By Merit Ibe
Despite a marginal improvement in the macroeconomic and operating environment in the fourth quarter of 2021, the manufacturing sector is still plagued by high cost of local and imported raw materials, insecurity within the industrial areas and other constraints that slowed its growth.
Some other challenges that have posed as hurdles to the sector include, but not limited to, shortage of skilled manpower, high cost of transportation, inconsistency in government’s policies, foreign exchange difficulty among others.
This was revealed in the 2021 Manufacturers Confidence Index (MCCI), constructed by the Manufacturers Association of Nigeria (MAN) to measure changes in quarterly pulsation of manufacturing activities in relation to movement in the macroeconomy and government’s policies. The MCCI survey covered 400 CEOs of MAN member companies.
Specifically, Chief Executive Officers (CEOs), through the MCCI Q4 20 21 report released recently expressed optimism in the nation’s economy amid a mixed operating environment.
According to the report, the aggregate MCCI score increased to 55.4 points in the quarter under review (Q4 2021) from 54 points obtained in the preceding quarter (Q3), indicating the growing confidence of manufacturers in the economy.
Actually, 57.4 per cent of manufacturers are of the view that government’s capital expenditure implementation does not encourage manufacturing, adding that capital expenditure implementation does not translate to adequate economic infrastructure and higher productivity.
On the high side, the CEOs affirmed gradual reduction in inventory of unsold finished goods; improvement in local sourcing of raw materials and patronage of made in Nigeria goods.
On the low side, the manufacturers confirmed that issues of multiple and duplication of regulation, which often find expression in the excessive drive for tax revenue instead of widening the tax net; unfriendly tax practices of government agencies; poor access to the national ports leading to the high cost of clearing cargo and transporting goods are seriously impeding the performance of the manufacturing sector.
Though the government has consistently budgeted for upscaling infrastructure to support economic activities through execution of capital projects, local manufacturers are concerned that low patronage of local industries, slow completion and general poor implementation of identified capital projects have remained the bane of the system with high-cost impact on manufacturing concerns.
Outcome of the survey, especially as it relates to the impact of the macro-economic environment in the sector, showed that production and distribution costs increased by 0.4 percentage points in the fourth quarter of 2021 from 20 per cent recorded in the third quarter. However, the marginal increase in the period suggests that production and distribution costs are beginning to stabilize following the easing up of the COVID-19 pandemic.
Also, capacity utilisation fell further by two percentage points in the quarter under review from 3.0 decline recorded in the third quarter of the year; the volume of production declined further by 1.7 percentage points in the fourth quarter of the year from 4.0 percent decline recorded in the preceding quarter.
Manufacturing investment dipped further by 0.2 percentage points in the quarter under review from 4.0 per cent decline recorded in the preceding quarter and 15 percent decline recorded in the second quarter of the year;
To improve the performance of the sector, the manufacturers recommended that government needs to intentionally put in place mechanism that will address these challenges permanently by further incentivising investment in the development of raw-materials locally through the backward Integration and resource based industrialization initiatives; call for more investors to key into these initiatives with appropriate and definite incentives; Give specific attention to the security of life and investment in industrial areas; invest in modern security such as drones, camera, etc. for robust monitoring; Ensure effective allocation of available forex to productive sectors, particularly the manufacturing sector for importation of raw materials and vital machine and equipment that are not available locally, among others.
In the survey, employment declined further by 6.0 percentage points in the fourth quarter of 2021 from a 5.0 percent decline recorded in the third quarter of the year.
Sales volume increased by 7.3 percentage points in the quarter under review from the 7 percent decline recorded in the preceding quarter.
Cost of shipping increased further by 4.5 percentage points in the fourth quarter of 2021 from 29.0 percent recorded in the third quarter of the year.
Aggregate MCCI is an average of observed and projected changes in Business Conditions, Employment and Production levels in the economy from the perspectives of manufacturers.
The report stated: “Index for Current Business Condition increased by 1.15 points in the quarter under review from 50.3 points recorded in the third quarter of the year.
“Similarly, Index for Business Condition for the next three months increased by 3.2 points in the quarter from the 55.8 points obtained in the preceding quarter.”
It further said: “In the quarter under review, the perspectives of CEOs on the state of manufacturing operating environment revealed mixed grilled performance; encouraging but slow positive growth; over-regulated, high cost and manufacturing unfriendly environment.
“The effect of the macroeconomic environment that prevailed in the quarter under review was overwhelming in differing magnitudes on key manufacturing indicators such as production and distribution costs; capacity utilization; volume of production; investment; employment; sales volume; and cost of shipment.
“Clearly, this further strengthened the perception of a mixed grilled performance, visibly exposed the hotspots and served as a pointer to the fact that the sector is still challenged and requires comprehensive policy support.”