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Amid growth, capacity utilisation in manufacturing sector remains weak

By Femi Adekoya
31 August 2022   |   2:39 am
Though the manufacturing sector recorded real GDP growth of three per cent in the second quarter of 2022, according to the latest National Bureau of Statistics (NBS) data, operators

[FILES] Manufacturing

Though the manufacturing sector recorded real GDP growth of three per cent in the second quarter of 2022, according to the latest National Bureau of Statistics (NBS) data, operators are concerned that the growth remains weak, even as capacity utilisation in the sector is low.

According to the NBS, the sector’s real GDP growth is lower than the same quarter of 2021 and lower than the preceding quarter by 0.48 per cent and 2.89 per cent respectively.

The Growth rate of the sector on a quarter-on-quarter basis stood at -15.47 per cent. A real contribution to GDP in 2022 second quarter was 8.65 per cent, lower than the 8.69 per cent recorded in the second quarter of 2021 and lower than the 10.20 per cent recorded in the first quarter of 2022.

Analysts at Financial Derivatives in a recently released Economics Bulletin for Q2 2022, note that the growth witnessed in the manufacturing sector could not be far from the fact that manufacturers have front-loaded their inventory needs out of concern of a dollar shortage, which has led to an appearance of economic growth in Nigeria.

The report said: “The purchasing Managers Index, which is one of the most efficient predictors of cyclical trends, has been oscillating in the last seven months. An interesting observation is that new orders increased consistently in the last five months. This raises questions as to whether manufacturers are optimistic about the future or they are hedging against the falling naira.

“The fear of dollar scarcity means manufacturers will front load their inventory requirements, creating an illusion of expansion as against the real picture. This will manifest in a possible decline in purchases and ultimately slow GDP growth in the coming quarter.”

Despite the economy’s growth, there has been little progress in lowering unemployment. The report said: “While there is enough reason to cheer, it also calls for a moment of sober reflection. Of the 46 activities tracked by the NBS, only 33 per cent expanded compared to 54 per cent in Q1’22. Most of the sectors that slowed or contracted (manufacturing, agriculture, etc) are the major employers of labour. Hence, there will be a limited impact on unemployment, which is stubbornly high at 33 per cent.”

According to the Centre for the Promotion of Private Enterprise (CPPE), productivity and competitiveness issues continue to impact negatively on the performance across sectors of the economy.

The CPPE added that the general operating environment continues to be very challenging for most investors, noting that SMEs were particularly more vulnerable to prevailing macroeconomic shocks, resulting in the high mortality rate of small businesses.

“Capacity utilisation is still weak and manufacturers are still grappling with forex and structural issues constraining their productivity. All of these need to be addressed with appropriate government policies.

“Across all sectors, there are issues around the high energy cost, the currency depreciation, the soaring inflation, weak purchasing power, forex scarcity and the structural problems of infrastructure. Even though the non-oil sector contributed 93 per cent of the GDP in the period under review, weak productivity remains an issue”, the Chief Executive Officer of the CPPE, Dr. Muda Yusuf said.