Cautious optimism trails manufacturing investment prospects

The impact of the coronavirus, insecurity and governance issues may have significantly impacted manufacturing activities within the country, as investments in the sector dropped by 76.11 per cent in 2020 to N118.52 billion from N496.11 billion achieved in 2019.

According to the Manufacturers Association of Nigeria (MAN) in its executive summary of the economic review of the second half of 2020, the decline in investment is mainly attributed to the depressing effects of COVID-19.

Indeed, a vast majority of Nigerian manufacturers rely on several raw materials from China and Europe.

Apart from the fact that the ability to get supplies was significantly disrupted by the pandemic, the scarcity of foreign exchange and low demand due to the significantly reduced purchasing power of many Nigerians were major problems for many manufacturers last year, forcing many operators to shut down or suspend operations within the period.

The report stated: “Estimated cumulative manufacturing investment from 2013 to the second half of 2020 was N5.73 trillion based on data generated from surveys conducted by MAN over the period.

“Manufacturing investment declined to N56.44 billion in the 2nd half of 2020 from N257.66 billion recorded in the corresponding half of 2019; thus, indicating N201.22 billion decline over the period.

“It also declined by N5.64 billion or 9.1% when compared with N62.08 billion achieved in the 1st half of the year. Manufacturing investment totalled N118.52 billion in 2020 as against N496.11 billion achieved in 2019. Manufacturing investment declined in the period following the depressing fallouts from COVID-19 that gave no impetus for new investments in the sector.”

The latest UNCTAD Investment Trends Monitor had shown that global foreign direct investment (FDI) collapsed in 2020, falling 42 per cent from $1.5 trillion in 2019 to an estimated $859 billion, with Nigeria earning $2.6bn of the global volume.

According to the trade body, such a low level was last seen in the 1990s and is more than 30 per cent below the investment trough that followed the 2008-2009 global financial crisis.

Despite projections for the global economy to recover in 2021 – albeit hesitant and uneven – UNCTAD expects FDI flows to remain weak due to uncertainty over the evolution of the COVID-19 pandemic.

The organization had projected a five-10 per cent FDI slide in 2021 in last year’s World Investment Report.

“The effects of the pandemic on investment will linger,” said James Zhan, director of UNCTAD’s investment division. “Investors are likely to remain cautious in committing capital to new overseas productive assets,” he said.

Already, foreign currency constraints, devaluation, and shrinking disposable incomes are all factors that significantly strain the performance of the manufacturing sector.

According to local producers, the scarcity of foreign exchange from the official window compels manufacturers to source funds from the black market, which trades at a significant premium to on I&E window and inflation leads to increased production costs.