Manufacturers eye sunny side of business in 2016
Despite not ignoring concerns bordering on the business environment in 2015, Nigerian manufacturers, like every other sector’s operators in the economy, may have had their share of the gloomy outcome of business operations in the course of the year. From uncertainties arising from elections conducted during the year to the fiscal policies borne out of dwindling global oil prices, no sector has remained shielded from events during the year. FEMI ADEKOYA examines key activities that shaped events during the year and expectations of the real sector in 2016.
Activities in the nation’s real sector in the last 12 months have been a mix of uncertainty, grim and optimism of a slow-paced change. While the financial results of many firms in the 2015 fiscal year may not have reflected the gloom, the prospect of an early recovery is equally challenged by several indicators and projections in 2016.
Indeed, from insecurity in parts of the country, deteriorating infrastructural conditions, foreign exchange crisis, funding challenges to consistency of policy and the quality of institutions, manufacturers have equally had to deal with the challenge of uncertainties and risks created by the political transition and the elections.
According to National Bureau of Statistics (NBS), Nigeria’s real Gross Domestic Product (GDP) fell to 2.84 per cent in the third quarter of 2015, compared to 6.23 per cent in the same period in 2014, while sectors such as manufacturing and the services slipped into recession after recording successive declines over the last three-quarters in 2015.
While the challenges prevailed, the successful democratic transition that ushered in a new political administration, presented a new wave of optimism on the back of the inherent goodwill of the administration at the federal level.
However, business activities were largely slow for a better part of the year due to uncertainties around the general economic policy direction of the present administration.
Corroborating the figures by NBS, the Manufacturers Association of Nigeria (MAN) hinged the drop in the real sector’s capacity utilisation in better part of the year on growing economic uncertainties, occasioned by electioneering activities and policy implementation inertia under the current dispensation in the country.
The manufacturers said the final figures of the capacity utilisation during the period under review were yet to be finally collated but provisional analyses showed a decline in the industrial output.
According to MAN, activities of counterfeiters have equally been responsible for low patronage of made-in-Nigeria goods, as well as low capacity utilisation being witnessed in the manufacturing sector.
MAN President, Dr. Frank Jacobs, noted that the current low capacity utilisation in the manufacturing sector can be addressed with good infrastructure, as well as policies that would aid production of quality products in the country.
Earlier, the Lagos Chamber of Commerce and Industry (LCCI) in its Business Confidence Index (BCI) at the beginning of the year had raised concerns that the drop of the BCI scores suggests that business leaders are largely pessimistic about expanding their business and investment spending over the next few months.
According to the LCCI, the BCI, which serves as an economic indicator designed to measure the degree of optimism on the state of the economy that business leaders are expressing through their activities of investing and spending, pre-empted activities that prevailed in 2015.
LCCI Director-General, Muda Yusuf noted that year 2015 was challenging as the difficulties in the business environment persisted, especially in relation to insecurity in parts of the country, infrastructural conditions, foreign exchange crisis, funding issues, consistency of policy and the quality of institutions, adding that “there was also the challenge of uncertainties and risks created by the political transition and the elections, in 2016, we expect GDP growth to rebound, though, slowly to about 3.5 if the right mix of fiscal and monetary policies are put in place to stimulate the economy and attract domestic and foreign investments”.
With the right mix of fiscal and monetary policies to stimulate the economy and attract domestic and foreign investments in 2016, Nigeria’s Gross Domestic Product (GDP) may rebound to about 3.5, despite a potential high inflation of about 11 per cent driven by exchange rate volatility, the Lagos Chamber of Commerce and Industry (LCCI), also projected.
According to the chamber in its 2015 economic review and outlook for 2016, while recovery from a slow-paced growth is expected to be driven by increase in government expenditure, the growth in oil sector may be constrained still by low price and investment drive.
Despite an expected high inflationary trend in 2016, the LCCI noted that, correction towards Real Effective Exchange Rate (REER) in the form of exchange rate adjustment is likely in the first quarter of 2016 in order to reduce the pressure on external reserves.
The LCCI noted that in 2015, unfriendly business environment continued to undermine the capacity of investors to maximise abundant business opportunities in Nigeria, Africa’s largest economy.
With drastic fall in oil price [currently at $35 per barrel], heavy fuel subsidy bill nearing N1 trillion in 2015, wide spread insolvency among state government across the country, increasing sovereign debt (about $60 billion, including debt provisions in 2016 MTEF) and debt service obligation of N1.3 trillion in 2016, the chamber expressed concerns that the financial crisis may linger in the new year.
Meanwhile, the chamber noted that subsidy arrears payment and end of subsidy regime is likely to result in improved market efficiency and profitability as downstream sector players explore pricing dynamics to boost investment.
Yusuf explained the macro-economic environment in 2016 will be characterised by clearer macroeconomic policy space, expansionary fiscal stance, huge debt profile, improved power supply and infrastructure, PIB acceleration and downstream deregulation and blocking of leakages through the Treasury Single Account (TSA).
LCCI in its sectoral outlook noted that the targeted N300 billion by Nigerian banks to boost lending to Small and Medium Scale Enterprises (SMEs) and the agriculture sector in 2016 will boost small businesses’ development and employment generation as well as increase non-oil export.
“Implications on cost of and access to credit will be undesirable. Businesses, especially those with high forex exposure, will continue to face challenges of meeting foreign obligations to suppliers and partners. This will also impact contractual trust and integrity.
“Risk of default in financial obligations in both public and private sectors will be high as macro-economic conditions and cash flow remains tight”, the chamber added.
With emerging issues reflecting the possible tide of events in 2016, especially in relation to electricity tariff, revision of incentives, renewed implementation of the diversification agenda, stakeholders are optimism that 2016 may be more rewarding that 2015.
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