Manufacturers’ Waning Confidence Index

The Manufacturers Association of Nigeria’s report on the economy in the last quarter of 2022 showed that the Manufacturers CEO’s Confidence waned during the period under review, Dike Onwuamaeze writes

Research based evidence has emerged in support of the claim that the manufacturing sector of the Nigerian economy is dying because of the prevailing macroeconomic variables in the country. These variables, which consist of fiscal and monetary policies, have not augured well with the Nigerian manufacturing sector.

One of the research based evidence is the The Manufacturers Association of Nigeria’s “MAN CEO’s Confidence Index: Preliminary Report and Highlights of Findings 4th Quarter 2022.” It stated that the fourth quarter of 2022 appeared to be more difficult to manufacturers than the level of hardship that operators encountered in the preceding quarter.

The report said that in the fourth quarter of 2022, the Aggregate Index Score (AIS) of the MCCI declined from 55.4 points that it recorded in the third quarter of the year to 55.0 points during the quarter under review.

The decline in the AIS, according to the MCCI report, “underscored the persisting challenges and the waning confidence of manufacturers in the economy in the fourth quarter of 2022 over the recorded points in the preceding quarter.”

The MCCI is a quarterly research and advocacy publication of the manufacturers association, which measured changes in pulse of operators and trends in the manufacturing sector quarterly, in response to movements in the macro-economy and government policies using primary data generated from direct survey of over 400 chief executive officers of MAN’s member-companies.

The MCCI attributed the AIS’s decline in the quarter under review to the persisting increase in inflation as seen in the Consumer Price Index (CPI), erosion in Naira’s value, difficulty in sourcing foreign exchange for productive use, high cost of energy, the issue of insecurity and the lingering Russian-Ukrainian war as well as the associated perennial adversities encountered while operating in Nigeria’s business environment.

AGGREGATE MCCI

The report stated that “in the fourth quarter of 2022, the AIS of the MCCI declined to 55.0 points down from 55.4 points recorded in the third quarter of the year.

“Among the standard diffusion factors, current business condition and business condition for the next three months, scored above 50 benchmark while increasing in the quarter; current employment condition (rate of employment) and  production level in the next three months scored above the 50 benchmark points though with a decline in the period respectively; employment condition for the next three months dipped below the benchmark points to 48.8 points which is also below 49.2 points obtained in the preceding quarter. Employment decision by manufacturers is so difficult due to the unpredictability and difficulty in macroeconomic movement.

“In summation, the fourth quarter of 2022 appeared to be more difficult to manufacturers than the level of hardship in the preceding quarter due to persisting rise in CPI, high cost of energy, unabated erosion in Naira value and difficulty in sourcing foreign exchange, including the harsh effect of Russian-Ukrainian war.”

Sectorial Group MCCI

The MCCI report showed that manufacturers in two sectorial groups manifested gross loss of confidence in the economy. These sectors were the Pulp, Paper, Printing and Publishing, which scored 49.6 points, and the Motor Vehicle and Miscellaneous Assembly that scored 48.4 points. These scores were below the 50 benchmark points.  

The report said: “Analysis of examination of the 10 sectorial groups shows that index score of Pulp, Paper, Printing and Publishing (49.6 points) and Motor Vehicle and Miscellaneous Assembly (48.4 points) fell below the 50 benchmark points.

“The score indicates a gross loss of confidence in the economy by manufacturers operating in the two sectorial groups.
“Particularly, the motorcycle sub-group of the Motor Vehicle and Miscellaneous Assembly has been facing difficulty following the banning of motorcycles by various states government in some metropolis.”

However, there were sectors in the country’s manufacturing space that garnered positive points. They are “the Food, Beverage and Tobacco; Textile Apparel & Footwear; Wood & Wood Products; Chemical and Pharmaceutical; Non-Metallic Products; Domestic/Industrial Plastic and Rubber; Electrical and Electronic; and Basic Metal, Iron and Steel groups. These sectors scored above 50 based point.

“The score suggests that manufactures operating in these groups have confident in the macro economy.

Industrial Zone MCCI

The analysis of the 14 industrial zones showed that index scores of Rivers/Bayelsa (48.0 points) and Cross-Rivers/Akwa-Ibom (46.5 points) fell below the 50 base points.

The scores indicated that manufacturers operating in the zones have lost confidence in the economy due to persisting harsh operating environment in the zones.
But even though Imo/Abia, Kaduna, Ogun, Apapa and Kwara/Kogi zones have their index scores above 50 benchmark points, they declined in the quarter under review.

However, Edo/Delta, Oyo/Ondo/Ekiti/Osun, Kano, Ikeja, Anambra/Enugu and Bauchi/Benue/Plateau zones have their index scores above the 50 base points with increase in the quarter under review. Their scores indicated continuous improvement of the confidence of manufacturers operating in the zones in the economy.
Index scores of Abuja zone increased to 50.7 points in the fourth quarter of 2022 from 43.5 points obtained in the preceding quarter. The score indicates a significant improvement in the confidence of the manufacturers operating in the zone.

Apart from the general macroeconomic challenges that affect all the zones, it is important to examine and address state-specific challenges as they concerns the zones.

Conclusion

Among industrial zones, activities in Rivers/Bayelsa (48.0 points) and Cross-Rivers/Akwa-Ibom (46.5points) zones were depressed by high-cost of operating environment in the fourth quarter of 2022 as underlined by their index scores which fell below the benchmark points.

“Consequent upon the above trends, it is crucially important for the government to have a shift towards a better exchange rate management; and moderate the rising energy cost via better management of refined petroleum products imported into the country.

These among other measures would no doubt help to reduce the current high inflation, which is fast eating-up the working capitals of businesses including manufacturing in the economy,” the report said.

MCCI Index is computed using data generated on standard diffusion factors of 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. The Index has a baseline score of 50 points and scores above the baseline indicate improvement of manufacturers’ confidence in the economy, while index score of less than the baseline suggests deterioration in the operating environment.

Yet, the decline reported in the MCCI would not come to many as a surprise. For a long, the manufacturers’ association has warned that many of the federal government’s fiscal policies and central bank’s monetary policies were not conducive to manufacturing environment.

Specifically, the MAN has warned against fiscal policies like the excise tax on sugar for carbonated soft drinks as well as the continued monetary tightening of the Central Bank of Nigeria (CBN) would stoke inflation and diminish the purchasing power of Nigerian households to the detriment of the manufacturing sector.
The Director General of MAN, Mr. Segun Ajayi-Kadir, said in response to the Monetary Policy Committee (MPC) upward review its Monetary Policy Rate (MPR) to 13.5 per cent from 11.5 per cent, which was fixed since September 2020, ostensibly to curb the rising rate of inflation among other sundry reasons.    
Ajayi-Kadri noted the implications for the economy and manufacturing sector of the frequent increases in the cost of finance.

He said: “This is another level of increase in interest rates on loanable funds, which will no doubt upscale the intensity of the crowding out effect on the private sector businesses as firms have lesser access to funds in the credit market.

“It will spur upward review of existing lending rates dependent obligations of manufacturing concerns, which will drive costs northward.
“Intensify demand crunch emanating from the heavily eroded disposable income of Nigerians, constrained access of households and individuals to cheap funds.
“Lead to rising cost of manufacturing inputs, which will naturally translate to higher prices of goods, low sales and enormous volume of inventory of unsold products.

“Exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses.

“Further reduce capacity utilisation, upscale the rate of unemployment, incidences of crime and insecurity as the capacity of banks to support production and economic growth is heavily constrained
“Reduce the pace of full recovery of the real sector, make manufacturing performance to remain lackluster and of course lead to leaner contribution to the GDP.