Manufacturers worried about consumers’ purchasing power, consumption
With the real GDP growth of the manufacturing sector falling in the first quarter of 2020, local manufacturers have expressed worries that reduction in household incomes, occasioned by the loss of jobs and salary cuts due to the coronavirus pandemic, alongside inflation, will further affect consumption and capacity to purchase goods.
Indeed, a recent survey by the Lagos Chamber of Commerce and Industry (LCCI) showed that 83 per cent of business owners plan to cut down on salaries and reduce the number of people in their employment.
According to the LCCI survey, the COVID-19 crisis impact on the Lagos business community revealed that 81 percent of respondents were ‘severely’ affected by the pandemic with the median daily revenue loss of N500, 000.
The Chamber noted that the lockdown has significantly destabilized business and economic activities especially in the informal and MSMEs space given their lack of adequate cash buffers to withstand the shock.
To manufacturers, reduced income equally translates to poor capacity to purchase goods and services.
With the manufacturing sector’s real contribution to GDP in 2020 first quarter dropping to 9.65%, lower than the 9.79% recorded in the first quarter of 2019 but higher than the 8.74% recorded in Q42019, the Acting Director-General of the Manufacturers Association of Nigeria (MAN), Chuma Oruche said local manufacturers do not expect an improved performance in the GDP figures in the second quarter.
According to him, it is glaring to everyone that Q2 will take a downturn, as many sectors are yet to kick-off and those operating are doing so within a restricted time.
He said: “We expect a downward trend in the GDP in Q2. We do not expect much progress because of Covid-19 pandemic, as sourcing of raw materials has become a problem. The curfew has equally affected operations in the sector, as shifts could not take place.
“The Minister has already said the country will go into a recession going by the trend. Consumption has reduced across the sectors. Those that experienced some sales recorded low turnover. Most of the production outfits are in Lagos and goods are not being moved across the country”.
A look at the latest NBS data shows that nominal GDP growth of the Manufacturing sector in the first quarter of 2020 was recorded at 28.47% (year-on-year), or -7.97% points lower than figures recorded in the corresponding period of 2019 (36.45%) but 2.18% points higher than the preceding quarter’s rate of 26.29%. Quarter on quarter, growth of the sector was recorded at 2.84%.
The contribution of the Manufacturing sector to Nominal GDP in the first quarter of 2020 was 12.98%, higher than the share recorded in the corresponding period of 2019 at 11.31% as well as the fourth quarter of 2019 at 11.37%.
Real GDP growth in the manufacturing sector in the first quarter of 2020 was 0.43% (year on year), lower than the same quarter of 2019 as well as the preceding quarter by –0.38% points and –0.81% points respectively. Growth rate of the sector, on a quarter-on-quarter basis, stood at –5.38%, lower than the quarter on quarter growth rate recorded in the preceding quarter of 2019.
The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf noted that though activities during the first quarter are usually slow, the effect of the coronavirus pandemic, starting taking a toll on the economy at that time, adding that the economy could have only recorded some marginal growth.
On his part, the Director-General of Nigeria Employers’ Consultative Association (NECA), Timothy Olawale said the slowdown in the GDP growth reflects the earliest effects of the disruptions on the non-oil economy, coupled with an escalating war of words between the U.S. and China which resulted into low demand in global oil.
“The lockdown of the Nigerian economy commenced in April due to the pandemic, therefore, the real impact of COVID-19 on the economy would be felt in the Q2 GDP result. We applaud the managers of the economy, as the economy grew faster than expected in the first quarter because of a boost in oil production.
“We anticipate a contraction in the second quarter, as the economy witnessed a six-week lockdown on the commercial nerves of the country, and a similar trend was witnessed in the global economy, except China, whose consumption of fuel due to opening of industrial hubs and transportation could portend mild positive growth pattern due to demand for crude oil.”
“There is the need for the Fiscal and Monetary authorities to develop more aggressive and decisive policies to sustain economic recovery in the wake of further low oil prices. We believe that more coordinated stimulus packages targeted at the worst-hit sectors of the economy would sustain the economy from experiencing a contraction of 8.9% as predicted”, he added.
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