Monday, 4th December 2023

Manufacturing performance indicators contracted by 1.4% in H1

By Tobi Awodipe
27 September 2023   |   4:15 am
Key performance indicators of the manufacturing sector suffered negative growth in the first half (H1) of the year, the Manufacturer’s Association of Nigeria (MAN) review of the economy has shown.

• Inventories hit N272b as consumer spending dips
Key performance indicators of the manufacturing sector suffered negative growth in the first half (H1) of the year, the Manufacturer’s Association of Nigeria (MAN) review of the economy has shown.

Capacity utilisation in the manufacturing sector in H1, year-on-year, declined to 56.5 per cent from 57.9 per cent recorded in the corresponding half of 2022, a reduction of 1.4 per cent, the report said.

It added that the economic environment was clouded by election activities resulting in uncertainties in the economy.

“This, coupled with the immediate impact of the Naira redesign policy which was announced in October 2022, required that economic agents including manufacturers thread with caution. Manufacturing sector output value increased to N4.1 trillion in the first half of 2023 from N3.99 trillion recorded in the corresponding half of 2022.

“However, the 2.8 per cent increase in the monetary value (not real output) of manufacturing sector production over the period of one year when inflation is at 24.08 per cent at the same period indicates a struggling sector.

“The manufacturing sector faced myriad of challenges in the first half of 2023. The residual effect of naira redesign and the removal of fuel subsidy towards the end of the period under review triggered inflationary pressure, transportation and production costs as well as other macroeconomics imbalances, thereby worsening purchasing power of households. Key sectors like manufacturing and agriculture, which play a vital role in Nigeria’s economy, suffer as higher fuel costs drive up expenses related to machinery, irrigation, and transportation. These led to increase in the prices of food and other products,” the report said.

Manufacturing sector local raw materials sourcing increased to 55.3 per cent from 48 per cent recorded in the corresponding half of 2022, indicating 7.3 increase. This, it attributed to the growing challenges associated with sourcing FX, forcing manufacturers to shift their focus towards obtaining raw material domestically.

The inventory of unsold finished products saw a significant increase to N271.96 billion compared to N187.08 billion recorded in the corresponding period of 2022 and can be attributed to weakened purchasing power of consumers, the report said.

Manufacturing sector investment in naira value increased to N192.89 billion from N178.39 billion recorded in the corresponding half of 2022 and further increased by N47.3 billion or 32.5 per cent when compared with N145.59 billion recorded in the second half of the year. The increase, the report said, was driven by the currency devaluation which saw naira depreciated to N901/$ depreciation at the Investor and Export Window from N462/$ before the devaluation policy of the CBN was announced.

“Hence, the increase recorded does not indicate physical investment by manufacturers but rather nominal which resulted from the devaluation of currency that has made manufacturers pay more for imports. Employment generation also declined to 6428, a 32.8 per cent reduction in employment generation capacity when compared with 9559 jobs generated in the first half of 2022. Also, the data showed a shed of 313 jobs when compared with 6741 jobs created in the second half of 2022.

The decline in the number of jobs highlights the unfriendly business environment resulting from the hasty policies and naira crunch.

A total of 3567 jobs were lost in the first half of 2023, indicating 1855 more job lost when compared with the 1709 job lost in corresponding half of 2022 and 850 more jobs lost when compared with 2708 jobs lost in the last half of 2022,” it stated.

The report added that while electricity supply to industries from the national grid showed a marginal increase, expenditure on alternative energy sources declined to N60.47 billion from N76.7 billion. Lamenting the high lending rate to the sector from commercial banks, it said the cost of funds for the manufacturers increased by two per cent compared to 2022.

“According to the United Nations Industrial Development Organization (UNIDO), the global manufacturing output experienced a significant slowdown in the first quarter of 2023, with growth dropping to just 0.7 per cent. The drop was 0.8 percentage point lower than 1.5 per cent recorded in the fourth quarter of 2022.

“This marks the first time in over two years that growth has fallen below one percent. Given the uncertain state of the global economy, it is evident that the manufacturing sector must explore alternative strategies to reverse this ongoing trend and prevent the risk of a recession.

“Businesses and foreign investors are wary of committing capital, thereby hindering economic growth and prospects for recovery. The combined effect of these is the resultant higher inflationary pressure, which fuels cost of production, reducing consumers’ purchasing power and having a greater impact on the manufacturers. It is of utmost importance that the challenges identified by manufacturers are promptly and effectively addressed to mitigate the adverse effects of these policies and restore its growth trajectory,” it stated.

To address these problems, they urged stakeholder engagement, policy clarity and predictability; comprehensive economic impact assessment of the fuel subsidy removal, exchange rate changes, and other policy measures. The body also urged the government to support the sector and MSMEs with access to credit and improve infrastructure development, support workers and show transparency and efficiency in the disbursement of funds. “Government should establish a monitoring and feedback mechanism to assess the effectiveness of the implemented policies, implement regulatory reforms to improve the ease of doing business, provide social safety nets and articulate a clear long-term economic vision that outlines the pathway to sustainable economic growth, job creation, and poverty reduction.

They also urged the government to prioritise fx intervention for raw materials and machinery for industries, improve fx allocation to the industrial sector, develop a roadmap for improved power supply, promote renewable energy sources, resuscitate national refineries and review domestic gas pricing. Other recommendations include addressing oil theft, incentivise local raw material development, especially Active Pharmaceutical Ingredients (API) and basic chemicals, focus on backward integration, harmonised taxes and levies for the manufacturing sector, expanding the tax base without increasing the burden on existing taxpayers and investing in transportation infrastructure.

They also told the government to fix the ports and streamline its operations, revive rail in the country among other recommendations.

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