Falling production, demand affirm manufacturers’ concerns, call for stimulus

Nigeria’s manufacturing sector declined for the first time in 36 days in May, according to the latest report from the Central Bank of Nigeria.

In the report released at the weekend, the apex bank said the manufacturing Purchasing Managers’ Index (PMI) stood at 42.4 index points in May. The first contraction in 36 months and highlighted the extent of the damage done by COVID-19 in the sector.Hitherto, the local producers had raised concerns about the effect of the pandemic on the sector.

The Acting Director-General of the Manufacturers Association of Nigeria (MAN), Chuma Oruche said local manufacturers do not expect an improved performance in the sector soon, especially as demand and production have been affected.

According to him, it is glaring to everyone that Q2 will take a downturn, as many sectors are yet to kick off and those operating are doing so within a restricted time.

He said: “We expect a downward trend in the GDP in Q2. We do not expect much progress because of Covid-19 pandemic, as sourcing of raw materials has become a problem. The curfew has equally affected operations in the sector, as shifts could not take place.

“The Minister has already said the country will go into a recession going by the trend. Consumption has reduced across the sectors. Those that experienced some sales recorded low turnover. Most of the production outfits are in Lagos and goods are not being moved across the country”.

To help the manufacturing sector, Manufacturers Association of Nigeria (MAN) urged the government to reverse the Value Added Tax Rate back to the pre-2020 Finance Act rate and reduce the Personal Income Tax to a flat rate of 10% for one-year effective April 2020.

According to MAN, this will improve the disposable income of Nigerian workers, stimulate consumption, promote an upsurge in demand and increase production output.

“We urge government to grant manufacturers waivers from all demurrages payable between February and July 2020, especially those occasioned by the lockdown directives of Government and others associated with COVID-19 pandemic.

“Establish a special bailout fund for the manufacturing sector with set deliverables on the number of jobs to be created, the volume of export, quantum of locally raw materials utilized and projected revenue.

“Support manufacturing concerns with existing loan facilities by reviewing the terms, especially reducing interest rates to 5% with 2years moratorium. For manufacturers that are investing in order to scale up production should be granted loans at 5% interest rate for a period of 5 to 7 years. This measure will no doubt improve liquidity and ramp up productivity in the manufacturing sector in a manner that will cover up for obvious losses due to COVID-19”, MAN added.

According to the CBN, only electrical equipment subsector recorded growth in the month of May, while the remaining 13 subsectors reported declines in the following order cement; petroleum & coal products; printing & related support activities; furniture & related products; textile, apparel, leather and footwear; paper products; fabricated metal products; food, beverage & tobacco products; chemical & pharmaceutical products; transportation equipment; plastics & rubber products; non-metallic mineral products; appliances and components and primary metal.

Also, production level declined for the first time in 37 months as all businesses grounded operations due to the COVID-19 lockdown and disruption in the global supply chain. Out of the 14 subsectors surveyed in the month, only one reported growth while four remained unchanged with nine recording declines.

Similarly, demand in the sector contracted in the sector after 36 months of consecutive months of expansion. Only three subsectors recorded growth in demand in the month of May while two subsectors were unchanged with nine declining.

The manufacturing sector created the lowest job in recent years in May as coronavirus pandemic disrupted operations and crippled businesses. The sector’s employment gauge stood at 24.5 index points in May, indicating a broad-based decline with 13 subsectors recording lower employment level and just one subsector recruiting during the month.