MAN expresses deep concern over revenue loss from oil, gas sector
…Says inflation causing high cost of production
The Manufacturers Association of Nigeria (MAN) has expressed deep concern over revenue loss from the oil and gas sector, which has remained the major driver of the economy over the years.
This is following the spate of increment in the cost of production the sector has witnessed over the months, which the association has attributed to the high rate of inflation in the country.
The MAN stressed that loose policy and absence of commitment to implement key policy initiatives in the sector has led to multiple backlash in the economy.
The association’s Director General, DG, Segun Ajayi-Kadiri, while responding to the rising inflation in the country said, the nationwide fuel scarcity witnessed in June is largely responsible for the rise in inflation.
According to him, the fuel scarcity necessitated further hike in energy prices, particularly prices of diesel, aviation fuel and petrol, which all had trickle down effects on the cost of food, manufactured products, other commodities, transportation and accommodation nationwide. Most notably, the price of diesel has spiked by about 230 per cent in the last one year, he said.
According to the National Bureau of Statistics (NBS), headline inflation for June 2022 stood at 18.6 per cent indicating a further rise of 0.85 per cent point from 17.75 recorded in the corresponding period of 2021.
On a month-to-month basis, the NBS, also revealed that the headline inflation rate increased to 1.82 per cent in June 2022, signifying 0.04 per cent point increase above the 1.78 per cent recorded in May 2022.
Food inflation also increased to 2.05 per cent, when compared to 2.01 per cent recorded in May 2022, while core inflation declined from 1.87 in May 2022 to 1.56 in June 2022.
The Bureau, identified the major contributory factor responsible for the surge in headline inflation include increase in prices of gas, liquid fuel, solid fuel, garments, passenger transport by road, cleaning, repair and hire of clothing, and passenger travel by air, meat, bread, cereals, fish, potatoes, oil, fat, wine, yam and other tubers.
In broad terms, inflation rate has assumed an upward swing, which of course, signals worsening economic times ahead.
According to MAN, the report revealed that the 18.6 per cent rate portends a gradual journey towards the 18.72 per cent peak inflation rate recorded in January 2017, which it says is a worrisome acceleration of inflation rate that should be halted, especially given the fact that socio-political and economic activities that trigger spike in inflation are imminent.
The DG, stressed the need to strategically position the oil and gas industry to benefit maximally from future interruptions in global supply that triggers increase in price of crude oil, adding that, “It is appalling that an oil-producing country like Nigeria is at a disadvantage at a time when global oil prices are rising.”
He called on government to accelerate the process of ensuring sustainable local refining of petroleum products by reactivating those currently quiescent, support the coming on stream of Dangote refinery and issue licenses for new refineries.
This will clearly reduce the pressure of the foreign reserve and mitigate the vulnerability of the economy to the external supply shock that has resulted in energy crisis.
He said that it is important for government to strive to always meet the oil production quota set by OPEC, increase oil revenue and reduce budget deficit that has worsened inflation.
“In addition government should introduce favourable investment oriented and security measures that will encourage private investment inflow into the oil and gas industry in order to pave way for the rehabilitation of the traditional full-scale refineries, develop the regulatory framework for the establishment of modular refineries.”
He added, “In the midst of rising oil prices, the fiscal authority strategically reduced payment from the Federation Account Allocation Committee (FAAC) in May by about 9.51 per cent representing N62.4 billion reduction, which ideally to some extent should have reduced inflationary pressure.
“However, the CBN expansionary policy stance, which influenced the growth in broad money supply by 25.51 percent in the last twelve months fueled inflation.”
He said Nigeria remains a highly import dependent economy, as such, the exchange rate pass-through effect continues to worsen inflation with the domestic currency depreciating by over 22 per cent within the last twelve months.
“At present, the exchange rate premium has further widened by 194 with the Naira trading at about N610/$ and N415.83 at the parallel and official markets respectively,” he said.
Says inflation rate causing high cost of production
According to the National Bureau of Statistics (NBS), headline inflation for June 2022 stood at 18.6 per cent indicating a further rise of 0.85 per cent point from 17.75 recorded in the corresponding period of 2021.
According to MAN, the report revealed that the 18.6 per cent rate portends a gradual journey towards the 18.72 per cent peak inflation rate recorded in January 2017, which it says is a worrisome acceleration of inflation rate that should be halted, especially given the fact that socio-political and economic activities that trigger spike in inflation are imminent.
Reacting to the situation, Director General, DG, of MAN, Segun Ajayi-Kadir, stated that the implications of the high inflation rate for the manufacturing sector include: rising increase in cost of production inputs with trickle down effects on capacity utilisation, inventory and profitability of manufacturing firms, higher Monetary Policy Rate, MPR and Lending Interest Rate, which will further constrain access to credit.
The associated included the increase in the cost of borrowing for manufacturers, especially those in the SMI cadre and upward swing in the value of shares for manufacturing concerns listed on the stock exchange.
Ajayi-Kadiri further said that the situation will also have differing implications like reduction in demand for manufactured products leading to poor sales and turnover; lower competitiveness as the high inflation rate further mount pressures on the already very high-cost operating environment, which may hinder the prospect of beneficial trade in the region and the continent.
The DG listed others to include- further loss in the value of the Naira, increase the tempo of hoarding dollars, deepening of downward swing of export earnings, which of course will worsen the forex challenge in the country and closure of more companies as the capacity to meet obligations to internal and external stakeholders is greatly impaired.
He identified familiar triggers of inflation in Nigeria, as insecurity, food shortages, shortfall in the supply of raw materials for production of food related products, fertilizers and others not available locally.
He said the prevailing inflation rate will also impacts the consumers. He listed some of the implications of the current inflation rate for consumers to include: sharp decline in consumer welfare and excruciating demand crunch for extreme poor, reduction in consumption by the middle class occasioned by continuous erosion of disposable income, high incidence of panic buying and hoarding, which may further worsen the inflation trend.
The association strongly believed that high inflation is a major indication of macroeconomic inadequacies and failure to take steps to address the contributory factors will further limit economic growth and increase the rate of unemployment in the country. By reducing purchasing power, high inflation reduces aggregate demand and limits production which eventually result in a fall in employment.
On the flip side of the coin, it will escalate the value of public debt servicing expenditure due to the exchange rate pass-through effect in the face of increase in fuel subsidy cost and rising global oil prices. The resultant effect is lesser resources for public investment expenditure needed to catalyze and sustain economic growth.
To avert the negative trickle-down effects of high inflation on the economy and the manufacturing sector, MAN advised the government to deploy a bouquet of supply-driven policies back with more structural measures to combat the peculiar inflationary pressures from insecurity, energy and transport cost. Also to tame the rise it urged the authorities to reduce the reliance of the country on imported products and raw materials by encouraging local sourcing through a comprehensive and integrated incentivised system since Nigeria is largely bearing the brunt of imported inflation.
In addition, it advised government to internationally resolve all forex related challenges confronting the productive sector by making a detour from the CBN’s foreign exchange regime that greatly contradicts one of the goals of the National Development Plan, which seeks to attain quick convergence of the foreign exchange rates and sustain effort at improving infrastructural developments and ensure all are economically driven to reduce susceptibility to externally-induced inflation, as adequate provision of infrastructure in strategic hubs reduce operation and logistics cost and promote competitiveness.
