Manufacturers: Trudging Despite Perennial Challenges

A review by the Manufacturers Association of Nigeria showed that the Nigerian manufacturing sector trudged through the first half of 2022 with minimal success in spite of debilitating challenges, writes Dike Onwuamaeze

The Nigerian manufacturing, like every other economic activities in the country and across the world, suffered adverse shock in the first six months of 2022. No thanks to the war between Russian and Ukraine.

The war destabilsed global commodity prices and supply chain, international financial flow, global logistics, etc. with huge negative implications on manufacturing production in Nigeria, especially as the perennial challenges such as limited energy supply, limited production of local raw materials, poor administration of national ports, etc., persisted.

The review, which was authored by the Director General of MAN, Mr. Segun Ajayi-Kadir, noted that consequently the country’s manufacturing output growth in the first two quarters of 2022, though positive, oscillated from 5.80 per cent recorded in the first quarter of the year down to 3.0 per cent in the second quarter of the year.

Even at that, the Nigerian manufacturing sector recorded a 5.70 percentage increase in the first half of 2022. This was the verdict of the Manufacturers Association of Nigeria’s (MAN) “Executive Summary of First Half Year 2022 Economic Review” that was published this month.

Manufacturing Capacity Utilisation

The review said that “capacity utilisation in the manufacturing sector increased to 57.9 percent (year-on-year) in the first half of 2022 from 52.2 percent that was recorded in the first half in 2021; thus, indicating 5.7 percentage point increase over the period.”

The review noted that “notwithstanding the challenges in the period, more capacities came up in the cable sub-sector with the commencement of optical fibre production by Coleman Technical Industries, the first of its kind in the whole of ECOWAS region.”

Manufacturing Production Value

The review stated that the manufacturing sector’s factory output value increased to N3.99 trillion in first half of 2022 (year-on-year) up from N3.66 trillion recorded in the same half in 2021. This indicated N.33 trillion or 9.0 increase over the period.

It also increased by N0.26 trillion or 7.0 per cent (half-on-half) when compared with N3.73 trillion achieved in the second half of 2021.  

But “production was strongly hampered by shortage of foreign exchange for importation of raw materials that were not available in the country for all the manufacturing sectorial groups, safe for the food sub-sector that has undergone a significant level of backward integration,” the review stated.

It, however, noted that the N10 excise duty on each litre of non-alcoholic drinks grossly affected production in that segment of the sector.

Also, the sector is enduring bureaucratic bottleneck associated with the implementation of the migration of National List to Chapter 99 of ECOWAS Common External Tariff (CET), which is “perverse with bureaucracy and complexities among government agencies, leading to delay in getting raw materials to factories.”

Another sectorial group of MAN, namely the basic metal group, was heavily challenged by the lowering of duty to Annealed Cold roll to 5.0 per cent from the previous 45 per cent, which made domestic manufacturing of the product uncompetitive.

Also, activities in the motor cycle assembly sub-sector were severely affected following the suspension of motor cycles in some areas across several states in Nigeria, particularly in Lagos. 

Moreover, the increase in the duty of paper from 5.0 per cent to 20 per cent adversely affected productivity in the paper products sub-sector in the period under review. 

Local Raw-Materials Sourcing

The review also showed that the Nigerian manufacturing sector’s utilisation of local raw materials decreased to 52 per cent (year-on-year) in the first half of 2022 from 53 per cent it recorded in the first half of 2021. This indicated 1.0 percentage point decline over the period.  However, it increased by 2.0 percentage points (half-on-half) when compared with 50 percent recorded in the second half of 2021.

The reviewed noted that the “manufacturing sector is generally faced with limited investment in domestic production of raw materials for utilisation in most of the sub-sectors, which is as result of limited funding and policy incentives in the country.”

For instance, the Basic Industrial Chemical Sub-sector faced severe inactivity in the first six months of 2022 due to lack of domestic production of basic chemicals. This, therefore, demanded for the need to resuscitate the local refineries to encourage investment in petrochemical development in the country.

Unsold Inventory of Finished Products

Inventory of unsold finished products in the manufacturing sector   dropped from N214.83 billion recorded in the first half of 2021 to N187.08 billion (year-on-year) in the first half of 2022. This signified N27.75 billion or 12.9 per cent decline over the period. However, it showed an uptick of N17.33 billion or 10.2 per cent when compared with N169.75 billion recorded in the second half of 2021.

Yet, the review stated that the inventory of unsold manufactured product remained high in the period under review due to high commodity prices occasioned by high cost of product and low level of income among firms and households. 

Manufacturing Investments

Manufacturing sector investment grew to N178.39 billion (year-on-year) in the first half of 2022 from N144.14 billion recorded in the corresponding half of 2021, which was an indication of N34.25 billion or 23.7 percent increase over the period. However, it increased by N17.51 billion or 10.8 percent (half-on-half) when compared with N24 billion recorded in the second half of 2021.  

The review attributed the marginal increase in investment to inflationary effect as investment was grossly affected by shortage of foreign exchange and limited funding in the period under review.

In addition, the increase in royalty rates on all solid minerals such as limestone (233.3 per cent), marble (33.3 per cent), laterite (33.3 per cent), clay (25 per cent), Shale (20 per cent), Gypsum (20 per cent) and clay (100 per cent) by the Federal Ministry of Mines and Steel Development during the period under review had adverse consequences on the needed private sector investment in the development of solid mineral in the country.

Manufacturing Employment

In the line with the outcomes of surveys that were conducted by the association since 2013, the total cumulative direct jobs created in the  manufacturing sector was estimated at 1,679,984 as at the end of  the first half of 2022.  

Specifically, 8,543 jobs were created in the first half of 2022 compared to 7602 jobs that were recorded in the first half of 2021 and 8,508 in the second half of 2021.  The marginal increase in jobs created in the sector during the period under review was due to positive and continuous adjustments in manufacturing activities to accommodate the current economic hardship and sustain production by manufacturers.

Electricity Supply to Industries 

Electricity supply from the national grid to the sector degenerated in the period under review. Although, average daily supply to the sector increased  to  12 hours in the  first half 2022  from 11 hours of the second half of 2021,  the average  number of outage per day increased  six times  from three times recorded in the preceding half, which more than off-set the  increase in supply in the period.

The poor power supply from the grid fueled self-energy generation among manufacturers as  expenditure on alternative energy source soared to N67.77 billion in the first quarter of 2022 (year-on-year) up from N32.18 billion recorded in the first half of 2021 and N45.04 billion of  the second half respectively.

Cost of Funds to Manufacturers

Average lending rate to the sector from the commercial banks increased to 23.5 percent (year-on-year) up from 19 percent of the corresponding half in 2021, but declined by 0.5 percentage point when compared with 24 percent interest charged to manufacturers in the second half of 2021.

The growing lending rate in the economy is underscored by among others the upwards review of the Monetary Policy Rate (MPR) from 11.5 percent to 13 percent by the CBN in May 2022 even though the asymmetric corridor at +100/-700 around MRP; Credit Reserve Ratio (CRR) at 27.5 per cent and Liquidity Ratio at 30 per cent remained unchanged; and the rising global interest rate due to the Russian-Ukrainian face-off.

Summary and Recommendations   

The review stated that current performance of the manufacturing sector suggested that it is not yet ‘Uhuru’ and emphasised the need for a more proactive, broad and sector focused measures to address both the recent challenges thrown up by the Russian-Ukrainian war  and the perennial ones.  

It recommended an improved level of foreign exchange allocation to the productive sector, including manufacturing, from the high and sustained crude oil prices in the international market.

It also recommended that more investments should be made in the electricity value chain and with commitment to add 10000MW to the current electricity distributed in the country. This could be achieved by embracing and supporting significant development of energy mix, especially from renewable energy sources where the country has huge potentials for solar and wind energies.

The MAN called for restriction of “the exports of maize, cassava, wheat, food related products and other manufacturing inputs.” It also called on the government to “suspend the 15 per cent charges on imported wheat and encourage growth in domestic investment in agriculture.”   

The review also called for incentive on “investments in local development of raw materials by giving attention to domestic production of Active Pharmaceutical Ingredients (API) and basic chemicals.”  

It urged the government to refocus on backward integration and resource-based industrialization and the reversing of the duty for Annealed Cold roll back to 45 per cent from the new five per cent.

The MAN also called for the review of “the gas price for domestic consumption to be in tandem the with the export price, which is about $3.25 per cubic meter.”

It also demanded that the list of approved harmonised taxes and levies for the manufacturing sector by the Joint Tax Board (JTB) should be published to address the issues of multiples taxes and levies and the full implementation of the Steve Oronsanye Report on the reduction and re-alignment of government agencies and parastatals in order to streamline the number of taxes, levies, fees and administrative charges

The review said: “Invest significantly in ports infrastructure  including scanners, etc.; Resuscitate the moribund rail tracks leading from the ports to industrials areas; government agencies operating at the ports should work harmoniously, particularly in the  implementation of the  recent migration of National list to ECOWAS CET Chapter 99;  implement the single window platform to eliminate  significant human inference in the ports clearing system; Improve the time taken to clear machines and raw-materials at the national ports while making the link road accessible.”

Other recommendations included the “Strengthening of the Bank of Industry (BOI) and Bank of Agriculture (BOA) to adequately provide liberal finance for the manufacturing sector; avail to the productive sector the CBN non-oil export stimulation facility with liberal term and condition

“Allow industrial policies in the country to gestate with proper monitoring and evaluation rather than jettisoning or altering them unduly frequently. Monitor the implementation of Executive Order 003 to ensure compliance by MDAs so as to boost activities in the manufacturing sector.