Bleak 2016 as manufacturers battle for survival in 2017
• Unfavourable policies, recession stagnated capacity utilisation at below 40%
Like sentiments expressed by many Nigerians, operators in the nation’s real sector have described activities in the industry in 2016 as bleak, going by the financial losses suffered during the year, while uncertainty clouds expectations in 2017.
For the operators, the fears expressed at the climax of 2015 were confirmed in 2016, with greater threats that threatened the continued existence of many businesses as the year comes to an end.
Specifically, commodity prices doubled while unaudited accounts of many conglomerates, food and beverages companies as well as cement manufacturing firms for the 2016 financial year showed heavy loss in revenue and profits. They also struggled between balancing rising input cost pressures and passing the inflationary pressures on already constrained consumers by raising prices of some products during the year.
Battling with hydra-headed challenges of government’s monetary and fiscal policies, input cost pressure and weak consumer purchasing power, the manufacturing sector’s performance for 2016 remained abysmally poor, as capacity utilisation in the sector stagnated at below 40 per cent, according to operators.
Although latest official figures from the Central Bank of Nigeria (CBN) shows a slow decline in production activities in the manufacturing sector at 46.0 index points at the end of November, using the Purchasing Managers’ Index (PMI), operators have expressed cautious optimism on recovery in 2017.
Indeed, a review of activities within the year showed that the reality of the analogy of quinine and malaria as presented by the Minister of Power, Works and Housing, Babatunde Fashola, might not have been felt more by the ordinary Nigerians if the manufacturing sector was insulated from the challenges in the economy.
In a chat with The Guardian while assessing activities during the year, the President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, said the last 11 months appeared to be the worst in the history of manufacturing in the country going by the numerous challenges encountered during the year.
He listed some of the challenges to include lack of access to foreign exchange to import raw materials, poor infrastructure, high cost of energy (both electricity and petroleum products) as well as a difficult operating environment.
On his part, the Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, described the developments in the economy and the business environment as being influenced largely by global and domestic factors during the year.
According to him, the features of a declining economy had long manifested in the horizon before the declaration of technical recession.
“We had weak and declining purchasing power, high unemployment, weak investors’ confidence, weak fiscal position of the government at all levels; drop in sales and private sector profitability, low and declining capacity utilisation, among others. High energy cost, escalating cost of transportation, high interest rate and weak exchange rate impacted on productivity and competitiveness across all sectors of the economy. Inflation reached a peak of 18.4 per cent in November, from 9.6 per cent in January, the highest in recent years.
“There were fiscal and monetary policy responses to the prevailing economic conditions during the year. Flexible exchange rate policy was adopted, petroleum product subsidy was discontinued, fiscal leakages were blocked, treasury single account (TSA) was introduced and tax revenue optimisation was scaled up.
“These were major policy milestones some of which were painful but inevitable. The expectation is that confidence will be restored, but it will take some time. The issue about confidence is that it could be swiftly lost, but difficult to regain,” he added.
On the way forward, Jacobs expressed caution in giving projections of activities in 2017, saying that the unstable situation in the economy called for caution as policy responses in the New Year will determine how fast the economy recovers from the current doldrums.
On his part, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) Dr. Bassey Edem, hinged economic recovery next year on the ability of the Federal Government to address fiscal policy inconsistencies that prevailed in 2016.
Yusuf advocated a framework to ensure liquidity of the foreign exchange market, relaxation of tight monetary policy, review of unnecessary protectionist policies, encouragement of investments in agriculture as well as food processing among other measures that may restore investors’ confidence.
On her part, the President of Nigerian Textile Manufacturers Association (NTMA), Mrs Grace Adereti, urged government to establish a cotton corporation in the country in order to boost production of the commodity and revitalise the textile industry.