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By Merit Ibe
The Manufacturing Association of Nigeria (MAN) has remarked that the capacity utilisation in the sector declined to 54.9 percent in the second half of 2022 from 59 percent recorded in the corresponding half of 2021 indicating 4.1 percentage points decline over the period.
This was contained in the summary of findings of a survey by the MAN for the second half of 2022. The survey is designed to monitor changes in manufacturing sector performance indicators viz-a-viz the behaviours of macroeconomic and policy environments during the period of the survey.
According to the Director General, the Segun Ajayi-Kadir, the decline in manufacturing capacity utilisation in the period is due to the adverse effect of high cost of energy and the Russian Ukrainian war, the grave effects of the naira redesigning policy and other perennial challenges such as acute shortage of forex for importation of raw materials and machines, high cost of borrowing and many more.
The association also disclosed that the sector’s factory output value declined to N2.68 trillion in the second half of 2022 from N3.73 trillion recorded in the corresponding half of 2021.
The performance of the manufacturing sector based on the outcome of the survey is corroborated by the GDP reports of National Bureau of Statistics (NBS) which showed that output growth of the sector declined to -1.91 percent in the third quarter of 2022 from 3.0 percent recorded in the second quarter before moving up to 2.83 percent in the fourth quarter of the year.
Ajayi-Kadir said that it is critically important that the challenges identified by manufacturers in the course of the survey are adequately addressed by improving forex availability; prioritizing forex intervention through the official market, particularly to support the raw materials and machine needs of the industries; improving forex allocation to industrial sector and enhance the capacity of designated banks to efficiently process application of forex by manufacturers; Granting concessional forex allocation at the official forex market to industries for importation of productive inputs that are not locally available; unifying the various forex windows in the country.
“In the second half of 2022, year-on-year, capacity utilisation in the manufacturing sector declined to 54.9 percent from 59 percent recorded in the corresponding half of 2021; thus, indicated 4.1 percentage points decline over the period. Quarter-on-quarter, it declined by three percent when compared with 57.9 percent recorded in the first half of the year. Manufacturing capacity utilisation averaged 56.4 percent in 2022 as against 55.9 percent average of 2021.
“Also, manufacturing sector factory output value declined to N2.68 trillion in the second half of 2022 from N3.73 trillion recorded in the corresponding half of 2021; thus, indicating N1.05 trillion or 28 percent declined over the period. It also declined N1.31 trillion or 32 percent when compared with N3.99 trillion recorded in the preceding half.
The value of manufacturing production totalled N6.67 trillion in 2022 as against N7.39 trillion recorded in 2021,”Ajayi-Kadir said.
The association lamented that manufacturing production was severely affected in the second half of 2022 by absence of implementation of new capital project by the government as they focused on the election.
“Production in the sector was negatively affected by limited purchases by households due to the Naira redesign policy, the high inflationary pressure in the country, high cost of energy, particularly diesel and gas, acute shortage of Forex for importation of raw materials and machinery needs of the sector that are not locally manufactured in the time being and many more.”
Ajayi-Kadir said unfortunately, the issues of the basic metal group whereby duty of Annealed Cold roll was reduced to 5 percent from the previous 45 percent; the suspension of motorcycles in some areas across states, the increase in the duty of paper from 5 percent to 20 percent and so on are still effective. “These challenges, in addition to the perennial issues, contributed enormously to the dip in the production of the sector in the period under review.”
He said the effect of the Ukraine-Russia war on Nigerian economy was quick in the second half of 2022 as the cost of wheat and other food inputs increased; prices of fuels, particularly diesel rose by over 50 percent; cost of transportation logistics including shipping escalated even as the effect of COVID-19 pandemic is yet to fully die down.
“In addition to these challenges was the CBN policy on Redesigning the Naira, which aimed at bring a N3 trillion in the economy to the control of the banking system. from the economy. The policy created a cash crunch that debilitated economic activities in the last quarter of 2022. This particularly affected the manufacturing sector adversely as it was extremely difficult to sell most of the Fast-Moving consumer Goods and other commodities by the sector in the period.
