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2017: Mixed bag for manufacturing sector

The manufacturing sector fell into recession in the second quarter of 2015 with negative growth rates of -3.26% in first quarter and -3.36% in the second quarter of 2015.  However, the sector exited recession in the first quarter of 2017 with a positive growth of 1.36% but since then the performance of the sector has been lacklustre.

According to the President of Manufacturers Association of Nigeria, Dr Frank Udemba Jacobs,  in the second quarter of 2017 the growth rate of manufacturing fell to 0.64% and -2.58% in the third quarter of the year, an indication that the sector is drifting back into economic recession.

MAN attributes the poor performance of the sector to high cost of doing business, sluggishness in manufacturing activities resulting from the delay in implementation of the budget during the year. Evidently, not much work has been done in the  recapitalization of BOI; the operationalization of Development Bank of Nigeria; slow implementation of the improved EEG scheme and expansion of existing, and development of new Export Processing and Special Economic Zones  as intended by the Government in 2017.

The capacity utilization was at 40% at the beginning of the year but slightly improved to 50% towards the end of the year.

The first half of the year was particularly difficult for the sector which has capacity to employ more than 10 million Nigerians of varied intellectual capacity, knowledge and professional competence.

The challenges of the manufacturing sector in the first half of the year include foreign exchange liquidity crises which saw the exchange rate went as far as N500 to one dollar but the Nigerian currency has appreciated and currently at N360 to dollar at the parallel market while officially it is N307 to one dollar.

The instability in the exchange rate led to inability to import raw materials coupled with the ban on 41 items that won’t be eligible to access forex.

All these factors weakened the Capacity Utilization of the sector, which in turn affected their profit margin and capacity to create jobs.

However, with the intervention of Central Bank of Nigeria, especially in the area of foreign exchange, the naira appreciated against dollar and the Capacity Utilization improved.

However, the purchasing power of consumers decreased due to payment of half salary or nonpayment of salaries in some states, high rate of sack, retrenchment and downsize of workers in many companies and job loss in general.

The decrease in purchasing power and sales performance which are not commensurate with production ultimately slower production. Therefore, decrease in demand led to decrease in production.

In an exclusive chat with Nigerian NewsDirect, the Director General of Lagos Chambers of Commerce and Industry (LCCI), Muda Yusuf, said although the situation in the second half of the year has improved, the fortunes of the manufacturers still remain the same. He pointed at the problem of epileptic power supply which is still in the same sorry state.

“Manufacturers still make use of Alternative source of power which increased the production cost of goods produced by the companies. So also is the activities of smugglers especially from the Asian countries who collude with unscrupulous Nigerians to import fake and substandard goods into the country and sell at cheap prices which is to the detriment of local manufacturers.

Yusuf specifically mentioned manufacturers in pharmaceutical and lubricant sector of the economy as the most affected by the activities of the smugglers.

On the performance of the economy, MAN President, Jacob said the 2017 Budget, tagged “Budget of Recovery and Growth” was principally intended to extricate the economy from recession in 2017.

However, he said the budget implementation was sluggish following delays in release of budget funds, the economy however moved away from recession with a positive growth of 0.72 % in the second quarter reaching 1.4% in third quarter of 2017.

In addition, since the first quarter of 2017, inflation has constantly fallen standing at 17.92% in Q1 2017; 16.58% in Q2; and 15.91% in Q3 2017.

The 2017 has been a mixed bag of fortunes for Manufacturers but 2018 promises to be better if the government can implement the 2018 budget tagged “Budget of Consolidation” successfully.

In a 2017 Manufacturing sector survey conducted by NOIPolls and CSEA, the following challenges were identified: Unfavourable foreign exchange rates (55 percent), Bad roads (55 percent), Unavailability of petrol and diesel (47 percent), Limited access to credit (45 percent), Policy inconsistency (44 percent), Lack of Infrastructure (39 percent), Unstable power supply (31 percent), and Weak demand (29 percent), as the top challenges facing the manufacturing sector in Nigeria.

The survey report also found the following:

  • 74 percent of manufacturing companies found the business environment unsupportive in 2017; and this finding represents a 14-point increase from the 2016 result (60 percent), indicating a worsening of the business environment. Similarly, lack of infrastructure, red-tapism and corruption were identified as some of the structural bottlenecks stifling the business environment.
  • 85 percent of manufacturing companies surveyed are not operating up to 75 percent of their installed capacity; and this was attributed to weak demand (69 percent), poor power supply (58 percent), petrol/diesel unavailability (38 percent), limited access to foreign exchange (26 percent).
  • Almost half of the companies interviewed (48 percent) considered importation of raw materials critical to their production; particularly medium to large manufacturing companies, with up to 62 percent of inputs imported.
  • 75 percent of manufacturing companies say the disparity in foreign exchange rates has had negative impact on their operations. Similarly, 80 percent of the companies affirmed that inflation has had a negative effect on their businesses.
  • All the manufacturing companies interviewed affirmed that the recession had impacted on their business operations and profitability; with 70 percent stating that the recession had impacted on their businesses negatively.
  • On the issue of Bad Roads, the survey found the South-West (59 percent), South-South (49 percent), North-Central (46 percent) and South-East (43 percent) regions were the most affected regions with poor state of roads. In particular, manufacturers lamented the poor state of some roads such as: Apapa-Tin Can Access road, Lagos-Ibadan express road, Benin-Ore road, Oyo-Ogbomosho (in South West), East-West road, Benin-Agbor road, Aba-Portharcourt road (South-South), Ajaokuta-Ayangba-Nsukka road, Lokoja-Ajaokuta road, Obajana-Okene road, Makurdi-Enugu road (North-Central and South-East) amongst others.
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