Yemisi Izuora
Nigeria’s manufacturing sector suffered some setbacks in the first half of the year, forcing capacity utilization in the sector to crash to 56.5 per cent from 57.9 per cent recorded in the corresponding half year of 2022.
This indicates a reduction of 1.4 percentage points in the last year, the Manufacturers Association of Nigeria, MAN, indicated in its half year executive summary of the economy from January to June 2023.
However, compared with the second half of 2022, manufacturing capacity utilization rose by 1.6 percentage points when compared with 54.9 per cent recorded in the preceding half.
One of the factors leading to this in the view of the Association is that the economic environment was clouded by election activities in second half of 2022 resulting in uncertainties in the economy.
This coupled with the immediate impact of the Naira redesign policy which was announced in October of 2022 and required that economic agents including manufacturers thread with caution.
The dampening effects on the manufacturers’ confidence hence reflected in the manufacturing sector’s indicators including the capacity utilization in the period. However, re-infusion of the old currency to circulation temporarily restored confidence especially to the informal sector of the economy, where more than 98 percent of transactions is carried out in cash.
However, the Association noted that the manufacturing sector factory output value increased to N4.10 trillion in the first half of 2023 from N3.99 trillion recorded in the corresponding half of 2022; thus, indicating N110.00 billion or 2.8 per cent increase over the period. It also, increased by 1.42 trillion or 52.8 per cent when compared with N2.68 trillion recorded in the preceding half.
The 2.8 per cent increase in the monetary value (not real output) of manufacturing sector production over the period of one year when inflation is at 24.08 per cent at the same period indicates a struggling sector.
The Association noted that the sector faced myriad of challenges in the first half of 2023 as the residual effect of naira redesign and the removal of fuel subsidy towards the end of the period under review triggered inflationary pressure, cost of transportation, cost of production and other macroeconomics imbalances, thereby worsening the purchasing power of the households.
Key sectors like manufacturing and agriculture, which play a vital role in Nigeria’s economy, thus suffered as higher fuel costs drive up expenses related to machinery, irrigation, and transportation and these led to increase in the prices of food and other products, impacting both productivity and social stability.
The uncertainty stemming from this policy change has undermined investor confidence, hampering both domestic and foreign investments that are crucial for economic growth and job creation.
Equally, the manufacturing sector local raw materials sourcing increased to 55.3 per cent in the first half of 2023 from 48.0 per cent recorded in the corresponding half of 2022; thus, indicating 7.3 percentage points increase over the period.
It also increased by 1.8 percentage points when compared with 53.5 per cent recorded in the second half of 2022.
The observed increase in the utilization of local raw materials within the sector can be attributed to the growing challenges associated with sourcing foreign exchange. This situation has compelled manufacturers to shift their focus towards obtaining raw materials domestically, despite the substantial cost implications involved.