By Merit Ibe, [email protected]
Members of Nigeria’s Organised Private Sector (OPS) have expressed concern over consequences of rising diesel prices and raw materials now threatening local manufacturers.
Beyond the need for diesel for transportation logistics, the stakeholders noted that the current model of high dependence on the national grid to power businesses has continued to hobble production processes in the economy, considering the vastness of the country which does not support the highly centralised regime of national grid.
They argued that the continued ownership and control of the transmission component of the power supply chain is also a challenge to grapple with, as many manufacturers are left to generate their own electricity to bridge supply gap.
Among the major constraints operators in the sector want government to address are low forex supply, poor electricity to the real sector, traffic gridlock along the nation’s port access roads seaports and several other pressing issues.
Leaders of the real sector noted that removing hindrances that affect manufacturing activities and other key players in the country’s real sector would enhance productivity, especially as Nigeria plans to join the rest of Africa to fully implement the African Continental Free Trade Area (AfCFTA) protocols. Commenting on the challenges facing Nigerian manufacturers, the Centre for the Promotion of Private Enterprise (CPPE), noted that escalating energy costs, alongside poor power supply from the national grid, have consequences for the economy as these reflect on the high production and operating costs across all sectors. It also identified high haulage costs due to diesel prices as well as potential suspension of operations for businesses that are unable to pass the costs to the consumers.
Diesel is a vital gas for producers not linked to gasoline distribution strains, in addition to being essential for logistics and distribution.
The CPPE noted that the spiralling inflation deserves an urgent policy response at the highest level of government. “The impact on citizens’ welfare is severe. The effect on SMEs is troubling. There is worsening social discontent, driven by poverty inflicted by inflation.
“The key drivers of inflation include high and increasing energy cost; worsening currency depreciation, escalating transportation cost, high import duty on manufacturing inputs, illiquidity in the forex market, bottlenecks in the logistics chain, security concerns and low productivity resulting from structural challenges and weak application of technology.
“To tackle inflation, all forms of taxes and levies on the importation of petroleum products should be suspended to give a respite on the spiking energy cost.
Chairman, MAN Apapa Branch, Frank Ike Onyebu, said the manufacturing sector which has the potential of contributing more than 25 per cent to Nigeria’s GDP, is currently doing less than 10 per cent.
He added that the slow growth of the sector as a whole is attributable to a myriad of factors including infrastructural deficiency, insecurity, global and domestic supply chain disruptions, foreign exchange liquidity, weak consumer spending and high operating costs.
Indeed, members of the OPS have advised the federal government to make deliberate efforts to remove impediments to the conduct of business in the country, especially as it relates to infrastructure and logistics.
He said the astronomical hike in the price of diesel is a major cause of concern for the manufacturing sector of the Nigerian economy, adding that this price hike could more or less be the proverbial last straw for many struggling manufacturers who have long been burdened with high energy cost.
“This problem would not be very critical if we have stable power supplies to industries. Unfortunately the power supply situation is getting worse rather than getting better. This is made worse by the advent of the AfCFTA, which is already at the implementation stage.
The obvious implication is the stark reality of the uncompetitiveness of Nigerian manufacturers.
“The only way manufacturers could survive this diesel price regime is for a major improvement in electric power supply to industries. There is need for a deliberate government policy to ensure that manufacturers receive adequate/stable supply of electricity to be able to complete with manufacturers from countries with more stable power supplies.
“Manufacturers could also turn to gas, which is a greener/cheaper source of energy than the current regime of above N800 per litre of diesel. This option, however, comes with a very high initial investment which many struggling manufacturers cannot afford at this time. The government would therefore need to intervene with some form of funding for this option to succeed.
“My view of subsidy is that subsidy is not sustainable. It would have to be removed at some time. The trillion Naira question is when?
The ‘when’ would be determined by how soon the government wakes up to its responsibilities towards the Nigerian state. If we had stable power supply and a functional mass transit system, for instance, people would not be much bothered by increases in the cost of petroleum products.
On a final note, I would like to call on the government not to allow the manufacturing sector collapse because that would be disastrous for the already struggling Nigerian economy. Besides being a major employer of labour, the manufacturing sector stimulates economic growth by way of tax contributions, value additions and savings in foreign exchange by manufacturing products which would otherwise be imported.
President of the Lagos Chamber of Commerce and Industry (LCCI), Michael Olawale-Cole, the national grid has collapsed six times this year alone. It is obvious that the national grid cannot supply sufficient power to meet the electricity demand by Nigerians. There have been issues with vandalisation of power installations, a disrupted gas supply, distribution companies (DISCOs) lacking the capacity to take up power generated by the power generating companies (GENCOs), and the challenges of achieving 100% metering for power consumers. With the cost of diesel at record levels and persisting poor power supply, businesses are running on unsustainable costs and producing at uncompetitive prices.
Olawale-Cole noted that the rising energy costs with diesel above N800/litre, Jet-A1 at N710 per litre and PMS selling above the government-regulated price of N165/litre, will continue to aggravate production costs which may lead to restrained manufacturing and eventual job losses.