The Manufacturers Association of Nigeria (MAN) has confirmed the crushing impact of acute shortage of Foreign Exchange (forex), increase in cost of energy, continuous depreciation in the value of Naira, as well as other manufacturing challenges on key manufacturing performance indicators.
MAN said forex and energy crises were particularly responsible for the unfavourable movements in key manufacturing indicators such as capacity utilisation, contribution to Gross Domestic Product (GDP), investment, employment, cost of production, competitiveness, etc. in recent times.
The association said, for instance, that the debilitating impact of COVID-19 pandemic, which plunged global output growth to -3.3 per cent in 2020, from 2.6 per cent in 2019, resulted in the Nigerian manufacturing sector’s low contribution to GDP, which stood at 8.7 per cent as at the second quarter of 2022 (Q2 2022).
According to the Director- General of MAN, Segun Ajayi-Kadir, the sector’s capacity utilisation was also sub-optimal, standing at 57.9 per cent in the first half of 2022; inventory of unsold manufactured goods rose to as high as N187.08 billion in the first of this year.
Ajayi-Kadir reeled out the depressing figures while delivering his keynote address at the Annual Workshop/Awards & Recognition orgnaised by the Commerce & Industry Correspondents Association of Nigeria (CIOCAN) in Lagos, on Wednesday, November 3, 2022, with the theme “Manufacturing: Despite FX and Energy Crisis.”
The MAN DG, while lamenting that manufacturers have been confronted with inclement operating environment that was compounded by the COVID-19 pandemic in 2020 down to the current Russia-Ukrain war, also said the attendant forex and energy crises pushed manufacturing investment to a paltry N23.5 billion in the first half of 2022.
Similarly, manufacturing real output growth oscillated, from 3.5 per cent in the fourth quarter of 2021, for instance, to 5.8 per cent in the first quarter of 2022. Output growth later plunged to 3.0 per cent in the second quarter of 2022.
Ajayi-Kadir traced the unfavourable movements in key manufacturing indicators to the global economic crisis that came in the wake of four disturbing global occurrences viz the Asian financial crisis of 1997, global financial crisis that began in 2007, COVID-19 pandemic of 2020, and the ongoing Russia -Ukraine war.
He said although, it was hoped that the post-COVID-19 recovery in 2021 will be advanced in 2022, the effect of the pandemic lingered even as the Russian invasion of Ukraine in early 2022 dashed all economic projections for 2022, with negative impacts on supply chains and energy cost (diesel and gas).
For instance, price of diesel, according to him, skyrocketed, rising from N254.654 in 2021 to as high as N786.88 in 2022. The export price of gas Per Standard Cubic Meter (scm) was $2 while manufacturers’ price was $8.
Accordingly, manufacturers’ expenditure on alternative energy source rose from N45.04 billion in the first half of 2021 to N67.77 billion in the first half of 2022. Cost of agro-allied raw-materials (wheat, fertiliser and fertiliser inputs, etc), freight logistics, trade and global inflation also increased.
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“In particular, increase in cost of energy pushed up global inflation which affected the cost of importation across the world, including Nigeria. With limited forex inflow from crude oil sales, forex demand pushed over the bounds of supply and contributed to the depreciation in Naira value
Manufacturing in Nigeria is heavily beset by these price developments and manufacturers are contending with these challenges while struggling to sustain production,” Ajayi-Kadir said, pointing out, however, that the primary driving force for sustained production despite the challenges was manufacturers’ patriotism and resilience.
“Manufacturers have faith in the capacity of their association, MAN, to engage government and other stakeholders to ameliorate the challenges. Most manufacturers also embark on strategic measures to minimize the impact of the inclement operating environment on their activities such as cost cutting, products selection and prioritization,” he said.
According to Ajayi-Kadir, some manufacturers have suspended the production of certain products to concentrate on more competitive ones; others are expanding their investment in the development and production of raw materials locally, even as MAN collaborates with the Raw Material Research and Development Council (RMRDC) to optimize localization.
The survival strategies notwithstanding, the MAN DG said the need to allocate significant proportion of available forex to the productive sector, particularly manufacturing, has never been this compelling.
He also harped on the need carry out further investment in the electricity value chain and commit to adding 10, 000 MW to the current electricity distributed in the country, as well as embrace and support the development of energy mix and renewable since the country has huge potentials for solar and wind, for instance.
MAN also wants the government to expand the scope of road infrastructure and the development and refurbishment of investment tax credit scheme while also incentivizing investment in local development of raw materials.
Ajayi-Kadir said other critical measure to reposition the struggling manufacturing sector and boost its competitiveness include suspension of the 15 per cent levy on imported wheat; non-implementation of the planned increase in excise duty on non-alcoholic and alcoholic beverages, tobacco, wine and spirits.
“The increase is in violation of the roadmap set by government itself for the period 2022-2024. Already, this increase is negatively impacting the performance of the sector and further increase will bring it to its knees and lead to divestment and closures. Also. the envisage revenue boost by government will not be realized,” he argued.
He also called for the resuscitation of existing national refineries to produce fuels locally; review of the gas price for domestic consumption to be in sync with export price; publishing of the list of approved harmonized taxes and levies for the manufacturing sector by the Joint Tax Board (JTB) to address the issues of multiples taxes and levies.