With local sourcing of raw materials still very low, Nigerian manufacturers have urged the Federal Government to incentivize investment and production through backward integration initiatives.
According to the local producers, an urgent need for investment and production of Active Pharmaceutical Ingredients (API) in the country as well as necessary raw materials for production should be adequately incentivised to encourage significant private investments.
Last year, local sourcing of raw material among manufacturers in Nigeria declined by five percent in 2021 as scarcity, logistics challenge and insecurity took a toll on the supply chain, according to reports from the Manufacturers Association of Nigeria (MAN)
In the recently released economic review for the second half of 2021, MAN revealed that local sourcing of raw materials averaged 52.4 percent in 2021 which is a drop from the 57.5 percent achieved in 2020 during the pandemic.
“Since the full opening of the economy following the lockdown associated with COVID-19 pandemic, local raw materials and other manufacturing inputs have been relatively scarce and costly, this has also affected the output of the sector negatively,” the report stated.
This drop was particularly noticeable in the chemical and pharmaceutical subsector as it fell to an average of 46.5 percent in 2021 from 52.8 percent in 2020, similarly, the Non-Metallic Minerals products group dropped from 63.2 percent in 2020 to 50 percent in the review period.
In 2020, the COVID-19 pandemic caused a disruption in the local and global supply chain which manufacturers across all sectors are yet to recover from, especially makers of essential products who saw a surge in demand.
In the fourth quarter of 2021, the top two challenges identified by manufacturers were the high cost of local and imported raw materials as well as rising insecurity which they said adversely affected their operations during the year.
It would be recalled that the Centre for the Promotion of Private Enterprise (CPPE) had warned that the state of insecurity has reached a frightening level deserving of a state of emergency declaration, adding that the trajectory portends serious adverse implications for economic growth prospects and investment outcomes.
In its 2022 first-quarter economic review, the Chief Executive Officer of the CPPE, Dr. Muda Yusuf, noted that the worsening security situation in the country, the escalating energy cost, exchange rate depreciation, liquidity crisis in the foreign exchange market and the spiking inflationary pressures form major headwinds undermining economic growth.
“We cannot retain, scale or attract investment in an environment that is not secure. This is true of domestic and foreign investments. The situation continues to pose a very serious challenge to lives and livelihoods. Investors’ confidence has been greatly undermined with investments across all sectors being adversely affected. When investment is in jeopardy, livelihoods are negatively impacted. Worsening insecurity is adversely impacting lives and undermining livelihoods. This is taking a huge toll on both the social and economic life of the nation”, he added.
He noted that escalating energy costs, alongside poor power supply from the national grid, have consequences for the economy as these are reflected in the high production and operating costs across all sectors, high haulage costs due to diesel prices as well as potential suspension of operations for businesses that are unable to pass the costs to the consumers.