•Blame harsh operating environment
By Merit Ibe, [email protected]
Stories by Merit Ibe [email protected]
The recent survey by the Manufacturers Association of Nigeria (MAN) for the first half of 2023 has shown that capacity utilisation in the sector declined to 56.5 percent from 57.9 percent recorded in the corresponding half of 2022.
The report indicated a reduction of 1.4 percentage points when compared with last year’s figure.
With the negative growth in H1, the manufacturers are groaning as their fortunes declined due to Nigeria’s harsh operating environment.
This low performance has been blamed on the Nigerian economic environment which was clouded by election activities in the second half of 2022 resulting in uncertainties in the economy.
According to the survey, the impact of the Naira redesign policy dampened the manufacturers’ confidence, thereby reflecting in the sector’s indicators including capacity utilisation in the period.
“The effects of the naira redesign program and slow economic activities were reflected in the GDP data released by the National Bureau of Statistics (NBS), showing that the economy slowed to 2.31 percent and 2.51 percent in the first and second quarters respectively.
“Furthermore, the subsidy removal and exchange rate unification policy towards the end of the first half left the economy on the brink of uncertainty, causing a ripple effect that further eroded investors’ confidence. As a result, businesses and foreign investors were increasingly wary of committing capital, thereby hindering economic growth and prospects for recovery. The combined effect of these is the resultant higher inflationary pressure, which fueled cost of production, reduction in consumers’ purchasing power and a greater impact on manufacturers.” Also the survey revealed that employment generation of the manufacturing sector declined to 6428 in the first half of 2023.
This is an indication of 32.8 percent reduction in employment generation capacity when compared with 9559 jobs generated in the first half of 2022.
“The data showed a shed of 313 jobs when compared with 6741 jobs created in the second half of 2022.
The decline in the number of jobs created in the sector during the period further highlighted the unfriendly business environment resulting from the hasty policies and residual effect of the currency redesign policy that led to naira crunch.
“The inventory of unsold finished products in the manufacturing sector saw a significant increase to N271.96 billion during the first half of 2023, as compared to N187.08 billion recorded in the corresponding period of 2022.”
“Manufacturing sector output value increased to N4.1 trillion in the first half of 2023 from N3.99 trillion recorded in the corresponding half of 2022.
“However, the 2.8 per cent increase in the monetary value (not real output) of manufacturing sector production over the period of one year when inflation is at 24.08 per cent at the same period indicates a struggling sector.”
Manufacturing sector’s investment in naira value increased to N192.89 billion in the first half of 2023 from N178.39 billion recorded in the corresponding half of 2022; thus, indicating N14.50 billion or 8.1 percent increase over the period.
“Hence, the increase recorded does not indicate physical investment by manufacturers but rather nominal which resulted from the devaluation of currency that has made the manufacturers to pay more for plants and machinery importations. “
Also, one of the major hurdles confronting the manufacturing sector has been the high cost of obtaining funds.
“This challenge is substantiated by data gathered during the fieldwork for the first half of 2023 report. It revealed that the average lending rate to the manufacturing sector from commercial banks remained high at 24 percent when compared with what was recorded in the corresponding half of 2022. The performance indicators in this review showed that manufacturing sector faced myriad of challenges in the first half of 2023.
“The residual effect of naira redesign and the removal of fuel subsidy towards the end of the period under review triggered inflationary pressure, cost of transportation, cost of production and other macroeconomics imbalances, thereby worsened the purchasing power of the households.
“Key sectors like manufacturing and agriculture, which play a vital role in Nigeria’s economy, suffered as higher fuel costs drove up expenses related to machinery, irrigation and transportation. These led to increase in the prices of food and other products, impacting both productivity and social stability. The uncertainty stemming from this policy change has undermined investor confidence, hampering both domestic and foreign investments that are crucial for economic growth and job creation.”
Following the low performance of the sector in the first half of the year, the manufacturers called for stakeholder engagement, policy clarity and predictability; comprehensive economic impact assessment of the fuel subsidy removal, exchange rate changes, and other policy measures. They urged the government to support the sector and MSMEs with access to credit and improve infrastructure development, support workers and show transparency and efficiency in the disbursement of funds.
“Government should establish a monitoring and feedback mechanism to assess the effectiveness of the implemented policies, implement regulatory reforms to improve the ease of doing business, provide social safety nets and articulate a clear long-term economic vision that outlines the pathway to sustainable economic growth, job creation, and poverty reduction.
They pleaded that government should prioritise FX intervention for raw materials and machinery for industries, improve fx allocation to the industrial sector, develop a roadmap for improved power supply, promote renewable energy sources, resuscitate national refineries and review domestic gas pricing.
Other recommendations include to address oil theft, incentivise local raw material development, especially Active Pharmaceutical Ingredients (API) and basic chemicals, focus on backward integration, harmonise taxes and levies for the manufacturing sector, expanding the tax base without increasing the burden on existing taxpayers and investing in transportation infrastructure.
They also told the government to fix the ports and streamline its operations, revive rail in the country among other recommendations.