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Manufacturers decry rising cost of goods, unsold inventory over forex scarcity

By Merit Ibe

Local manufacturers have expressed concerns over rising costs, considering that prices have continued to spike due to challenges in supply chains, occasioned by unavailability and rising foreign exchange(forex) rate.

Consequently, the rising costs have  led to 51 percent surge in  unsold finished products, according to the Executive Summary of Bi-Annual Economic Review released for the second half of 2022 by the Manufacturers Association of Nigeria (MAN).

In a statement recently, MAN noted that despite the recent reform to unify all forex windows, the exorbitant premium that persists between the official and parallel exchange rates have further stalled manufacturing operation.

The operators have called on CBN to set an exchange rate trading band for them to help stall  rising manufacturing costs worsened by illiquidity in the foreign exchange (FX) market, which has weakened industrial production.

Given the raw materials import dependent nature of the country,  the depreciation of the Naira and unavailability of forex  required for  purchase are seriously affecting  the cost of imported raw materials, causing spike in  cost of production.

Also, high energy,  logistics costs among others have been  contributory factors to the  levels of production, capacity utilization and job losses among others.

Commenting, immediate past chairman of MAN, Apapa branch, Frank Onyebu, said the rapidly increasing cost of foreign exchange is having a major negative impact on the Nigerian manufacturing sector.

Onyebu viewed that the sector, already bedeviled by infrastructural and other challenges, is facing an existential crisis due to the uncertainty created by these rising costs.

“Effective planning is almost impossible; manufacturers are forced to constantly change their plans, relying mostly on short term measures.

“The overall effect of these increasing costs is an increase in the cost of production. Unfortunately, the poor state of the economy cannot support an appropriate increase in the prices of their products. So manufacturers are stuck with a large stock of  finished products which they cannot sell. This obviously affects the bottom line,” he said.

He lamented the significant increase in the inventory of unsold finished products, pointing to economic challenges affecting purchasing power.

“It is no wonder then that a lot of manufacturers are going under while others are relocating to countries with less uncertainty.

He called on government “ to respond with appropriate measures to resolve the crisis in the FX market without further delay. This will not only boost the manufacturing sector but also increase confidence in the overall economy.”

On part, Mr Imokhai Ehimigbai, Export Manager at Aarti Steel Ltd and a member of the MAN Export Group (MANEG), said increased cost of fuel, transport, moving raw materials from one point to the other are transfered to the consumer because no manufacturer would want to run at a loss.

“The cost of raw materials is high. Today we source for forex to bring in raw materials, which is cold roll, which Nigeria has the capacity to  produce. But because Ajaokuta steel and Itakpe are not working, we rely on importing hot roll. This is affecting manufacturers in Nigeria.”

He decried that industries were already relocating from the country while others are shutting down.

“Importing raw materials now with the rate of dollar is ridiculous. At the end,  the cost is high and with  the  purchasing power of Nigerians affected, no one will buy as such the ware houses are filled up.

“Companies are retrenching workers.

Already,  the MAN president is screaming out over inevitable job losses.

“We are paying for gas in dollars , electricity is  dollarised but you pay in naira;  charged in dollars.

Many industries are not producing up to 30% capacity  because the raw materials are not available.

According to him, this has been a very difficult moment for manufacturers. “In mitigating this in our case, we have reduced our production capacity drastically.

“The naira is valueless in the exchange market. Even the border trade is affected.

Because Nigeria is not a producing nation everything is dollarised. The high rate of dollar which affects the value chain is factored into the production, which leads to high cost of goods and services. And consumers can’t buy, their hands are tied.”

The MANEG member emphasised on the issue of separate window for manufacturers to bring in raw materials.

He also advised that the government should look into the solid minerals  industry.

“If this is done, Nigeria will recover in  three  to four years. Oil will fail us soon as it is today..

“We are blessed with other minerals resources apart from oil.”

He called on the CBN to address the issue of speculating by the Bureau the Change as the  action is part of the cause of increased forex rate.

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