Manufacturers worry about rising inflation, access to forex for raw materials

Local manufacturers have expressed concerns about rising inflation in Nigeria, considering that prices are further spiked by challenges in supply chains, occasioned by the inability to access foreign exchange for the importation of critical raw materials.

According to the operators, the trend is expected to continue till the year end, except macro-economic changes are implemented. While they predicted an inflation rate of between 15 and 18 per cent, the Central Bank of Nigeria (CBN), said inflation would likely rise up to 14.15 per cent at the end of December.

The CBN Governor, Godwin Emefiele, said inflationary pressure persisted in the first and second halves of the year due to several factors. This, he said, might continue till the end of this year, noting that in addition to the disruption to global and domestic supply chains as a result of COVID-19, inflation was worsened by the increase in Value Added Tax (VAT).

Other factors that raised inflation, according to Emefiele, included exchange rate adjustment, and seasonal food supply shocks due to the onset of the farming season and other structural bottlenecks.

He said: “In any case, we think that inflation may continue to tick upwards, maybe up till around October, November, December, as we begin to see the positive effects of the harvest.

“But we are not comfortable by the fact that with the depreciation that we have seen in the currency this year, as well as the increase in price in energy for those who are wealthy and the manufacturing companies, that this will no doubt result in imported inflation.

“This is because our economy still remains somewhat significantly import dependent and so no doubt, this will further accelerate the level of inflation in the country.”

For MAN President, Mansur Ahmed, the outcomes of the pandemic led to lockdown, near shutdown of the operations of eight manufacturing sectoral groups, disruption in supply chains, rise in inventory of unsold items and loss of jobs.

“This pandemic disrupted the global supply chain, caused a massive slowdown in the international trade and in our case worsened the already fragile economy. The consequence of this development was that sectoral groups ran short of supplies of raw materials due to disruptions in the global value chain and many still cannot access forex,” he said.

Besides, he noted that the manufacturing sector performance, expected to be strong having recorded an impressive performance in the 4th quarter of 2019 on account of border closure, suffered huge setback.

“In the same vein, inflationary pressure remains a source of concern as COVID-19 disrupted the demand and supply side of the global economy.”
While commending the Federal Government for the initiative towards unifying foreign exchange windows in Nigeria, Ahmed, however, urged the CBN to ensure that the unavoidable shocks that would result from multiple exchange transition to a single exchange regime properly managed to have minimal effect on the sector.

“Particularly, the burden of foreign currency-denominated loans, and offsetting of existing credit commitments to foreign suppliers of raw materials should be given priority consideration.

“It is our conviction that the foreign exchange unification initiative will engender a regime of a balanced participation for forex users and promote a transparent as well as efficient allocation of forex required for sustained economic growth,” he said.

He argued that downward movement of key economic indicators reinforced the need for more proactive initiatives as against reactive initiatives.
Quoting the Nigeria Bureau of Statistics, he said: while the aggregated economy recorded a positive growth as indicated by increase in real national output to 2.39 per cent in 2019 from 0.81 per cent in 2018, the manufacturing sector growth plunged significantly to 0.77 per cent in 2019 from 2.09 per cent recorded in 2018.

According to the NBS, the rise in the food index was caused by increase in prices of bread and cereals, potatoes, yam and other tubers, meat, fish, fruits, oils and fats, and vegetables.

Analysts at Cordros noted that food price pressures, stemmed from the troika effect of rising flood and banditry cases in the northern part of the country, PMS-induced rise in transport cost, and liquidity constraints in the FX market, led to currency depreciation in the parallel market.

“For September, we expect the pressure on consumer prices to be maintained, and see headline CPI at 1.30% m/m in August, with the low base in corresponding period of 2019 cascading into a 29bps increase in y/y inflation rate to 13.51%,” they added.