Key activities in Nigeria’s Manufacturing sector were negatively affected following high cost of energy as well as other factors.
The sector which plays key role in stabilizing the economy recorded low capacity utilization especially in the second half of 2022.
According to the Manufacturers Association of Nigeria, MAN, year-on-year, Capacity utilization in the manufacturing sector declined to 54.9 per cent from 59 per cent recorded in the corresponding half of 2021; thus, indicated 4.1 percentage points decline over the period.
Quarter-on-quarter, it declined by 3 percentage points when compared with 57.9 percent recorded in the first half of the year.
Manufacturing capacity utilization averaged 56.4 per cent in 2022 as against 55.9 percent average of 2021.
According to Director General, DG, of MAN, Mr Segun Ajayi-Kadir, The decline in manufacturing capacity utilization in the period is due to the adverse effect of high cost of energy and the Russian Ukrainian war, the grave effects of the Naira Redesigning policy and other perennial challenges such as acute shortage of Forex for importation of raw materials and machines, high cost of borrowing and many more.
Further, Ajayi-Kadir, noted that the Manufacturing sector factory output value declined to N2.68 trillion in the second half of 2022 from N3.73 trillion recorded in the corresponding half of 2021; thus, indicating N1.05 trillion or 28 percent declined over the period.
It also declined N1.31 trillion or 32 percent when compared with N3.99 trillion recorded in the preceding half.
The value of manufacturing production totaled N6.67 trillion in 2022 as against N7.39 trillion recorded in 2021.
Manufacturing production was severely affected in the second half of 2022 by absence of implementation of new capital project by the government as they focused on the election.
Production in the sector Oriental News Nigeria learnt was also negatively affected by limited purchases by households due to the Naira redesign policy, the high inflationary pressure in the country, high cost of energy, particularly diesel and gas, acute shortage of forex for importation of raw materials and machinery needs of the sector that are not locally manufactured in the time being and many more.
Our Correspondent reports that the issues of the basic metal group whereby duty of Annealed Cold roll was reduced to 5 per cent from the previous 45 per cent the suspension of motorcycles in some areas across States, the increase in the duty of paper from 5 per cent to 20 per cent and so on are still effective. These challenges, in addition to the perennial issues, contribute enormously to the dip in the production of the sector in the period under review.
Providing further information on the sector’s woo, Ajayi-Kadir, noted that Manufacturing sector local raw materials sourcing increased to 53.5 per cent in the second half of 2022 from 50 per cent recorded in the corresponding half of 2022; thus, indicating 3.5 percentage points increase over the period. It also increased by 1.5 percentage points when compared with 52 per cent recorded in the preceding half.
Also, local raw materials utilization in the sector averaged 52.8 per in 2022 as against 51.5 per cent recorded in 2021.
The increase in the local raw materials utilization in the sector during the period according to the DG, is due to increased difficulty in sourcing forex which compelled manufacturers to look more inward for raw materials notwithstanding the associated huge cost.
The MAN, said that It is therefore important for the Government to re-evaluate tis role in local development and production of raw materials in terms of funding. For instance, Ajayi-Kadir, pointed that the development and production of Active Pharmaceutical Ingredients (APIs) has continuously eluded due to limited funding of the Raw Materials Research and Development Council (RMRDC) by the Government.
The absence of local production of APIs has been having dire consequences on the pharmaceutical production, particularly in the current situation of acute shortage of forex.
Meanwhile, inventory of unsold finished products in the manufacturing sector increased to N282.56 billion in the second half of 2022 up from N169.75 billion recorded in the corresponding half of 2021; thus, indicating N112.81 billion or 66 percent increase over the period.
It also increased by N85.46 billion or 51 percent when compared with N187.1 billion recorded in the first half of the year.
Inventory of unsold goods in the sector totaled N469.66 billion in 2022 as against N384.58 billion recorded in 2021. The high inventory recorded in the period is attributed to low purchasing power in the economy due to declining real income of household following the continuous increase in inflationary pressures in the country.
This is worsened by the Naira Redesign policy which began in the last quarter of 2022. The withdrawal of large amount of the ‘old Naira’ without commensurate replacement with the ‘new notes’ resulted to cash crunch in the economy with very limited means of purchasing items by households across the country.
Also, in the second half of 2022, average lending rate to the sector from the commercial banks slowed to 22 per cent from 24 per cent recorded in the corresponding half of 2021 and the first half of 2022 respectively.
The trend shows a 2 percentage points declined over the periods.
Commercial bank lending rate to the industries is grossly influenced by the incessant increase in Monetary Policy rate in quest to maintain an appreciable real interest in order to attract foreign investment inflow. In the last quarter of 2022, Monetary Policy Rate was retained at 16.5 per cent CRR was 32.5 per cent and Liquidity Ratio, 30 per cent.
The DG, noted that the beginning of 2022 was marked with the invasion of Ukraine which later graduated to a full scale war between the two countries, and that Russia and Ukraine are central to effective functioning of the global supply chains as they are significant suppliers of agriculture produces and inputs, energy and many more across the world.
He added that as the war increasingly debilitates production in Ukraine and Russia, it furthers incapacitated the performance of the various nations of the Western World, this led to increase in the prices of global commodity (food, agricultural inputs, energy, etc.) and resulting to global inflation.
The effect on Nigerian economy was quick in the second half of 2022 as the cost of wheat and other food inputs increased; prices of fuels, particularly diesel rose by over 50 per cent cost of transportation logistics including shipping escalated even as the effect of cOVID-19 pandemic is yet to fully die down.
In addition to these challenges was the CBN policy on Redesigning the Naira, which aimed at bring a N3 trillion in the economy to the control of the banking system. from the economy.
The policy created a cash crunch that debilitated economic activities in the last quarter of 2022. This particularly affected the manufacturing sector adversely as it was extremely difficult to sell most of the Fast-Moving consumer Goods and other commodities by the sector in the period.
The performance of the manufacturing sector based on the outcome of the survey is corroborated by the GDP reports of National Bureau of Statistics which shows that output growth of the sector declined to-1.91 per cent in the third quarter of 2022 from 3.0 per cent recorded in the second quarter before moving up to 2.83 per cent in the fourth quarter of the year.
Consequently, he said it is critically important that the challenges identified by manufacturers in the course of the survey are adequately addressed.
Proffering solutions the DG, urged Government to prioritize forex intervention through the official market, particularly to support the raw materials and machine needs of the industries as well as improve forex allocation to industrial sector and enhance the capacity of designated banks to efficiently process application of forex by manufacturers.
The MAN, further called for the granting of concessional forex allocation at the official forex market to industries for importation of productive inputs that are not locally available and unify the various forex windows in the country;
It also demanded incentivizing investment in local development of raw materials; Give attention to domestic production of Active Pharmaceutical Ingredients (API) and Basic chemicals, refocus on Backward Integration and Resource-Based Industrialization; reverse the duty for Annealed Coldroll back to 45 percent from the new 5 per cent and reinvigorate the backward integration policy through the use of local resources to provide raw materials to the industrie.
The DG, called for the publishing of the list of approved harmonized taxes and levies for the manufacturing sector by the Joint Tax Board (JTB) to address the issues of multiples taxes and levies, commence implementation of the harmonized taxes and levies project which should be monitored and enforced strictly by the Joint Tax Board (JTB) and jettison the proposed increase in Excise Duties.
In addition it called for development of a comprehensive and integrated framework that will facilitate the intentional movement of operators in the informal sector to the formal sector, widen the tax net rather than increasing the tax base or the tax burden of existing tax payers and fully implement the Steve Oronsanye Report on the reduction and re-alignment of Government Agencies and Parastatals in order to streamline the number of taxes, levies, fees and administrative charges.
On Infrastructure, the MAN called for investment in transportation sector (road, rail, waterways etc.) to mitigate the high cost of transportation logistics in the ports infrastructure including scanners, etc.
The Association said there is need to resuscitate the moribund rail tracks leading from the ports to industrials areas, while Government Agencies operating at the ports should work harmoniously, particularly in the implementation of the recent migration of National list to ECOWAS CET Chapter 99.
They said it is pertinent to implement the single window platform to eliminate significant human inference in the ports clearing system and improve the time taken to clear machines and raw-materials at the national ports while making the link road accessible.
Speaking on funding, the DG, demanded the setting up of a monitoring and evaluation platform with private sector representatives to oversee the disbursement of the various development funds meant for the industries; provide Credit guarantee for industrial loans from commercial banks.
He further called for the creation of development funding windows for SMEs with liberal conditionality, strengthen the Bank of Industry (BOI) and Bank of Agriculture (BOA) to adequately provide liberal finance for the manufacturing sector; Avail to the productive sector the CBN non-oil export stimulation facility with liberal term and condition
The MAN, demanded that Government should allow all industrial policies in the country to gestate with proper monitoring and evaluation rather than jettisoning or altering them unduly frequently, as well as strengthen the implementation of the Executive Order 003 and 005.
The Association called for monitoring of the implementation of Executive Order 003 and 005 to ensure compliance by MDAs so as to boost activities in the manufacturing sector, and through fiscal and monetary policy authorities’ joint effort, formulate and implement a national policy that would address the current high inflation in the country.