Force Majeure Looms In Manufacturing Sector Over 200% Rise In Diesel Price

Diesel: Retrenchment looms — Manufacturers | The Hope Newspaper

Yemisi Izuora

There are growing production uncertainties and fear of survival of remaining number of companies involved in manufacturing in Nigeria following multiple challenges arising from inadequate electricity supply and inaccessible foreign exchange and now exponential rise in cost of diesel.

The Manufacturers Association of Nigeria, MAN, in reaction to the current increase in price of diesel recalled that over the years, the manufacturing sector has been battered by numerous familiar challenges that have plummeted the number of industries in Nigeria and converted industrial hubs in many parts of the country to warehouses of imported goods and event centres.

The Association identified key challenges confronting the sector as high operating cost environment occasioned largely by inadequate electricity supply and the high cost of alternative sources, excessive regulation and taxation, and inadequate supply of foreign exchange for importation of raw materials, spare parts and machinery that are locally available.

All these, they noted have culminated into the lacklustre performance of the sector.

Commenting on the rising cost of diesel, Segun Ajayi-Kadiri, Director General of MAN, called for immediate removal of Value Added Tax, VAT on Automotive Gas Oil, AGO, also called Diesel as instant stimulus for immediate reduction in price and expedite action in reactivating or privatizing the petroleum products refineries in the country;

 

Ajayi-Kadiri, observed that the current increase in prices of crude oil and other refined petroleum products such diesel is one of such disruptions occasioned by external shocks that confirms the interwovenness of economies in the world.

No doubt, he said that the recent short supply and over 200 per cent increase in the price of AGO are part of the backlashes from the ongoing invasion of Ukraine by Russia.

This resulted in numerous economic sanctions on Russia by the US and EU, which propped up the price of crude oil to $120 per barrel (now moderated to about $100) as Russia oil export is isolated.

He said Association is greatly concerned about the implications of the over 200 per cent increase in the price of AGO on the Nigerian economy and the manufacturing sector, adding, “More worrisome is the deafening silence from the public sector as regards the plight of manufacturers.

“Four obvious questions that readily come to mind that are seriously begging for answers are- What can we do as a nation to strengthen our economic absorbers from external shocks? Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange and now over 200% increase in price of diesel be advised to shut down operations? should we fold our arms and allow the economy to slip into the valley of recession again? Is the nation well equipped to manage the resulting explosive inflation and unemployment rates?”

According to him, In the short term the disruption occasioned by the invasion of Ukraine by Russia will continue to heavily ruffle the global energy space and upset the supply of petroleum products thereby causing persistent increase in the price of refined petroleum products including AGO.

“In the long run, it will result in enormous increase in the prices of other manufacturing inputs like wheat, maize, fertilizers and the raw materials. By the time the current domestic reserve of manufacturing inputs is exhausted, in the face of acute shortfall in supply, we are afraid that the prices of manufactured products will soar. Ironically, the Nigerian economy is completely dependent on importation of refined petroleum products including diesel and other vital manufacturing raw materials and there are currently no sufficient alternatives.”

The manufacturers noted the exertion of untold hardship on the manufacturing sector leading to the closure of many industries, leading to reduction in capacity utilization, further decline in GDP, large scale unemployment across 76 sub-sectors and increase in crime rate;

The Director General, observed further decrease in foreign exchange earnings from the manufacturing sector as high cost of production feeds into export commodity prices and that sharp reduction in Government tax revenue occasioned by drop in sales, lower profitability as lesser quantum of disposable income will be available to purchase manufactured goods;

The Association further observed reverse-multiplier effect, as cost of production escalates and the headways already made in the sector are grossly eroded and that negative spiral effects on every sector of the economy, resulting in hyperinflation, lower productivity and turnover.

He also observed the depressing trickle-down effects on productivity, unemployment and standard of living of the citizenry and uncontrollable incidences of insecurity with dangerous implications for economic and social wellbeing of over 200 million Nigerians.

To remain in business the manufacturers demanded development of a National Response and Sustainability Strategy to address challenges emanating from the ongoing invasion of Ukraine by Russia and consistent support to manufacturing to accelerate the process of recovery from the aftermath of COVID-19 and previous bouts of recession to avert the complete shutdown of factories nationwide with multiplier effect on the employment.

Other demands include issuance of licenses to manufacturing concerns and operators in the Aviation industry to import diesel and aviation fuel directly to avert the avoidable monumental paralysis of manufacturing activities arising from total shut down of production operations and movement of persons for business activities, and addressing the challenge of repeated collapse of the national grid (twice within a week), which is causing acute electricity shortage in the country, especially for manufacturers.

They called for policy to urgently allow manufacturers and independent petroleum products marketing companies to also import AGO from the Republic of Niger and Chad by immediately opening up border posts in that axis in order to cushion the effect of the supply gap driven high cost of AGO, restriction of the export of maize, cassava, wheat, food related products and other manufacturing inputs available in the country; and granting concessional forex allocation at the official rate to manufacturers for importation of productive inputs that are not locally available.

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