopt to stay afloat?

The situation has increased the cost of operations and production for many enterprises. What this means is that businesses should begin to look more inwards. If there are areas where imports can be substituted in the production processes, then a lot of that should be done to protect the businesses from the high cost of imports. Businesses should begin to cut productions and make more savings. They should also avoid foreign exchange denominated obligations. If they take dollar loans and foreign exchange denominated credits, servicing them at this time will be a bit difficult.

They should use more of local personnel because at this time, using foreign experts and consultants can be very expensive.

They should also avoid projects that are government-related because many governments now don’t have the kind of money they used to have. People should minimise their exposure to government projects because there is a risk of payment default. Many of them cannot pay salaries; many have borrowed. They have raised bonds from the bond market. Bond deduction is at source; whatever is left is what will be remitted to them. Many of them do not have internally generated revenue to augment; so it will be very risky.

Businesses should also look more into exports. This is the time when non-oil exports are very profitable especially those of them that don’t require too much of imported input. If the local content is high, then it is good business.

In which aspects of the economy should the organised private sector be more involved?

This economy is as wide, deep and broad as one’s imagination can go. There is opportunity in every sector. It is just that some sectors could be more difficult than others. The industrial sector, for instance, because of the energy requirements, may be tougher, especially for small businesses. Big companies, because of their operations, can afford to generate power with the economy of scale. Most of them don’t even use public power supply.

What major government policies across sectors are hampering the growth of the manufacturing sector?

The major policies are the ones on infrastructure. Although government is doing well in trying to privatise the sector, we feel that government should do more. The structure of budget that we have does not sufficiently address the position of infrastructure. We need to look at how we appropriate the resources of government to ensure that more resources are committed to provision of infrastructure.

The regulatory agencies need to be more investment friendly. Many of them are very high handed and bureaucratic. Their fees are also very high and some of them are corrupt.

We need to look at the monetary policy which has been keeping interest rates very high for many years. We need to ensure that the management of liquidity is well done so that the interest rate can come down; inflation can remain low and the purchasing power of the citizens can go up.

Copyright PUNCH.