Operators in the real sector struggled, albeit unsuccessfully, to yank off the toga of “economy’s weeping sector”. Rather than breathe any sigh of relief, all the challenges that have been hurting operators’competitiveness and profitability exacerbated in 2020, adding to their woes. But there are signs of a possible rebound on the horizon. Assistant Editor CHIKODI OKEREOCHA looks at highlights that shaped economy’s growth engine in the year.
From their age-long outcry over dearth of infrastructure, particularly the lack of access to uninterrupted electricity supply to a harsh business environment, the double shock of the COVID-19 pandemic and the crash in oil prices at the international market beginning from early 2020 literally put the manufacturing sector on life support, requiring urgent policy ventilator to keep the sector alive.
Indeed, lack of access to uninterrupted electricity supply, despite the privatisation of the power sector in 2013 to guarantee improved electricity supply, remained a bone in the neck of real sector operators in the year under review. This was because the use of alternative power supply via diesel generators significantly added to operators’ already high cost of production, which invariably, was passed on to consumers. Operators who could not bear the high production cost were forced to either scale down operation or close shop.
Cost burden
As if to add to their woes, the Federal Government increased electricity tariffon September 1, 2020 thereby doing away with payment of subsidy, which, according to the Federal Government, had become unsustainable and should be removed.
The leadership of the Organised Private Sector of Nigeria (OPSN), however, agreed with the Federal Government. The OPSN admitted that if subsidy was allowed to continue, “The electricity industry will collapse, as the government no longer has the fiscal capacity to sustain the increasing subsidy level and at the same time finance the capital investment necessary to extend electricity supply to the over 90 million Nigerians who lack access to electricity.”
The OPSN also said it was, therefore, necessary to create conditions that will attract private investment in the Nigerian Electricity Supply Industry (NESI) for which cost reflective tariff was inevitable.”It is, however, imperative that the confidence of electricity consumers must be inspired and they must be assured that the new tariff regime will lead to significant and sustained improvement in the quantity and quality of electricity supply,” the OPSN said
The group also insisted: “The new tariff structure must be transparent, charges must be fair and consumers must be able to verify that they are paying only for what they consume.”
However, the crisis in the electricity supply industry was just one out of other infrastructural issues real sector operators had to contend with in 2020. Bad road and rail network, particularly in and around the nation’s sea ports; poor storage facilities, among others were also pain the neck of operators particularly manufacturers. Many of them had to content with delay in the movement of cargo to and fro the sea ports; others bore the burden of huge demurrage caused by bottlenecks around clearance of cargo at the ports.
However, while operators were still struggling to get round these issues, the outbreak of the COVID-19 pandemic and the collapse in oil prices were no doubt, bitter pills to swallow. For instance, the global scale and ferociousness of the COVID-19 outbreak, which started in December 2019, in Wuhan, Central China, before it eventually found its way into Nigeria on February 27, 2020, left manufacturers dazed and battered. This was because of the disruptions in the global supply chain.
It was easy to see why this was so. China, which was the epicenter of the deadly virus, at least, on the onset, is the second largest economy in the world and a major supplier of inputs for manufacturing companies around the world, including Nigeria. The Director General of Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, put the impact of the disruption in the global supply chain as it affects Nigeria in perspective.
“Many manufacturers and service providers in Nigeria are already experiencing acute shortage of raw materials and intermediate inputs. This has implications for capacity utilisation, employment generation [and retention] and adequacy of products’ supply to the domestic market. There is also an implication for inflation and the pressures are already mounting,” Yusuf said. It could not have been otherwise as China represents Nigeria’s biggest trading partner, with about 19 per cent of its imports sourced from the Asian giant.
Following Nigeria’s first confirmed COVID-19 case in late February, lockdowns were imposed from late March until early May in the main cities – economic hub Lagos and the capital, Abuja-to contain the spread of the virus. Lockdowns were also imposed in some of the states and a ban was placed on interstate travel.
As if the prolonged disruption in economic activities caused by the pandemic was not enough heartache for real sector operators, the collapse of oil prices and the reduction in demand for Nigeria’s oil aggravated the fiscal woes of Africa’s top oil producer and exporter, forcing its economic managers to review the 2020 budget downward, for instance.
New recession
Amid the crisis in the oil sector, the economy also slipped into a recession after its Gross Domestic Product (GDP) contracted for the second consecutive quarter, according to the National Bureau of Statistics (NBS). “Q3 2020 real GDP contracted for second consecutive quarter by -3.62 per cent,” Statistician-General Yemi Kale said, adding: “Cumulative GDP for the first nine months of 2020, therefore, stood at -2.48 percent.”
In the year under review, the Federal Government also increased the Value Added Tax (VAT) from five per cent to 7.2 per cent, a move which did not go down well with manufacturers. The argued, for instance, that the VAT increase will spur spontaneous increase in inflation rate occasioned by increased prices of goods and services.
Manufacturers argued that although, it appreciates the need for the government to generate more revenue to fund its developmental initiatives amidst declining revenue from oil, increasing the VAT was inappropriate, as the increase could send a wrong signal that the government was insensitive to the plight of the low- and middle-income earners, who are clearly in the majority.
Some light at the end the tunnel
But it was not entirely a tale of woes for real sector operators. There were a number of signals that the sector could bounce back in the coming year. For instance, the Federal Government announced the reopening of four of the nation’s land borders after closing them for more than a year,
Recall that the Federal Government had in October, last year, ordered the closure of the Nigerian borders, banning legitimate and illegitimate movement of goods in and out of the country, ostensibly to curb smuggling.
But, real sector operators especially manufacturers, have been clamouring for the reopening of the borders, with Manufacturers Association of Nigeria (MAN) Acting Director-General Mr. Ambrose Oruche arguing that the closure of the borders had become unsustainable.
However, following persistent calls for a review of the policy on border closure, President Muhammadu Buhari approved the immediate reopening of four land borders.
Another development that gladdened the hearts of real sector operators and perhaps, also set the stage for the economy’s enhanced competitiveness was the Wednesday, Nov.11, 2020 ratification of the African Continental Free Trade Area (AfCFTA) less than a month before the December 5, 2020 deadline to do so.
The implementation of the AfCFTA Agreement begins on January 1, 2021. Its implementation will form a $3.4 trillion economic bloc with 1.3 billion people across the continent and is expected to probably double intra-Africa trade through better harmonisation and coordination of trade liberalisation.
According to the African Union (AU), the AfCFTA will offer the continent an opportunity to reconfigure its supply chains, reduce reliance on others and speed up the establishment of regional value chains which will boost intra-Africa trade.
However, Nigeria, Africa’s largest and most populous economy is tipped to benefit more from the free trade deal.
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