One year after the Central Bank of Nigeria (CBN) restricted importers of 41 items from the official foreign exchange market, the manufacturing sector in the country is going through harrowing times. Last week, the manufacturers and other private sector operators painted a bleak picture of the economy and how the restriction order is affecting their operations.
Under the aegis of the Manufacturers Association of Nigeria (MAN), they lamented that about 272 firms had been forced out of business since the imposition of the restriction last year. Fifty of these firms are said to be manufacturing companies. According to MAN, some of the firms have since relocated to neighbouring West African countries. About 222 small-scale businesses have also reportedly shut down, resulting in more than 180,000 job losses.
The manufacturers also insist that due to the negative impact of the CBN policy, the economy which is already in recession might take a deeper plunge with far worse consequences. Specifically, MAN lamented the unavailability of production inputs, high cost and scarcity of forex and the highly reduced consumer purchasing power, which have seen their earnings decline significantly in the past year. The manufacturers stated that the operating environment has become too harsh for them, and is hindering their ability to play an active role in the economy.
The CBN and, indeed, the Federal Government, should listen to the complaints of the manufacturers and other key private sector operators. It will be recalled that in August last year, the CBN clamped forex restrictions on items such as palm kernel/palm oil, glass and glassware, cement, toothpicks, rice, margarine, poultry chicken, eggs and turkey. Others are tinned fish in sauce (Geisha, Sardines), steel pipes, enamelware, steel drums, steel nails, roofing sheets, kitchen utensils, tableware, textiles, soaps and cosmetics, clothes and woven fabrics, among others.
It has, therefore, become imperative to urgently review the CBN policy on restriction of access to foreign exchange placed on these items. This is because, as the manufacturers said, about 16 of the items on the list are critical raw materials for production of essential goods in the country. This is also in view of the fact that currently, Nigeria seems to lack the capacity for optimal production of the items. But, such review should not include items that can be produced locally.
According to the manufacturers, the ban on oil palm alone had resulted in the loss of about 100,000 jobs in the last few months, while the ban on glass and glassware resulted in the loss of over 80,000 jobs in the pharmaceutical industry. Statistics show that local production of oil palm is about 600 metric tonnes annually. But, the total demand in the country is about 1.8 million metric tonnes. With high interest rates, poor power supply, policy inconsistency, poor patronage of locally manufactured goods and poor supporting infrastructure, the manufacturing sector is facing a herculean task and struggling to remain in business.
Although we support the recent directive by the CBN that 60 percent of forex allocation should go to the manufacturing sector, it is necessary to review the restriction order on some of the items, especially the ones that are critical for the operations of the firms.
If government really means to diversify the economy away from the present dependence on oil receipts, the manufacturing sector should be given the priority it deserves. And this can be done by removing all challenges that are hampering its smooth operation. We have already listed these constraints and the earlier these problems are addressed, the better for the economy.
Already, many blue chip companies in the country have suffered serious setbacks as a result of the harsh environment, the ban placed on the 41 items and pressures from forex shortages and input costs. For example, a review of the unaudited financial reports of the firms for the first half of 2016 revealed a struggle between balancing rising input cost pressures and passing the inflationary pressures on already constrained consumers through raising prices of their goods.
Half-year reports of many companies show that they suffered huge profit losses. This is not good news for the economy. The CBN should review some of its recent policies, in particular, the one on foreign exchange. The high cost of production, energy crisis and tariff hike, as well as gas supply shortages across the country, should also be addressed. At the moment, Nigeria loses about N120bn monthly as the Forcados gas export line remains shut.
Overall, government should review all the policies that are impeding the growth of the economy, especially in the manufacturing sector.