GDP, production rise as manufacturers stockpile for Yuletide amid forex challenges
Notwithstanding the challenges faced by local manufacturers in accessing foreign exchange for raw materials, production activities in the manufacturing sector regained some momentum as local manufacturers prepare for consumer demand during the Yuletide.
According to the latest Purchasing Managers’ Index (PMI) Survey Report prepared by the Central Bank of Nigeria (CBN), November 2020 production level index for the manufacturing sector stood at 51.7 points, indicating recovery from the contraction recorded since May 2020.
Similarly, manufacturing sector GDP growth, in the third quarter (Q3) of 2020, was recorded at 13.54% (year-on-year), -26.15% points lower than figure recorded in the corresponding period of 2019 (39.69%), and 13.68% points higher than the preceding quarter’s figure of -0.14%. Quarter-on-quarter (Q/Q) growth of the sector was 32.13%.
The contribution of manufacturing to nominal GDP in Q3 2020 was 13.56%, higher than in the corresponding period of 2019 (12.34%), and Q2 2020 (11.79%).
Real GDP growth in the manufacturing sector, in Q3 2020, was –1.51% (year-on-year), lower than the same quarter of 2019, but higher than the preceding quarter by -2.60% points, and 7.27% points respectively.
Growth rate of the sector on Q/Q basis stood at 13.52%, higher than the Q/Q growth rate recorded in the preceding quarter of 2020. Real contribution to GDP in Q3 2020 was 8.93%, higher than the 8.74% recorded in Q3 2019, and higher than the 8.82 recorded in Q2 2020.
Despite the marginal improvement in the PMI and GDP, employment level and access to raw materials remains a challenge. Although the CBN, in a new circular, clarified its position on the removal of third parties from buying of foreign exchange (forex) routed through Form M, letters of credit, and other forms of payment, manufacturers have continued to express concerns over access to forex for importation.
While reiterating its earlier directive that destination payment for all forms M, letters of credit, and other forms of payment should be made directly to the ‘Ultimate Supplier of Products’; it gave conditions that must be met by importers if they choose to use a buying company other than the primary manufacturer.
The Manufacturers Association of Nigeria (MAN), and other private sector operators had described the CBN directive to dealers to stop opening Form M for payments routed through a buying company or any other third party, as one that could kill ailing firms.
MAN President, Mansur Ahmed, argued that a phased approach should be adopted to enable firms to have sufficient time to re-organise and build sustainable relationships with suppliers.
“Given the prevailing extremely stressful operating environment our fragile manufacturing sector is contending with, the implementation of this new directive is like hammering the last nail into the coffin of many of our ailing members,” he said.
To local manufacturers, the recovery in production stems from the increased seasonal demand and efforts by producers to retain the market from imported items during the festive season.
Of the 14 subsectors surveyed, seven recorded expanding production levels, three reported stationary levels of production, while four were still experiencing contraction in production level.
Specifically, the following sub-sectors, namely, transportation equipment, non-metallic mineral products, furniture & related products, cement, textile, apparel, leather & footwear, plastics & rubber products, food, beverage & tobacco products and printing & related support activities, reported expansion (above 50% threshold) in the month under review.
The new orders index marginally expanded for the second time in the month of November. The index stood at 50.5 with seven subsectors reporting expansion in new orders. Three subsectors remained stationary while the remaining four recorded contraction in the review month.
The manufacturing supplier delivery time index stood at 52.2 points in November, indicating a faster delivery time for the seventh month. Four of the 14 subsectors recorded improved suppliers’ delivery time; three remained stationary, while seven recorded slower delivery time.
On the other hand, the employment level index for the month stood at 47.3 points, indicating contraction in employment level for the eighth consecutive months. Of the 14 subsectors, five recorded growth in employment level while nine recorded lower employment level in the review month.
Similarly, the manufacturing sector inventories index contracted for the eighth time in November 2020. At 48.5 points, the index indicates a slowing contraction in raw materials inventories as some manufacturers begin to have access to raw materials. Two of the 14 subsectors recorded growth in inventories, while the remaining 12 witnessed lower raw material inventories during the period.
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