MAN pushes FG to implement decisive, coherent economic reforms to address challenges

Manufacturers Association of Nigeria (MAN) has as a matter of urgency pushed for the government to implement decisive and coherent economic reforms to address challenges in the manufacturing sector.

The Association made this position known in a document that contains the summary of findings of the survey of the manufacturing sector by the Manufacturers Association of Nigeria (MAN) for the first half of 2023.

The survey is designed to monitor changes in manufacturing sector performance indicators viz-a-viz the behaviors of macroeconomic and policy environments during the period of the survey. The focus manufacturing indicators include capacity utilization, production value, inventory, level of utilization of local raw materials, investment, expenditure on alternative energy sources, etc.

It noted that the global economy has been resilient in the first half of the year 2024, with major economies avoiding a severe downturn, bringing down inflation without increasing unemployment, however, the economic outlook for many African countries has deteriorated because of high inflation, elevated borrowing costs, persistent exchange rate pressures and lingering political instability.

It highlighted that geopolitical tensions have particularly affected the economic outlook of a few Landlocked Developing Countries (LLDCs) due to their dependence on neighboring transit countries to access international trade routes.

Nigeria’s economy, it noted, has continued to grapple with formidable challenges that have stymied its growth potential and eroded economic stability.

“The real GDP growth rate was sluggish, reflecting the country’s struggle to regain momentum amidst persistent economic and policy headwinds. Inflationary pressures intensified, significantly diminishing the purchasing power of Nigerians, with millions more being pushed into poverty due to the combined effects of soaring prices and stagnant wages,” the report stated.

According to the survey, the policy environment during this period was marked by uncertainty and turbulence, stressing that despite efforts to stabilize the economy, including aggressive monetary tightening by the Central Bank of Nigeria (CBN), which raised the Monetary Policy Rate (MPR) to an unprecedented 26.25 percent, the desired outcomes in terms of curbing inflation and stimulating growth remained elusive.

“The higher interest rates exacerbated borrowing costs, placing further strain on businesses across various sectors, particularly manufacturing, which already faced significant challenges such as forex scarcity, high operational costs, and unreliable electricity supply,” the report added.

The global manufacturing sector saw mixed results in Q1 2024, with modest growth of 0.8 percent quarter-on-quarter as Asia and Oceania led the growth, driven by strong performances in countries like China and India.

Unlike the global manufacturing sector, the report noted that Africa faced challenges in manufacturing output, with Nigeria’s performance particularly weak due to economic difficulties.

 Despite these challenges, it added that medium-high and high-technology industries showed resilience but recorded a slight output reduction, indicating the global headwinds affecting the sector.

In Nigeria, the report stated that capacity utilization in the manufacturing sector showed a slight year-on-year decline to 56.4 percent in H1 2024, from 56.5 percent in H1 2023, adding “However, there was a 2.8 percentage point increase compared to H2 2023, reflecting some recovery. The sector faced significant challenges, including high energy costs due to a 200 percent increase in electricity tariffs, forex scarcity, and declining consumer demand. These factors collectively resulted in elevated operational costs and a difficult business environment for manufacturers.”

On the side of real manufacturing output, it pointed out  that Nigeria declined by 1.66 percent year-on-year in H1 2024, falling to N1.34 trillion from N1.36 trillion in H1 2023.

 “Despite this decline, the sector saw a 9.97 percent increase compared to H2 2023, driven by a baseline effect. The sector’s challenges included rising electricity tariffs, exchange rate volatility, and higher energy costs, which heightened production costs amidst declining consumer demand. The persistent increase in interest rates by the Central Bank of Nigeria further strained the sector,” the report read.

In nominal terms, the report explained that the manufacturing sector’s output in Nigeria increased by 30.38 percent year-on-year, reaching N5.34 trillion in H1 2024, adding that this growth was primarily driven by the sharp rise in domestic prices, as reflected in the Consumer Price Index (CPI), which surged to 34.19 percent in June 2024.

It noted also that the increase in nominal output masked the underlying difficulties faced by manufacturers in maintaining real output levels, highlighting the impact of inflationary pressures on the sector.

The survey declared that the manufacturing sector’s local raw material sourcing improved slightly to 56.03 percent in H1 2024, up from 55.4 percent in H1 2023, noting that this modest increase indicates a gradual shift towards local sourcing, driven by difficulties in obtaining foreign exchange.

However, some sectors, like Non-Metallic Mineral Products and Textile, Apparel & Footwear, it stated had faced declines in local sourcing, reflecting the challenges of shifting away from imported raw materials.

The Association reported that the inventory of unsold finished products in the manufacturing sector surged by 357.57 percent year-on-year, reaching N1.24 trillion in H1 2024, but pointed out that this alarming increase is attributed to declining consumer purchasing power due to escalating inflation, subsidy removal, and the devaluation of the naira.

 The high levels of unsold inventories, according to the report, reflect the challenges faced by consumers and the need for interventions to stimulate demand and improve the sector’s performance.

As investment in the manufacturing sector continued to rise, the report emphasized its reaching N250.13 billion in H1 2024, a 29.63 percent year-on-year increase, while this increase is primarily due to the depreciation of the naira, which inflated the cost of importing machinery and other essential assets.

“In real terms, investment spending did not increase, as manufacturers focused on maintaining current production levels rather than expansion due to the challenging economic environment,” the report stated.

The employment generation capacity of the manufacturing sector continued to decline, the report explained, with only 2,606 jobs created in H1 2024, a 29.99 percent reduction from H2 2023. Year-on-year, job creation fell by 37.83 percent, reflecting the ongoing challenges within the sector, including economic uncertainties, inflationary pressures, and an unfavourable business environment.

However, it stated that the Chemical and Pharmaceuticals industry remained the highest job creator, while the Motor Vehicle & Miscellaneous Assembly industry created the fewest jobs.

On the part of the electricity supply to industries, according to the report showed some improvement in H1 2024, with average daily supply hours increasing to 11.28 hours per day. MAN said “However, the increase in electricity tariffs by over 200 percent imposed by DisCos significantly raised the cost of electricity for manufacturers. This, coupled with ongoing power outages, placed additional financial strain on the sector.

“The cost of providing alternative power continued to rise, with manufacturers spending N238.31 billion on alternative energy sources in H1 2024, a 7.69 percent increase from H2 2023. The surge in costs was driven by higher prices for diesel, gas, and other energy sources, as well as the need for manufacturers to invest in self-energy generation due to unreliable power supply from the national grid.”

The first half of 2024, according to the report, was marked by significant challenges for Nigeria’s manufacturing sector, including high operational costs, declining consumer demand, and rising inflation, while some sectors showed resilience and growth, others struggled with declining production values, rising inventories, and reduced employment.

“The report underscores the urgent need for Nigeria to implement decisive and coherent economic reforms to address these challenges. Key areas of focus include enhancing policy consistency, improving the business environment, and fostering economic diversification. The success of these reforms will be crucial in reversing the current economic downturn, creating jobs, reducing inflation, and improving the overall welfare of Nigerian citizens. As the country navigates through these turbulent times, the resilience of its policy framework and the effectiveness of its economic management will determine the path forward,” it emphasized.