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•Say CBN reforms good but need sustainability …Beg apex bank to halt further MPR tightening
By Merit Ibe
Unless strategic interventions and swift policy changes are carried out to address the throttling effects of the recent electricity tariff hike and persistent foreign exchange scarcity, over 40 per cent of the manufacturing firms in Nigeria may be on the verge of collapse, local producers warned at the weekend.
The manufacturers raised the alarm while responding to Daily Sun inquiries on the efficacy of the ongoing government’s fiscal and monetary policy reforms aimed at fortifying the economy.
According to them, frequent policy flip-flops, high interest rate on loans, hyper-inflation, astronomical energy cost, multiple charges and a generally toxic operating space among other constraints have made them endangered species such that only pragmatic solutions, not political empathy, can save them from the final gasp of ruin.
In a telephone chat with Daily Sun, Frank Onyebu, former Chairman, Manufacturers Association of Nigeria (MAN), said all the hyped interventions and reforms from the fiscal and monetary wings of the government are yet to cascade down to the level of manufacturers as operational costs remain at stratospheric heights.
“Nothing much has changed. You know in Nigeria, nothing that goes up ever seems to come down.
“For manufacturers using local inputs, the suppliers who raised their prices at the height of naira depreciation have refused or are unable to drop their prices. In the same vein, the manufacturers who imported their inputs at higher prices are unable to lower them until after the sale of those products manufactured with higher input cost.
“This is the reason why the government needs to always think through policy measures before implementation. I’m hopeful though that if the government sustains the current FX policy measures, some semblance of stability will set in. Businesses thrive in a stable environment. Conversely, nothing kills businesses like uncertainty because they need long term planning to thrive.
“It is based on the heightened atmosphere of uncertainty that many multinational manufacturing companies have exited Nigeria in the recent past. “Some are still gearing up to go. No manufacturer wants to set up a plant in a country with rampant policy somersaults.
“In addition to the fact that multinationals are exiting, new ones are not coming in. Foreign direct investments have been limited to short term investments like the stock market, among others. Long term foreign investments have been at near-zero in the recent past.
“The recent destructive electricity tariff hike could, in fact, be the final straw for a lot of companies.
I am afraid that if something concrete is not done within the shortest possible time, over 40 per cent of manufacturing plants in Nigeria will eventually shut down. This will result in higher unemployment levels, increased insecurity and lower revenues for the government.
“The government must, therefore, create and implement deliberate policies to ensure a reversal of the current trend. Emphasis should be given to provision of adequate electricity supply to factories as well as an upgrade of dilapidated infrastructure and improvement in the operating environment for manufacturing. The government should also ensure proper stakeholder consultation prior to enactment of major policy decisions.
“Apart from multinationals exiting and new ones not coming in, smaller local manufacturers have been shutting down quietly.
Several companies have held on for a long time waiting for some sort of miracle”, he stated.
For the Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, the current reforms of the government will take some time to permeate various sectors of the economy.
“Most of the inventories they are carrying now are inventories that are based on old prices, it will take some time for them to exhaust those inventories and when they exhaust them, hopefully, the current state of the currency will begin to show. Then, we begin to see some impact in terms of retail prices.
“So, normally there is a lag between when these kind of policies happen and when we begin to see a drop at the consumer end.
“The measures are positive. The only thing is the impact of those measures on interest rate because it is going to make life difficult for a lot of manufacturers that are owing the banks or that intend to borrow money from the banks with the interest rate at between 30 to 35 per cent. That is one of the negative fallouts of some of these measures.
“Although, the CBN has said the high interest rate regime is temporary, the impact is very severe on people who already owe the bank.
“Secondly, the Central Bank should slow down on the tightening of the monetary policy. Currently, MPR is about 24.75 per cent, CRR is 45 per cent while the liquidity ratio is 30 per cent. Those numbers are too high and we don’t want any further tightening of monetary policy for now so that we don’t strangulate the real sector of the economy from the point of view of the private sector.
“The CBN should develop a framework to ensure that the gain that we are experiencing now in the forex market is sustained and remains sustainable”, he explained.
Also reacting, the President, Calabar Chamber of Commerce, Industry, Mines and Agriculture(CALCCIMA) David Etim, told Daily Sun that while it was cheerful news that naira was gaining traction in the FX market, the underlying concern of manufacturers is how consistent and sustainable the appreciation would be.
“It’s not just one or two days that matters to manufacturers, what matters is consistency. Manufacturers operate in a cycle of between 90 to 180 days from when they make importation to when the goods arrive, then processed and the sales made to get back the cash for that cycle to be completed.
“So, when the exchange rate matters to the business people is when they are buying or re-buying to restock again. So, if it takes you 180 days to turn around your money, whatever happens now is of no consequence to them.
“Anything happening presently does not impact them because they are still looking at what they bought with the old price of the dollar.
“So, prices are still the same despite the appreciation of the naira. What matters to manufacturers now is consistency over a long period”, he explained.
In his intervention, the Chairman, SME Group of the Lagos Chamber of Commerce and Industry (LCCI), Daniel Dickson-Okezie, said the CBN reforms are good developments but require assurances around stability and sustainability.
“What is important is the ability to stabilize the naira for a longer period. How long can it last?
“There has not been any visible impact on small businesses. Nothing has changed for now.
Multinationals are warming up to leave and small businesses are shutting down. One of the reasons is that businesses are not accessing forex easily.
“Manufacturing sector is not finding it easy to get raw materials due to forex squeeze, poor power, and security issues.
“FG should ensure that institutions help manufacturers access funds easily at lower interest rates. We need a long term positive change in the area of stabilizing the naira. Lots of factors need to come into play like improving exports. Cutting down on our imports will permanently address the issue of naira depreciation”, he told Daily Sun.
Meanwhile, a review of the performance of multinational corporations and big indigenous firms operating in the country for the financial year ended December 2023 showed that they recorded a combined forex losses of N792 billion due to naira depreciation caused by the monetary policy reform.
The 16 companies that recorded FX-related losses in 2023 include: Nestle Nigeria, N173,925billion; Nigerian Breweries, N153.332 billion; NASCON Allied, N8.539 billion; International Breweries, N 57.599 billion; BUA Cement, N69.950 billion; Lafarge Africa, N 21.0 billion; Guinness Nigeria, N49.1 billion; Cadbury Nigeria, N18.299 billion; Dangote Cement, N 164,077 billion; BUA Foods N 73.561 billion; Dangote Sugar, N148.328 billion; Okomu Oil N 0.207billion; Notore Chemical, N5,59 billion; Vitafoam Nigeria, N 0.103 billion; Beta Glass N 0.981 billion and Unilever N6.945 billion.
