August 4, 2022/CSL Research
A Punch news report indicates that the Nigerian manufacturers are going through troubled times as the double whammy of poor policies and economic headwinds continue to stifle the sector. Based on the data collected by the Manufacturers Association of Nigeria, but analyzed by the local print media, manufacturers’ investments have nosedived from N489.44bn to N217.22bn between 2016 and 2021 (56% decline). From the persistent foreign exchange crisis to the current Russia Ukraine crisis fueling scarcity of raw materials, and more recent, the hawkish posture taken by the monetary authority elevating borrowing costs, the crisis facing the sector are indeed crippling.
The past seven years have been indeed unpleasant for Africa’s largest economy. While the country was still reeling from the effects of the 2016 recession and its impact on manufacturers’ operations, covid-19 struck without warning and worsened the state of the country’s manufacturing sector. This, coupled with existing structural bottlenecks, forced many businesses out of operations. Several companies saw demand for their products plummet on the back of movement restrictions, and a change in consumer behaviour towards the search for essential items.
However, since the reopening of the economy, gains from exports via open borders and increased credit supply to manufacturing businesses cut the sector some slack. Now, the elevated energy costs have begun to take a toll on Manufacturer’s operations and there is very little room to pass the increased cost to consumers before demand, especially for discretionary goods, begins to wane. Moreso, the inability to source forex at the official window have either made them resort to the parallel market at a significant cost or unable to buy machines for their production, which either way is making them operate at less than their optimal capacity utilization.
Although, the apex bank had planned to devote the country’s available foreign exchange to strategic imports or service obligations, many manufacturers’ claim they only get c.10% of their dollar demands. For as long as inflationary and FX pressures persists, the performance of the manufacturing sector will remain lackluster. A prolonged constraint in the inability of manufacturers to conduct businesses seamlessly leads to a crisis in the sector and loss of loans extended to the manufacturers by the banks. The need to boost the manufacturing sector is pertinent to achieving the country’s output projection, and if structural constraints remain unaddressed, growth in the sector will remain sub-optimal.
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