Economic Update

Published 23 Sep 2010

Nigeria’s once vibrant textile industry has all but disappeared in recent years under competition from cheaper foreign goods. However, strengthening the real sector of the economy is a central component of the government’s plan to diversify away from hydrocarbons. A large-scale funding programme is in the works to bail out textile companies and promote the manufacturing sector as a whole.

In August 2010 the Bank of Industry released 30bn naira ($198m) in grant money to the textile industry, as part of the Cotton, Textiles and Garment Industry Revival Scheme passed at the end of 2009. In total, 100bn naira ($659m) will be injected into the industry. As the centre of the Nigerian textile industry, Kaduna state will receive the lion’s share of these federal funds – 24bn naira ($158m), according to local press.

Industry representatives have asked for the government to speed up the disbursement of funds, which were first promised in 2006 under the Olusegun Obasanjo administration. However, no money was awarded at that time, and the industry’s decline has accelerated in the intervening years. Two of the nation’s largest textile factories, Kaduna Textiles Limited and the United Nigeria Textiles, closed in 2007 due to waning demand for Nigerian textiles.

The textile industry was formerly a major breadwinner for Nigeria. In its heyday in the 1970s and 1980s, the segment was the largest domestic employer after the government, providing 800,000 direct jobs and contributing 25% of manufacturing GDP. Prior to 1997, Nigeria had Africa’s third largest textile industry after Egypt and South Africa.

Nigeria joined the World Trade Organization in 1995, and the market was opened to cheaper textile imports, predominantly from China, as well as secondhand clothing from the US and Europe. Local producers charge that Chinese manufacturers even affix counterfeit “Made in Nigeria” labels to their wares.

An import ban on finished textiles nominally exists to protect domestic manufacturers, but smuggling is widespread. According to the Nigerian Textile Manufacturers Association, around 85% of textiles sold in Nigeria are smuggled, and the country loses around $325m in potential Value Added Tax revenue annually due to materials smuggling.

High operating costs and lack of infrastructure have further hamstrung the textile industry. Power failures contributed to the shutting down of many factories over the past few years. A survey of Nigerian manufacturers by the UN Industrial Development Organisation indicated that they had adequate electricity supply an average of three days a week.

According to local media, there are now fewer than 30 textile factories operating in the country, down from a high of 250 in the 1980s. Many of these factories, moreover, are working under-capacity, and employment has dropped to the tens of thousands. Exports of textile products dipped below $11m in 2008 from $44m five years earlier.

Industry has been a focus point for the government as it pursues economic diversification. In July 2010, the Central Bank of Nigeria allocated 150bn naira ($989m) to banks to lend to the real sector, the first tranche of a 500bn naira ($3.3bn) stimulus package.

Manufacturing accounts for less than 5% of GDP, compared to 14% in South Africa. However, there is large potential for growth, given a large domestic market of 150m people and Nigeria’s wide array of natural resources.

The textile industry uses cotton from western Africa, which is still generally competitive on the global market. If the government were able to alleviate infrastructure bottlenecks and better enforce anti-smuggling law, the textile segment would have a fighting chance of recovery.