By Merit Ibe, [email protected]
Manufacturing, like other economic activities in the country and across the world suffered adverse effects in the first six months of 2022 and beyond.
While the economy was gradually rebounding in the midst of lingering effect of COVID-19 pandemic, the Russian-Ukrainian war suddenly broke out to further slow down growth in the real sector.
The war no doubt destabilised global commodity prices and supply chain, as international financial flows, global logistics, among others left huge negative implications on manufacturing production in Nigeria, especially as the perennial challenges of limited energy supply, limited production of local raw materials, poor administration of national ports persisted.
The situation according to Manufacturers Association of Nigeria (MAN) emphasised the need for a more proactive, broad and sector focused measures to address both the recent challenges thrown up by the Russian-Ukrainian war that began in February of 2022.
However, the lingering war changed the dynamics in the course of the year. The war negatively affected global supply chain, commodity prices, financial situation including global interest rate, inflation rate. The prices of energy, chemicals, agricultural produce, particularly wheat and other grains and cost of global logistics, all escalated, leading to acceleration in global inflation.
In Nigeria, the downside risks in the manufacturing sector remained the disruption of global supply and the increasing commodity prices, which were the off-shoots of the war.
On the other hand, the unavailability of forex negatively impacted manufacturing performance, as manufacturers could not access forex required to import vital raw materials, machines and spares not available locally.
On the average, most manufacturers sourced forex at the parallel market at unfavourable exchange rate, making manufacturing import bills for raw-materials and machinery not locally available unnecessarily high.
Unavailability of forex compounded the underlining issues of lack of infrastructure, poor electricity supply to industrial firms, over-regulation, multiple taxes and levies, naira depreciation, inflation, poor accessibility to ports/high demurrage, poor economic infrastructure, policy inconsistency, shoddy implementation and instability, low patronage and counterfeiting/influx of substandard goods, insecurity, increase in the two monetary parameters, Monetary Policy Rate (MPR) and Cash Reserve Requirement (CRR), increased cost of borrowing by manufacturers, among others. These worsened the condition of the sector, impeded its growth and pushed it to near collapse.
Many local manufacturers are still feeling the monumental effects of the pandemic on the country’s fragile sector and the economy at large.
Consequently, the effects of the pandemic put the sector at risk, worsened the already unfriendly business environment for manufacturers.
MAN had said the manufacturing sector was struggling as operators strived with low confidence level. The above challenges denied the sector the capacity to achieve significant growth craved for.
Director General, MAN, Segun Ajayi-Kadir, said manufacturers have been bedevilled by the increase in the cost of energy, acute shortage of forex and the continuous depreciation in the value of naira, including other familiar challenges of the sector.
According to him, the primary driving force that sustained production in the outgoing year have been the patriotism and resilience that the Nigerian manufacturers possess; the optimism that these challenges would eventually be addressed.
He noted that most manufacturers embarked on strategic measures to minimise the impact of the inclement operating environment on their activities such as cost cutting; products selection and prioritisation; expanding their investment in the development and production of raw materials locally; increased resort to self-energy generation and energy mix to complement the inadequate electricity supply from the national grid and dissaving retained earnings to support the current crippling condition.
Chairman, Lagos Chamber of Commerce and Industry (LCCI) SMEs Group, Daniel Dickson-Okezie, said most of the sectors did not do well just like the real sector is not exempted.
The performance of the real sector in 2022 like the performance of the Nigerian economy as a whole was really low. The economy grew by 3.54 percent but the growth in the real sector remains unimpressive and continued to decline. Inflation rose to 21.47 per cent in November last month, pushing more Nigerians into poverty.
The economic growth slowed down in 2022 as a result of declined oil output, low level performance of the real sector, low export, disruptions in the agriculture sector and other sectors resulting from worsening security challenges among others.
According to CBN sources, manufacturing index decreased to 52.30 points in August from 53.20 in July 2022. This trend has continued down to the last quarter of 2022.
He noted that the challenges that bedevilled the the real sector last year did not improve as “they are still the same” like the power issue, inconducive business environment. He said one of the challenges of the manufacturing was the issue of forex which the operators could not access.
“Manufacturers depend on imported raw materials and you cannot get those materials without forex. Policy somersault of government and the CBN worsened the situation. The power issue is getting worse by the day, it’s not improving at all.
“Due to the insecurity situation in the country, a lot of industries and companies closed shop in the North and in the east investors are afraid of investing except indigenes who believe their businesses must thrive no mater the situation. The economy was not conducive for investment. Many factories closed and some relocated to other West African countries,” he said.
Chairman, MAN, Apapa branch, Frank Onyebu lamented that the real sector faired badly in 2022.
“I’m afraid the real sector has fared badly this year. This is beginning to sound like a broken record because that’s what the report has been at the end of each year for the past couple of years. It’s so heart-wrenching because our economy appears to be going in the reverse direction rather than forward. And just when we appear to have hit rock bottom, we always manage to pierce the rock and continue on our downward spiral.
“The reasons for this are not far-fetched. Infrastructure has broken down and are not being renewed. The roads are dilapidated. Power supply hasn’t improved; it’s in fact getting worse. The cost of alternative power has hit the roof, with the astronomical cost of diesel. The security situation has deteriorated. Cost of transportation has gone haywire. Manufacturers can’t access forex for machinery and inputs. Local inputs are mostly unavailable due to poor infrastructure and security challenges. The list is endless.
“The government is aware of these challenges, rather than tackle them, it appears to be more interested in imposing more taxes on hapless manufacturers. More factories got distressed this year than in 2021. This is in spite of the fact that 2021 was the immediate post-pandemic year. Many factories have shut down and many are just holding on, hoping that 2023 will bring good tidings.
“Unfortunately, 2023 may go the way of the previous years unless the elections produce leaders who are genuinely interested in turning things around. The real sector of the economy is thus hanging onto a glimmer of hope that genuine leaders will emerge from the 2023 elections. The real sector is hoping for leaders who will do their utmost to create a conducive environment for sustainable entrepreneurship,” he said.
