‘Manufacturers still frustrated by inadequate access to power, forex’
While green shoots are appearing, business leaders in the manufacturing sector still have lingering concerns about the current state of the economy, with perceptions about the economy’s performance compared to the second quarter improving only slightly in the third quarter.
In Q3 2019, CEOs across the country feel the economy has turned a corner, but it isn’t all clear roads ahead; with power and access to credit and foreign exchange remaining key challenges for leaders looking to drive growth in FY2020.
These and other complaints are contained in the Manufacturers’ CEOs Confidence Index for the third quarter of 2019.
The index was created by MAN to gauge the pulse of the economic drivers on a quarterly basis.
In the report, the chief executive officers of manufacturing companies interviewed also said that multiple taxes by the three tiers of government, size of loans offered to the manufacturing sector and delay in approvals of the budget by the government had unfavourable effects on the sector.
Given the graphic percentage of respondents, the report indicated that 70 per cent of them disagreed that the rate at which the sector sourced foreign exchange had improved.
While 15 per cent agreed that the sector’s foreign exchange sourcing had improved, the other 15 per cent were not sure that forex had improved.
The report said majority of the manufacturers resorted to the parallel market to source forex to purchase machines and raw materials among other inputs needed for production.
It stated: “The response further confirmed that much has not changed in the supply of forex to the industry for purchase of machines, raw materials and other manufacturing input that are currently not available in the country.
“At the moment, most manufacturers source forex only at the parallel market at unfavourable exchange rate, making manufacturing import bills for raw materials and machinery that are not locally available unnecessarily high.”
It added that this had been a major reason the sector had not competed favourably in the community market, “particularly as it is awash with cheap and substandard foreign substitutes.”
Concerning lending rates, the report indicated further that 82 per cent of the CEOs interviewed disagreed that the rate at which commercial banks lent to manufacturing sector within the period under review encouraged productivity in the sector.
“This is evident in the double- digits cost of borrowing from the commercial banks, even amidst measures by the monetary authority to reduce cost of borrowing in the country.
“This to a large extent discourages investment particularly in the manufacturing sector, “it stated.
MAN said it became imperative that the association should sustain the advocacy for policy measures that would lower the cost of borrowing to increase productivity and competitiveness of the sector.
It said it would do this through partnering the Federal Government to interrogate the performance of the various single- digit interest rate funding windows available for the real sector of the economy.
Furthermore, 80 per cent of the CEOs of the manufacturing companies disagreed that the volume of commercial banks loans to the manufacturing sector encouraged productivity in the sector, within the period under review.
It stated, “This obviously underscores the need for the current Central Bank of Nigeria to improve and sustain the current policy aimed at increasing loans to the productive sector of the economy to stimulate national output.
“There is the need for the CBN to review the guidelines of the various development funds to ensure that the terms and conditions are liberal enough to attract borrowing from the industrial sector.”
Also, 89 per cent of the respondents agreed that multiple taxes and levies depressed production in the manufacturing sector.
“Record shows that manufacturers pay over 30 different taxes, levies and fees to agencies of the federal, state and local governments on account of increased revenue target.
“Consequently, there is the need to streamline the observed multiplicity of taxes and ensure that only approved taxes/levies/fees are charged.”
The MAN CEOs advised that the government should begin to consider reducing the various tax rates which had been the global order in recent times to encourage investment, particularly into the manufacturing sector.
In the same vein, 88 per cent agreed that over-regulation by the agencies of government also adversely affected productivity in the manufacturing sector.
They called for harmonisation of the operations, regulatory cheque lists and the need for these agencies at all levels to promote friendlier operating environment.
They equally noted that the government capital expenditure implementation affected productivity.
“This perception tests principally on delay in budget approvals; the small size of budgetary allocation for capital expenditure; and the poor implementation, culminating in poor basic infrastructure such as inefficient port infrastructure, inadequate electricity supply, deplorable road networks and low patronage of domestic products by the government.
“Ideally, government expenditure and procurement are veritable catalysts for improved productivity, growth and employment.”
They said that capital project that was well-funded and properly implemented would translate to improved patronage of manufacturers’ products suc as cement, iron rods, billets, tiles, nails, iron mesh, pipes, angle irons, doors, window frames and employ local engineers among others.