The Director General (DG) of the Manufacturers Association of Nigeria (MAN), stated during the Commerce and Industry Correspondents Association of Nigeria Workshop/Recognition of Individuals and Firms that the Capacity Utilization in the manufacturing sector anchored at 57.9% in the 1st Half of 2022
Segun Ajayi-Kadir, MAN DG further noted that the implication of all these to the manufacturing sector will include enormous decrease in capacity utilization (as factories begin to experience stock-out situations), inflation, dwindling sales, lower productivity, unemployment and heightened insecurity. Certainly, all of these would also have severe implications for economic and social wellbeing of over 200 million Nigerians, he added.
According to the data obtained from the Central Bank of Nigeria (CBN) Capacity Utilization in Nigeria decreased to 51.30 percent in the second quarter of 2022 from 55.40 percent in the first quarter of 2022
The (CICAN) Workshop/Recognition of Individuals and Firms with the theme: ‘Manufacturing: Despite FX and Energy Crisis’ Held on Wednesday @ Ikeja, Lagos
Also, he cited that COVID-19 was the most devastating, when compared with the Asian and Global Financial crises; the full impact of Russian-Ukrainian face-off is not fully determined as it is ongoing.
In his words: The impact of the pandemic was debilitating as output growth plunged to -3.3% in 2020 from 2.6% of 2019.
It was hoped that the recovery achieved in 2021 will be advanced in 2022, even though the effect of the pandemic lingered, he observed.
However, MAN DG said the Russian invasion of Ukrainian in early 2022 dashed all economic projections for 2022 with negative impacts on supply chains, energy cost (cost diesel and gas), cost of agro-allied raw-materials (wheat, fertilizer and fertilizer inputs, etc), freight logistics, trade and global inflation.
In particular, he continues, increase in cost of energy pushed up global inflation which affected the cost of importation across the world, including Nigeria.
Ajayi-Kadir pointed out that with limited forex inflow from crude oil sales, forex demand pushed over the bounds of supply and contributed to the depreciation in Naira value. Manufacturing in Nigeria is heavily beset by these price developments and manufacturers are contending with these challenges while struggling to sustain production, he added.
“Manufacturing real output growth stood at 3.5% -Q4 2021; 5.8% – Q1 2022 and 3.0% – Q2 2022 respectively
“Manufacturing contribution to GDP stood at 8.7% – Q2 2022 and Capacity Utilization anchored at 57.9% – 1st Half of 2022
“Inventory of unsold manufactured goods hits N187.08 billion in six months of 2022 and followed by Manufacturing Investment at N23.5 billion in half of 2022
Additional NBS’ report disclosed that the Manufacturing investment in Nigeria surged 157.4 percent to N305. 02 billion in 2021 from N118. 51 billion in 2020, signaling a recovery in the sector. The development is traced to the return to full economic activities following the lifting of restrictions occasioned by the COVID-19 pandemic during the year 2021, it stated.
According to MAN DG, Manufacturers are concerned about the increase in the cost of energy, acute shortage of forex and the continuous depreciation in the value of Naira, including other familiar challenges of the sector.
Ajayi-Kadir noted that the primary driving force for sustaining production is the patriotism and resilience that the Nigerian manufacturers processes. The optimism that these challenges would eventually be addressed, he added.
“Manufacturers have faith in the capacity of their Association, MAN, to engage Government and other stakeholders to ameliorate the challenges.
“Most manufacturers also embark on strategic measures to minimize the impact of the inclement operating environment on their activities such as: cost cutting, Products selection and prioritization: some manufacturers have suspended the production of certain products to concentrate on more competitive ones; Expanding their investment in the development and production of raw materials locally, even as MAN collaborates with RMRDC to optimize localization. The Raw Materials Research and Development Council (RMRDC) is a federal government of Nigerian agency for research institutions that is responsible for industrial raw materials growth, promotion and utilization supervised by Federal Ministry of Sciences and Technology, he added.
Increased resort to self-energy generation and energy mix to complement the inadequate electricity supply from the national grid.
Dissaving retained earnings to support the current crippling condition; Manufacturers have been confronted with inclement operating environment that was compounded by the COVID-19 pandemic in 2020 down to the current Russian-Ukrainian war. The forex and energy crises are frontline manifestations.
The crises are responsible for the unfavourable movements in manufacturing indicators such as capacity utilization, contribution to real GDP, investment, employment, cost of production, competitiveness, etc.
It is important therefore, that forex and energy, as well as other manufacturing challenges, are adequately address to arrest further degeneration in the performance of the sector. In doing that we consider the following measure critical: Allocation of significant proportion of available foreign exchange to the productive sector, particularly manufacturing.
He highlighted that carrying out further investment in the electricity value chain and commit to adding 10000MW to the current electricity distributed in the country; Embrace and support significant development of energy mix and renewable: the country has huge potentials for Solar and Wind; Expanding the scope of Road Infrastructure, Development and Refurbishment Investment Tax Credit Scheme.
“Incentivization of investment in local development of raw materials; Suspension of the 15% levy on imported wheat; address prevailing concerns of the beleaguered manufacturing sector, vis Non-implementation of the planned increase in excise duty on non-alcoholic and alcoholic beverages, tobacco, wine and spirits. The increase is in violation of the roadmap set by Government itself for the period 2022-2024, he cited.
Already, this increase is negatively impacting the performance of the sector and further increase will bring it to its knees and lead to divestment and closures. Also the envisage revenue boost by government will not be realized, he stated.
MAN DG concluded with calls on the committees of the National Assembly that extend their oversight functions to manufacturing industries and require their CEOs to produce tons of documents and evidence of compliance that are readily available with the relevant statutory regulatory agencies should be stopped. This is an unnecessary burden, diversion and very expensive venture, he added.
Else were MAN disclosed that the feedbacks from manufacturers identified Limited supply of electricity; High cost of local and imported raw-materials; Persisting acute shortage of forex for importation of machine, raw materials not available locally and persisting insecurity in the country as the first association out of the challenges limiting the performance of the manufacturing sector in the period under review.