Manufacturers have spent at least N7.9 trillion on raw materials imports in the last three years.
According to The Punch, manufacturers claim that the high cost of imported raw materials is a result of operators’ choice to obtain foreign currency at exorbitant rates from the parallel market as a result of a lack of FX at the official market.
A review of the National Bureau of Statistics’ international trade statistics revealed that Nigeria was only able to export raw commodities worth N1.77 trillion throughout the time period, leaving a 6.1 trillion dollar trade imbalance.
According to a breakdown of the statistics, manufacturers imported raw materials worth N570.6 billion in the second quarter of 2020. The amount rose to N710.2 billion in the third quarter of the same year before increasing further to N715.7bn in Q4.
Further analysis of the data revealed that firms imported N2.9 trillion worth of raw materials in 2021. It decreased to N2.4tn in 2022, and in the first three months of 2023, N555.4bn worth of raw materials were imported.
Cane sugar from Brazil, milk preparations from Ireland, mixes of odiferous substances from Ireland and Swaziland, and lubricating oils from The Netherlands were the main raw materials imported during this time.
In contrast to the 51.5 percent reported in 2021, the manufacturing sector sourced local raw materials on average 52.8% of the time, according to the Manufacturers Association of Nigeria’s biannual economic report.
The increased difficulty in obtaining foreign raw materials, according to MAN, forced manufacturers to go more domestically for raw resources notwithstanding the high expense that went along with it.
Addressing the FX volatility, according to MAN Director-General Segun Ajayi-Kadir, is essential for industrial production.
He claimed that the manufacturers’ lack of access to foreign exchange results in high import input costs and, consequently, high manufacturing costs.
“But the truth is that the government does not have enough foreign currency to meet all of the demand in the economy, including that of the sector, he continued. Nigeria has not even been able to meet its OPEC export quota; crude oil earnings are the main source of foreign exchange entering the country.
The government only has a certain amount of foreign currency accessible for the economy, and the recent floating of the rate of exchange has complicated the supply side constraints.”
Ajayi-Kadir encouraged the government to establish a specific rate for determining the import duty for inputs used in production, such as raw materials, equipment, and spare parts that are not readily available locally.
At the Cross River/Akwa Ibom State branch of the association’s annual general meeting, a past president of MAN, Mansur Ahmed, warned that manufacturers could only get 5% of their foreign exchange needs from banks.
The failure of Nigeria’s import substitution plan, according to the Deputy President of the Lagos Chamber of Commerce and Industry, Gabriel Idahosa, is the cause of the nation’s excessive reliance on imported raw materials.
He continued by saying that if Nigeria were able to export raw materials to other nations to offset the foreign exchange spent on imports, the importation of raw materials for industrial purposes would not be particularly harmful to the local economy.
Many businesses just deal in importing their basic materials, he claimed. We are unable to perform backward integration in some sectors because we lack the necessary raw materials or technological infrastructure.
“You cannot backward integrate to start making engines or even tyres if you are making cars in Nigeria. The majority of the components are still largely imported, and you merely assemble them.”
