Exactly one year ago, President Bola Ahmed Tinubu was inaugurated into the highest political office in the country. During his inaugural speech, he made many promises including promoting manufacturing and the light industry, reducing unemployment and reducing the country’s import dependency. TOBI AWODIPE writes that the real sector is still awaiting the President’s promises.
Following the inauguration of President Bola Tinubu as Nigeria’s president, he promptly announced the removal of fuel subsidy, unification of the exchange rate as well as his desire to turn Nigeria into a productive powerhouse amongst other promises. He said his immediate target was to ensure a higher gross domestic product (GDP) growth and enable a significant reduction in the unemployment rate through budgetary reforms to stimulate the economy without engendering inflation.
Also promising to encourage light industry, Tinubu said he would work with the National Assembly to create jobs and prosperity bills that will give them the policy space to embark on labour-intensive infrastructural improvements and encourage light industry which will, in turn, create jobs for millions of young Nigerians. Furthermore, in a bid to promote manufacturing, he said his proposed industrial policy would utilise the full range of fiscal measures to promote domestic manufacturing and reduce import dependency, which will create jobs in the real sector. He said Nigeria will become known as a nation of creators, not just of consumers; exporting more and importing less, strengthening the Naira.
Immediately after that announcement, the price of fuel and diesel spiked, and so also did foreign exchange rates, exchanging for almost N2000 to a single dollar at a point this year. In the last year, the FX market has not enjoyed stability, changing sometimes, as much as three times a day.
Instead of more jobs, the Manufacturers Association of Nigeria (MAN) revealed that 767 companies shut down in the last year, with 335 others on the verge of shutting down due to exchange rate volatility, rising inflation, worsening investment climate, rising operational and input costs, under capacity utilisation and reduced purchasing power among other factors. Thousands of people were thrown into the job market. There has been no new or even revised industrial policy to date.
Director-General MAN, Segun Ajayi-Kadir, said owing to the above-listed factors, many more companies are in danger of shutting down or pulling out of the country entirely before the end of this year.
Expressing concern over the persistent macroeconomic instability in the country, resulting from unstable FX rates, and recent monetary policy decisions, he said none of the policies introduced so far have improved the economy, but only succeeded in negatively impacting the manufacturing sector. This instability, he said, compounded by various constraints affecting sectoral performance, has continued to disrupt production plans, undermine investments and cast uncertainty over prospects. According to him, the Food, Beverages and Tobacco, Chemical and Pharmaceuticals, Electrical and Electronics and Motor Vehicle and Miscellaneous Assembly Sectoral Groups are the most affected by the effects of an unstable macroeconomic environment on key performance indicators.
According to MAN’s CEO Confidence Index (MCCI) report for Q1 2024 released recently, the association said all manufacturing indicators in the first quarter of this year, have continued to record negative changes, mostly due to high and unstable exchange rates, prolonged FX scarcity, rising energy costs, unstable import duty rate, high cost of borrowing and steady rise in inflation.
The indicators in question include production and distribution costs, capacity utilisation, production and investment volumes, employment and sales as well as shipment costs.
Ajayi-Kadir said all these factors significantly escalated the cost of manufacturing operations, distorted the manufacturing value chain, discouraged investments, increased job losses and reduced sales volume. The report also revealed that sectoral growth reduced to 1.40 per cent in 2023 from 3.35 per cent and 2.45 per cent recorded in 2021 and 2022 respectively.
Despite the promise of making the country less import-dependent, the country recorded a N1.4 trillion trade deficit in the fourth quarter of 2023, according to the National Bureau of Statistics (NBS), while import bill surged by over 100 per cent, to 66.8 per cent in that same quarter. Roughly 30 per cent of Nigeria’s import still comes from China while the country’s highest export stands at just 12.6 per cent (India).
Despite many promises of getting investors and Foreign Direct Investments (FDI) to stimulate the economy, none has materialised so far; instead, 10 major multinationals have closed shop in the last year including GSK, P&G, Unilever, Sanofi, Jumia and Bolt Foods among others.
Data sourced from the World Trade Organisation (WTO), reveals a stark contrast in manufacturing export values between Nigeria, South Africa, Egypt and Morocco in 2023, with South Africa, Morocco and Egypt recording $45.38 billion, $30.61 billion, $20.14 billion respectively compared to Nigeria’s record of just $3.21 billion.
In Q1 of this year, the DisCos, after a NERC order, increased the electricity tariff for Band A customers by a staggering 230 per cent and all manufacturers and many households were forcefully upgraded to Band A with the promise of a minimum of 20-hour power supply daily, a promise the MAN DG said, that has not seen the light of day.
He said that rather than the power supply improving, it became worse, dropping to an average of 8.5 hours daily while industrialists are billed three times what they were being billed before.
“This increase in electricity tariff at this difficult time is not business friendly. It would have negative trickle-down effects on diverse facets of the economy, especially the manufacturing sector and will certainly impoverish Nigerians. In addition, it would worsen the already high-cost operating environment, lead to further closure of many private businesses, and increase the rate of unemployment and insecurity in the country. Consequently, MAN hereby unequivocally calls for the immediate suspension of the implementation of the new tariff.”
On his part, the President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Dele Oye, said for manufacturers and businesses, the last year has been a mixed bag of feelings. Pointing out that the current government opted for several policies that have had very different outcomes so far, particularly on input prices and also output prices in turn, he said the cost of doing business has become particularly unbearable as there is no way any manufacturer or business can sell below production costs and remain in business.
“With the current stagflation of the economy, persistently high inflation, high unemployment rate and declining wages as we have now in Nigeria, people are earning less than what they were earning last year as the value of what can be bought has reduced drastically. What people could buy with 100 or 200 thousand Naira last year, they would need three times that amount to buy the same thing now. Wages are declining, inflation is persistently going up and unemployment is very high.”
He added that because most consumers have reduced purchasing power now, they are purchasing less and inventories are piling up astronomically for manufacturers. “Goods are not moving as they should, warehouses are filling up, causing reduced economic capacity. If we check the audited results for most businesses last year, they declared losses, with many of them considering moving out of the country. Producers are being forced to raise prices every other day to keep up with rising costs but consumers are getting poorer and cannot afford these costs. Many plants are producing at 20, 30 per cent capacity to prevent inventory buildup.”
Despite the heavy losses most businesses suffered, he said they were still taxed heavily to the extent that businesses felt the liability accrued so far, far outweighed shareholders’ funds and decided to pull out.
“In the face of all these problems, businesses still must deal with skyrocketing energy costs, input costs and high interest rates. Interest rates, which simply means the cost of money, be it a long-term loan or short-term working capital, is between 30-40 per cent now. All these are added input costs and have added to the cost of doing business.
“Businesses want to push these costs to the consumers, but the consumers are poorer, earning less than before and there is worsening purchasing resistance. For instance, some costs are general, like rising energy costs, which affect businesses as well as individuals. The salary of the latter has not increased; instead, consumers are dealing with increased expenses on all fronts. These are the issues the present economy has brought upon us, as businesses and individuals.”
He added that the government must urgently stabilise economic indices. “Our FX must stabilise once and for all, we cannot continue to have this yo-yo movement every day. Two years ago, businesses used to draw up yearly budgets but now, how can any business budget? How can any business or manufacturer plan with dollar prices that keep changing, sometimes, twice or thrice a day? This is not good for business.
“Rates must stablise, both FX and interest rates. Look at customs duty on imports, that one changes anyhow too. This is not good for operation or planning. If rates are very stable, businesses can rework activities and projects accordingly instead of what we have now. The consumers’ pockets aren’t that elastic that businesses can push hikes to them, they will simply stop buying and stock will keep piling up.”
According to the MAN DG, manufacturers’ most pressing challenges in the last six months include unstable and high FX/FX scarcity; inadequate power supply/frequent power outages; high inflation/high operating cost (of raw materials, labour, equipment and maintenance); high cost of energy (petrol, diesel, gas), high and multiple taxes, charges and levies.
Others include insecurity, over-regulation and policy inconsistency, high interest rates/inadequate access to credit, poor infrastructure and distribution channels /multiple checkpoints/gridlocks at the ports and high cost of transportation/ logistics costs. Others are high inventory of unsold manufactured goods/low patronage/poor sales; high and unstable import duty; unavailability of raw materials/delay in receiving imported raw materials; frequent change in customer demand; the influx of sub-standard goods/smuggling, shortage of skilled labour, scarcity of genuine machine parts, corruption/lack of moral value and poor business plan/inventory and supply chain management.
“Unfortunately, most of the policy initiatives have further worsened a bad situation. The already poor access to credit for manufacturers has been further aggravated by the upward adjustments of the cash reserve ratio (CRR) and the recent reduction of the loan-deposit ratio without due consideration of the negative consequences on the survival of operators, especially players in the Small and Medium Industries (SMI). It is time the government pays maximum attention to manufactured goods capable of boosting the country’s FX reserves and sustaining the Naira’s appreciation if it is serious about revamping the economy” he said. He urged the government to frontally address insecurity, improve the electricity supply, promote fiscal sustainability and ensure policy consistency.
“Among other priorities, the fiscal authority must also lend supportive measures by incentivising the real and other productive sectors. This is very important to boost non-oil export earnings in addition to the increase in oil export proceeds occasioned by increased oil production and rising global oil prices.”
On how to rebuild the manufacturing sector and reposition the economy towards attaining sustainable growth, he urged the government to stabilise and improve access to FX, particularly for the manufacturing sector; and promote energy security by directing NERC to discontinue the high electricity tariff for Band A Customers as no manufacturer has access to the said 20 hours electricity supply; ensure the affordable lending rate and increased access to credit; upgrade infrastructure nationally; address high and multiple taxation and ensure food security.
Other steps he urged could be taken, include, promoting local patronage, addressing policy inconsistency and improving trading activities aimed at massively improving the country’s export value. Urging the federal government to create a conducive environment for businesses to thrive, Oye said businesses are currently being suffocated.
“These private entities are the ones that employ the most and pay taxes. If they are being stifled, producing under capacity and chased out via multiple levies, who then will pay taxes to the government? The government needs to be more realistic with these policies and economic indices if it intends to keep the remaining businesses left alive and encourage new ones to come in,” he said.
