We desire stable naira to thrive, manufacturers beg FG

Stories by Merit Ibe, ibe.merit@yahoo.com 

Manufacturers and business owners have expressed their frustrations over the  instability of the naira which has made planning difficult and nearly impossible.

The stakeholders are gradually losing confidence in the naira, which  was devalued and led to a remarkable increase in the cost of goods and services.

Due to naira’s uncertainty of the naira,  manufacturers are unable to  predict costs and revenues accurately,  introducing significant risks into the business environment.

Manufacturers who relystability of the naira to thrive and remain productive are lamenting the pressure on the margins of companies already dealing with double-digit inflation rates and weak purchasing power of cash-strapped consumers.

This volatility has  impacted pricing, planning, creating a challenging atmosphere for both local and international businesses.

They have asked the government to open a window for the real sector to have a more concretionary interest rate.

Meanwhile, a recent data from financial market infrastructure group (FMDQ) showed that the naira slightly depreciated to N1,509.45 against the dollar on Tuesday from N1508.99 traded on Monday.

Nigeria has faced years of acute foreign exchange scarcity and instability. The local unit has lost about 70% of its value against the dollar since June 2023, when President Bola Tinubu’s government introduced policy changes to lure inflows to help revive the economy.

Despite the Central Bank of Nigeria (CBN) implementation of various measures to stabilise the naira, including forex restrictions and multiple exchange rates, the Nigeria currency has continued to experience substantial fluctuations in recent time.

The unpredictability of the naira’s value has undermined domestic and international confidence and created a huge uncertainty for manufacturers, who for some years have had fair share of  multiple  challenges.

The high rate of foreign exchange and the non-prioritisation of allocation to the sector, coupled with unfavourable  policies on the real sector have further stifled the sector.

Operators say the further devaluation of the naira coupled with rising interest rates have led to increased operating costs for companies, particularly multinationals whose major costs are denominated in foreign currencies.

They view that the unstable macroeconomic indicators have affected the medium and long-term plans of many businesses which have driven down profitability, led to more job losses, low tax revenue, threatened the survival rate of many businesses and  triggered more exits of multinationals.

National president of the Association of Small Business Owners of Nigeria said Femi Egbesola, said  “a lot of consumer firms had higher finance costs because of FX losses and higher interest rates.”

To him, many companies that seem to be alive today are sick and most of them are not making profits. “Many companies will still shut down because they cannot plan.”

The founder and Chief Consultant at B. Adedipe Associates Ltd., Dr. Abiodun Adedipe, viewed that the manufacturing sector will be the biggest beneficiary of a stable Naira as that will allow manufacturers to plan their businesses, noting that

manufacturing thrives when the exchange value of the naira is stable. 

“A stable Naira enables manufacturers to plan .”

For the Director General, Manufacturers Association of Nigeria (MAN), with the rapid depreciation of the naira, manufacturers have continued to grapple with high production costs which has led to decreased capacity utilisation.

“There are reports across the board that many warehouses and plants of many manufacturing firms are stockpiled with unsold goods manufactured last year.

“The development is as a result of the devastating effects of the exchange rate crisis, inflation, fake and sub-standard goods, smuggling and other macro-economic challenges.

“The government should also open new windows for us to source our credit at rates that are not lower and that are not higher than five per cent. These are very quick wins that the government can do that can lower the pressure that is upon the manufacturing sector,” he said.

Attributing the rising losses of firms to the movement in the exchange rate, Chief Executive Officer of the Center for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf,  said the unstable naira creates a lot of uncertainty for businesses.

Yusuf recommended that from the policy perspective, there is a need to have a window for the real sector to have a more concretionary interest rate.

“That is why we need to double down on this development finance window to be able to support the real sector. The sector cannot survive on this market-driven interest rate unless those that are really big and have some monopoly powers.

“One of the worst things that businesses detest is uncertainty because they need some level of certainty to be able to plan what they are doing – the investment, invoicing and contract terms, all  require some level of certainty in the business environment. So, it’s a major disruptive factor for businesses and for investment across all sectors. It’s also affecting pricing.

“How do you price your product when things are moving this way? So, we think the CBN should be able to come up with a framework. For some of these things, we need to be creative about how to do them. You cannot just leave the currency to be completely floating. I don’t think it’s done anywhere. You should have a framework; you should have a threshold within which you can allow some minimum fluctuation. I think that is something we need to do going forward.

“ We have people in the real estate industry who cannot conveniently prepare a bill of quantity because prices keep changing. So that volatility is not good for the economy and I think it’s something that is increasing the risk of doing business. It’s not good for investment at all,” he said.

George Onafowokan, managing director/chief executive officer at Coleman Technical Industries Limited, said most manufacturing businesses have shrunk as the working capital or funds available to manufacturers have reduced by 40 to 60 percent.

“If the money for buying raw materials has shrunk  and you don’t have enough dollars to back that up, it means a lower capacity utilisation for manufacturers.

“The economy is becoming smaller in dollar terms, resulting in lower per capita income. This could suggest that the market is now less attractive.”