Lingering challenges dampen GDP outlook among manufacturers

Though Nigeria’s latest Gross Domestic Product (GDP) growth appears to have been driven by the non-oil sector, especially trade and transport sector, there are concerns by local manufacturers on the lingering infrastructure and supply chain challenges in the sector.

Nigeria, like many other countries, suffered the consequences of the partial closure of the transportation sector, which disrupted global supply chains. The sector expanded by 76.8 per cent in Q2 ’21, compared with -49.2 per cent in Q2 ’20 at the peak of the pandemic, thanks to a nearly full reopening of the economy.

For the second consecutive quarter, the manufacturing sector’s real GDP grew by 3.49% year-on-year in Q2 2021, the highest growth since Q1 2015.

Though this can be largely attributed to the low base in the prior year, there are indications that conditions for manufacturing are improving.

Also, the readings for Manufacturing PMI rose to 46.6 in July from 45.5 in June 2021, showing a gradual recovery of output growth, though still below the 50-index point mark.

Meanwhile, the continued efforts by the government to reposition critical sectors such as manufacturing on the path of growth have proved supportive, albeit slow.

Despite the recovery, the base effects have continued to impact household incomes, forcing manufacturers to adjust offerings and preferences to the available market. With the exception of essential items, demand for manufactured goods has been slow.

The Senior Partner, Deloitte Nigeria, Bernard Orji, stated that the bulk of the Nigerian populace live under the poverty line as they could barely afford to meet their needs.

According to him, manufacturers must study the market by focusing on the needs of consumers with quality and affordable products to remain competitive.

The Lagos Chamber of Commerce and Industry (LCCI) in its GDP comments noted that the performance of the manufacturing sector shows resilience amid the major challenges in the sector such as limited access to credit and financial services, poor infrastructure and unreliable power supply that forces businesses to rely on generators, thus increasing their input costs and reducing their overall competitiveness and profitability.

Chairman, MAN Apapa Branch, Frank Ike Onyebu, said the manufacturing sector which has the potential of contributing more than 25 per cent to Nigeria’s GDP, is currently doing less than 10 per cent.

He added that the slow growth of the sector as a whole is attributable to a myriad of factors including infrastructural deficiency, insecurity, global and domestic supply chain disruptions, foreign exchange liquidity, weak consumer spending and high operating costs.

He added that subdued operations caused by the lockdown and other containment measures to combat the pandemic also affected manufacturing activities.

According to the GDP report for Q2, the manufacturing sector contributed 14.8 per cent to nominal GDP and was one of the major drivers of growth in the non-oil sector within the quarter.

LCCI Director-General, Dr. Chinyere Almona, noted that the loss of jobs due to the negative effects of the pandemic may have driven more people into retail trade, commerce, and logistics.

“The positive growth in the transport sub sectors like road and rail transport may have also had some positive impact on trade with the easing of movement. This is also evident that the Nigerian economy is recovering fast and sustained by the reduction in supply chain disruptions especially as there was no serious lockdown on economic activities in the second quarter.

“The easing of movement has supported the increase in economic activities across the country where we still experience serious security challenges”, she explained.

With this Q2 performance and if this is sustained, she added that the growth projections for Nigeria will be reviewed upwards in the coming weeks.

She however warned that Nigeria must watch and respond appropriately to the major threats to this growth performance like the third wave of COVID-19 infections that could lead to restrictions of movement, the rising spate of insurgency, banditry, kidnapping, and the persistent farmer/herder conflicts.

According to an economist and private sector advocate, Dr. Muda Yusuf, though the 5.01 per cent GDP growth (year-on-year) is a welcome development, there is a need to fix issues around regulatory environment, tax administration and the multitude of levies imposed on businesses at all levels of government.

Yusuf also called for reforms in the nation’s foreign exchange policies, ports infrastructure, and other structural bottlenecks to productivity in the economy.

“There are still worries about the macroeconomic challenges reflecting spiralling inflation, weakening currency, forex market illiquidity and rising debt profile among others.

“The security situation remains a major source of risk inhibiting investments whether domestic or foreign,” he said. Yusuf said that while it is good to celebrate the GDP growth numbers, this should be done cautiously.

He noted that the impact of the GDP growth on citizens welfare and the productivity in the investment environment are crucial, noting that those were the metrics that matter most, ultimately.

He explained that the increase signposts an incremental recovery in the economy as well as reflects a gradual normalisation of economic and business activities in the country, stressing it was important to admit that there is a profound base effect in the Q2 GDP growth outcomes.

The manufacturing sector recorded a total output of N12.2tn in the first half of the year, according to the National Bureau of Statistics.

Data obtained from the Gross Domestic Product report show that aggregate manufacturing output in the first and second quarters stood at N6.1tn each.

The total output of N12.2tn for H1 2021 represents an increase of N1.1tn when compared to the N11.1tn recorded in the second half of 2020.

Out of the 13 subsectors of the manufacturing sector, seven-recorded positive economic performance between H2 2020 and H1 2021, while six sub sectors experienced a decline in productivity.

The seven subsectors that recorded increase in economic performance include cement, from N2tn to N2.5tn; food, beverage and tobacco, from N3.8tn to N4tn; textile, apparel and footwear, from N2.6tn to N3tn; and wood and wood products, from N233.9bn to N235.1bn.

Other subsectors are pulp, paper and paper products, from N146.2bn to 162bn; non-metallic products, from N624bn to N752.5bn; and motor vehicles and assembly, from N274bn to N498bn.

The oil refinery sub sector recorded a huge decline in productivity within the period under review, from N32.5bn to N13bn. The other five sub sectors that recorded decline in output are chemical and pharmaceutical products, from N288.9bn to N275.3bn; plastic and rubber products, from N351.1bn to N307.4bn; electrical and electronics, from N8.3bn to N7.2bn; basic metal, iron and steel, from N250bn to N200.9bn; and other manufacturing, from N392.7bn to N300.4bn.