‘Manufacturers to suffer shocks in Q2 over aggravated challenges’

With lingering concerns bordering on the rising cost of diesel, logistics, foreign exchange illiquidity, domestic inflationary pressure and weakening purchasing power of consumers, the Lagos Chamber of Commerce and Industry (LCCI) has predicted tougher times for the nation’s manufacturing sector in the second quarter.

The chamber stated that the sector will suffer some shocks from the challenges that have been aggravated by the global energy crisis.

The president, LCCI, Dr. Michael Olawale-Cole, at a press briefing on the state of the nation, said other triggers for shock include, poor public infrastructure, and port-related challenges as these may continue to present headwinds to the sector’s performance.

“Additionally, with the war in Ukraine aggravating disruptions to supply chains of raw materials like wheat, barley, soybeans, sunflower, and corn, the rising cost of production may not abate soon,” he predicted.

Meanwhile, the president expressed concerns over the nation’s rising debt profile, projecting that Nigeria’s debt stock and debt-servicing to revenue ratio will remain elevated in 2022 to hit N45.86 trillion by December 2022 due to the Federal Government’s plans to borrow an additional N1.6 trillion, while the 2022 debt target for domestic borrowing is N2.57 trillion.

“There is also a plan to borrow N2.57 trillion from foreign creditors, while N1.16 trillion is expected from multilateral/bilateral drawdowns. In total, the Federal Government plans to add N6.3 trillion new debts to the current debt stock, which would push the country’s total debt stock to N45.86 trillion by December 2022,” he said.

According to him, the 2022 Federal Government budget is now projected to have a deficit of N7.35trillion from the approved N6.26 trillion if the recent request for an additional deficit of N965.4billion by the President presented to the National Assembly is granted.

He explained that in total, the Federal Government plans to add N6.3 trillion in new debts that are likely to have a higher debt service-to-revenue ratio if revenue levels do not increase significantly.

On power sector, he said it is becoming clearer that the national grid cannot supply sufficient power to meet the nation’s electricity demand, lamenting that on the back of the epileptic power supply, businesses have had to deal with the rising cost of manufacturing, exorbitant logistics, and constrained production.

He added that with the cost of diesel at record levels and persisting poor power supply, businesses are running on unsustainable costs and producing at uncompetitive prices.

He warned that the situation could lead to job losses as output is constrained due to the unbearable cost of production.

“If not quickly tackled, these challenges will likely subdue the GDP growth potentials and projections for 2022,” he warned.

The LCCI boss added: “The government should create funding for critical infrastructure and special purpose intervention in the power sector. The newly launched Infrastructure Corporation of Nigeria (Infracorp) has a mandate to focus on power, renewables, transport, and logistics. Infracorp will succeed in mobilizing private sector participation if we can achieve cost-reflective pricing in the power sector,” he said.

“The gas-to-power infrastructure requires an overhaul to resolve the persisting gas shortage. However, the most sustainable solution to Nigeria’s power shortages is the transition to renewable energy,” he advised.

He said the Chamber is concerned about the high and rising inflation rate which stood at 15.70 per cent as of February up from 15.60 per cent recorded in January 2022.

“On a year-on-year basis, the rate decelerated from 17.33 per cent recorded in February 2021. Rising prices will remain a major concern for businesses and households, especially given the challenges associated with insecurity, infrastructure deficit, and foreign exchange fluctuations, all of which are factors that have continually triggered inflation in Nigeria in the past months,” he said.

“It is expected that the war in Ukraine which has disrupted supply chains of oil and gas, and food commodities will, in the short-term drive inflationary pressures northward,” he noted.

He stated that the Chamber expects headline inflation to remain elevated as the combination of supply chain disruptions due to the Russia-Ukraine war, food supply shocks, forex policies, higher energy costs, forex illiquidity, heightened insecurity in major food-producing states, would continue to mount pressure on domestic consumer prices.

“We believe a broad-based harmonization of fiscal and monetary policies toward addressing the identified structural constraints will significantly help moderate inflationary pressure in the short term,” he recommended.