AIS of MCCI declined to 52.7points in second quarter from 54.1points — MAN
By Omolola Dede Adeyanju
The Manufacturers Association of Nigeria (MAN) has released the MAN CEO’s Confidence Index (MCCI) for the second quarter of the year 2023 which shows that the Aggregate Index Score (AIS) of MCCI declined to 52.7points in the second quarter of 2023 from 54.1 points recorded in the first quarter of 2023.
The Aggregate Index Score (AIS) of MCCI is the weighted mean of the observed and expected changes in business conditions, employment and production level in the economy based on the perceptions of manufacturers in the quarter under review.
Among the standard diffusion factors, Current Business Condition and Business Condition for the next three months stood at 48.9 and 58 points respectively. Current Employment Condition (Rate of Employment) declined to 50.2 points from 50.7 points recorded in the first quarter of 2023 but remained marginally above the 50-point benchmark. Employment Conditions for the next three months further plunged below the benchmark points to 46.6 points against the 47.8 points obtained in the preceding quarter.
On the other hand, Production Level for the next three months remains strongly above the 50-point benchmark but reduced to 59.8 points from 61.8 points recorded in the first quarter of 2023. While other diffusing factors exceeded the 50-point benchmark index, Current Business Condition and Employment Condition for the Next Three Months deteriorated to 48.9 and 46.6 respectively.
The decline in the Aggregate MCCI underscores the persistent harsh operating business environment for manufacturers which was occasioned by escalating energy cost as well as necessary but poorly coordinated subsidy and exchange rate reforms.
The analysis of index scores of the 10 Sectoral Groups using the same diffusion factors such as Business Condition, Employment Condition and Production Level. A close observation reveals that the operating environment impacted most negatively on the activities of the Motor Vehicles & Miscellaneous Assembly which deteriorated further below the benchmark from 48.6 to 46.7 points due to unpalliated subsidy removal and reduction in sales and low demand for new vehicles because of eroded disposable income of the consumers. Only the Electrical & Electronics sector witnessed an improved performance from 49.7 to 51.4 points due to increased supply of electricity which encouraged production and patronage in the sector during the reviewed period.
The zonal breakdown of the MCCI
An observation of analysis of the 14 industrial zones shows that Abuja (40), Rivers/Bayelsa (40.5), Cross-Rivers/Akwa-Ibom (45), Kano (46.2), Kaduna (47.8) and Oyo/Ondo/Ekiti/Osun (48.6) industrial Zones have low confidence in the economy as the four zones recorded index scores less than 50 points. However, Apapa (63.9), Ikeja (63.7), Ogun (61.1), Kwara/Kogi (60.4), Edo/Delta (60.1), Imo/Abia (57.4) and Bauchi/Benue/Plateau (53.1) recorded index scores above the 50-point standard in the quarter under review. With the exception of Ikeja, they reflect incremental changes from the figures recorded in the previous quarter, hence, indicating continuous improvement of the confidence of manufacturers operating in the six zones.
In respect to the challenges of Manufacturers in the course of the survey, manufacturers had the opportunity to identify and rank the current challenges of the manufacturing sector in order of severity of impact. High cost of energy was top on the list of major manufacturing challenges. This was accordingly followed by high cost of credit/inadequacy of loanable funds, multiple taxes/charges/levies/same tax policy for local producers and importers, unavailability of raw materials/delay in receiving imported raw materials/high cost of raw materials and scarcity of forex/high exchange rate/poor allocation of forex.
The Association concluded that the idea of throwing policies of subsidy removal and a free float exchange rate all at Nigerians within the short space of time could result in another policy somersault that sets to drag back the economy without any hope of recovery and could result in the failure of Mr. President’s promise of a renewed hope. The abrupt removal of fuel subsidy without appropriate palliatives is already beginning to wane on the confidence of Nigerians in this new administration. No CBN forex intervention will be effective without boosting the level of liquidity and transparency in the official forex window. The introduction of the Forex Price Verification System Portal is laudable as it will improve transparency but more needs to be done to increase the forex liquidity especially by intensifying efforts to encourage the inflow of foreign investments, promoting export in productive industries as well as encouraging local sourcing and local patronage.
In the medium term, it is essential to tackle problems relating to low productivity and limited export diversification, excessive import-dependent production structure and dilapidated capital goods industry.
The Association recommended that this will require: Bridging the huge infrastructure gap, especially as it relates to Customs, Transport and Power which are of utmost concern to the manufacturers; The complete reformation of the power sector through the Electricity Act 2023 in order to end erratic supply of electricity; Boosting public-private investment in renewable energy, backward integration and local sourcing of raw materials in order to create a highly competitive and self-sufficient manufacturing Industry.
In the existence of a strong political will, the short-term remedy will require: To manage the floating exchange rate system within an acceptable lower and upper bound, pending the actualization of a net-exporting economy; The prioritization of the manufacturing sector for forex allocation. Expend cost savings from fuel subsidy removal on the major drivers of food inflation such as road transport cost and infrastructure; Create farm settlements with thousands of farmhands on different plantations in order to boost food security and combat food inflation;
In addition, reducing volatility in the oil sector which is the country’s main source of forex by upgrading security of oil infrastructure, rehabilitating the old refineries and establishing modular refineries, Ensuring efficiency of the recently privatised NNPC, Promoting investment by the full implementation of the Petroleum Industry Act (PIA) Provide appropriate palliatives to mitigate the adverse impact of fuel subsidy removal on the welfare of households and businesses.
