MAN’s CEOs Confidential Index reveals mixed grilled performance in Q4 2021

• Says, Govt industrial policies should gestate with proper monitoring, evaluation

Manufacturers Association of Nigeria has released the Chief Executive Officers (CEOs) confidential index for the fourth quarter (Q4) 2021 with mixed grilled performance through the aggregating of the views of CEOs of manufacturing companies on changes in the economy of manufacturing companies and on changes in the economy.

Manufacturers Confidence Index (MCCI) has since its inception has consistently provided experiential bases that are critical to strengthening the evidence advocacy dogma of the Association.

According to the current index report, the standard diffusion factors considered in the MCCI processes include the Current Business Condition, Business Condition for the next three months, Current Employment Condition (Rate of Employment), Employment Condition for the next three months and Production Level for the next three months.

In the period under review, the economy witnessed improvement in the volume of economic activities due to the conventional positive seasonal effect notwithstanding the hangover and various waves of COVID-19.

Aggregate MCCI score increased to 55.4 points in the quarter under review (Q4 2021)   from 54.0 points obtained in the preceding quarter (Q3) thus, showing   improved performance in the period and growing confidence of manufacturers in the economy.

The Index showed that Current Business Conditions increased by 1.15points in the quarter under review from 50.3 points recorded in the third quarter of the year.

Similarly, Index for Business Condition for the next three months increased by 3.2 point in the quarter from the 55.8 points obtained in the preceding quarter.

The increasing index of employment therefore reflects the improvement in business conditions in the economy during the quarter under review.  It also shows that manufacturers are beginning to engage/re-engage workers after the unplanned retrenchment forced by COVID-19 pandemic and other economic challenges.

The index also measured perspectives of MAN CEOs  in the ten Sectoral Groups on specific confidence on the economy using the same diffusion factors such as Business Condition, Employment Condition and Production level.

The result of the index for Food, Beverage and Tobacco sectoral group revealed an increase by 2.8 points in the fourth quarter of 2021 from 55.9 points recorded in the preceding quarter.   Similarly, the Index for Chemical and Pharmaceutical Products group increased by 1.8 points in the quarter under review from 60.3 points obtained in the preceding quarter.  In the same vein, Index for Motor Vehicle and Miscellaneous Assembly maintained a positive growth reading of 51.3 points in the fourth quarter of 2021 from 50.7 points obtained in the preceding quarter; thus, indicating 0.6 points increase over the period.

The trend therefore generally indicates an increasing level of confidence of manufacturers operating in these sectoral groups in the economy.

The performance of the 14 Industrial Zones of MAN spread across the six geo-political zones of Nigeria were also measured to ascertain the specific level of confidence of CEOs of manufacturing concerns operating in each of the zones using the same diffusion factors deployed for Sectoral groups.

Of the 14 industrial zones, Index scores for 12 zones were above 50 points benchmarks while the other two, Rivers and Abuja fell below the benchmark in the quarter under review. Index score of Rivers fell to 47.5 points from 53.4 points obtained in the third quarter of 2021.

In similar vein, Index score for Abuja decreased to 43.3 points in the fourth quarter of 2021 from 48.6 points recorded in the preceding quarter.

However, the index  revealed that the contributory factors to the dwindling performance of Abuja and Rivers industrial zones include multiplicity of taxes triggered by excessive drive of Government, poor access to forex for importation manufacturing inputs, triple rise in cost of transportation of goods due to refusal of transporters in Lagos to take cargos to industries in these locations due to insecurity, rising cost of production and the general reduction in disposable income of consumers.

In the same vein, there is growing confidence in the economy in the majority of the industrial zones, despite prevailing economic and COVID-19 related challenges, the perspectives of manufacturers in Rivers and Abuja indicate no level of confidence in the economy.

An interesting finding from the outcome of the survey is the decrease in the Index scores of Imo/Abia, Edo/Delta and Kano zones.

Even though the indexes of the three zones were above the 50 points benchmarks, the scores decreased in the quarter under review as against what obtained in the preceding quarter.

Index for Imo/Abia zone declined by 8 points from 61.3 points obtained in the preceding quarter. Similarly, the Index for the Edo/Delta zone fell by 9.2 points  in the period under review from 62.5 points recorded in the third quarter of the year.

In the same vein, Index for the Kano zone declined by 3.1 points in the quarter from 57.5 points obtained in the third quarter of the year.

Index for Food, Beverage and Tobacco was derived from the  perspectives of MAN CEOs  in the ten Sectoral Groups which showed an increase by 2.8 points in the fourth quarter of 2021 from 55.9 points recorded in the preceding quarter.

Similarly, the Index for Chemical and Pharmaceutical Products group increased by 1.8 points in the quarter under review from 60.3 points obtained in the preceding quarter.  In the same vein, Index for Motor Vehicle and Miscellaneous Assembly maintained a positive growth reading of 51.3 points in the fourth quarter of 2021 from 50.7 points obtained in the preceding quarter; thus, indicating 0.6 points increase over the period.

In all, the trend therefore generally indicates an increasing level of confidence of manufacturers operating in these sectoral groups in the economy.

This segment of the report presented the   behaviour of key macroeconomic variables such as forex, lending rate, commercial bank loans and Federal Government Capital Expenditure based on the perspectives of CEOs of manufacturing concerns in the quarter under review.

However, 75.1% of manufacturers claimed that forex sourcing by the sector did not improve in the quarter under review, which is higher than 59% that disagreed in the preceding quarter.

Manufacturers believe that the current lending rate discourages productivity in the sector. 75.1% of manufacturers observed that the current lending rate discourages productivity in the sector.  This is higher than 68.0% which took the same position in the preceding quarter.

MAN’s CEOs Confidential Index pointed out that limited access to funds variously has been identified as a persisting challenge of the manufacturing sector.

In this quarter 71.1% of manufacturers noted that the smallness of size of commercial bank loans to manufacturing does not support productivity in the sector. 71.1% of manufacturers interviewed observed that the current commercial bank loan does not encourage productivity in the sector.  This is higher than 62% that made the same observation in the preceding quarter.

It added that the government has consistently budgeted for upscaling infrastructure to support economic activities through execution of capital projects.

However, low patronage of local industries, slow completion and general poor implementation of identified capital projects has been identified as the bane of the system with high-cost impact on manufacturing concerns.

The 57.4% of manufacturers enumerated are of the view that Government capital expenditure implementation does not encourage manufacturing, adding that capital expenditure implementation does not translate to adequate economic infrastructure and higher productivity.

In the quarter under review, the perspectives of CEOs on the state of manufacturing operating environment revealed mixed grilled performance; encouraging but slow positive growth; over regulated, high cost and manufacturing unfriendly environment.

On the high side, CEOs affirmed gradual reduction in inventory of unsold finished goods; improvement in local sourcing of raw materials and patronage of made in Nigeria goods.

On the low side CEOs confirmed that issues of multiple and duplication of regulation, which often find expression in excessive drive for tax revenue instead of widening the tax net; unfriendly tax practises of government agencies; poor access to the national ports leading to high cost of clearing cargo and transporting goods are seriously impeding the performance of the manufacturing sector.

According to the index report, the effect of the macroeconomic environment that prevailed in the quarter under review was overwhelming in differing magnitudes on key manufacturing indicators such as production and distribution costs; Capacity utilization; Volume of production; Investment; Employment; Sales volume; and Cost of shipment.

It stated that this further strengthened the perception of a mixed grilled performance, visibly exposed the hotspots and served as a pointer to the fact that the sector is still challenged and requires comprehensive policy support, such as further incentivize investment in the development of raw-materials locally through the Backward Integration and Resource based industrialization initiates.

Government, it said, should call for more investors to key into these initiatives with appropriate and definite incentives.

It added for instance that there is a need for urgent investment and production of Active Pharmaceutical Ingredients (API) in the country; investment and production of machines; iron and steel; petrochemical materials, etc to support manufacturing activities.

The index mooted that specific attention should be given to the security of life and investment in industrial areas; properly delineate and upscale security infrastructure in the various industrial areas in the country, particularly in the northern part of the country for priority attention.

Accordingly, it called on the government to also quickly invest in modern security such as drones, cameras, etc. for robust monitoring of the areas.

It tasked the government to ensure effective allocation of available forex to productive sectors, particularly the manufacturing sector for importation of raw materials and vital machinery and equipment that are not available locally.

The government, it added, also needs to expressly direct the Central Bank of Nigeria to consult with the Ministries of Industry Trade & Investment and effectively engage MAN on measures for improving forex supply to manufacturing concerns.

It also requested that the government should direct the Ministry of Science Technology and Innovation to inaugurate the Secretariat that will implement the strategies for the Executive Order, while the Standard Organisation of Nigeria (SON) should designate local manufacturers of LPG Gas Cylinders as priority provider of the 10 million Cooking Gas Cylinders to be procured by the Government for 12 States in the Federation.

The return of Milk and other Dairy Products to the National List in the Fiscal Policy Guidelines, according to the index, will help to maintain consistency with the Backward Integration Programme, which has spurred heavy investments in dairy production.

It advocated for unifying the academic curriculum with industrial skill needs and requirements to guarantee sustainable development of skilled manpower for the industries.

Government, it added, should as a matter of urgency synchronise the curricula of tertiary institutions, particularly the Polytechnics with skills requirements of industries, while the various government vocational and training centers should also be re-engineered to offer those skills that are needed by the industries.

It pointed out that the government should revisit the resuscitation of the existing national refineries to produce fuels locally, embark on the rehabilitation of major highway corridors, improve trade facilitation infrastructure and deepen the ongoing development of the rails system to change the narrative on the operating environment from being a high cost to a low production cost environment.

It stated  that the government should ensure that industrial policies in the country are allowed to gestate with proper monitoring and evaluation rather than jettisoning or altering them unduly frequently.

It canvassed that the continuous infractions on the original EPZ and tariffs for the Motor Vehicle and Assembly sector should be quickly remedied to the development of the zones and motor vehicle assembly in the country.

The index made other recommendations which include the following: Sustain the Eligible Customer initiative to ensure that more electricity is supplied to the manufacturing sector; Strengthen the Bank of Industry (BOI) and Bank of Agriculture (BOA) to adequately provide liberal finance for the manufacturing sector; Monitor the implementation of Executive Order 003 to ensure compliance by MDAs so as to boost activities in the manufacturing sector; Publish the list of approved harmonized taxes and levies for the manufacturing sector by the Joint Tax Board (JTB) to address the issues of multiples taxes and levies.

Other recommendations are for rationalization of Government Ministries, Departments, Agencies, parastatal and Commissions to resolve the issues of over-regulation and duplication and to improve the time taken to clear machines and raw-materials at the national ports while making the link road accessible.

By and large, the fourth quarter of 2021 highlighted a gradual improvement in the macroeconomic economic and manufacturing operating environment buttressed by marginal recovery of some key manufacturing indicators.

Although, changes in almost all manufacturing indicators as measured in this report are still not as desired, it noted that the performance in the fourth quarter is better than what obtained in the preceding quarter.

It declared that the resilience of manufacturers, the seasonal transactions and passive policy support sustained manufacturing in the quarter despite the prevalence of familiar and emerging excessive tax related challenges faced by manufacturers. Overall,  it noted that the sector recorded a mixed grilled performance occasioned by meagre improvement in the operating environment indices and macroeconomic ambience evidenced by the high points, which cumulatively triggered the increase in the aggregate MCCI score for the quarter to 55.4 points from 54.0 points recording the preceding quarter.