Again, Manufacturers Groan as Economic Indicators Falter

•Say naira crunch nearly crippled companies with about 30% decrease in sales

Dike Onwuamaeze

The Manufacturers Association of Nigeria (MAN) yesterday, disclosed that its members were groaning in pain as all the major performance indicators in the sector declined in the second quarter of 2023 (Q2’23).

The association expressed this view in its MAN CEO’s Confidence Index (MCCI) report on the Q2’23 that was released yesterday, in which it stated that slow recovery from the dire impact of the naira crunch nearly crippled manufacturing companies with about 30 per cent decrease in sales for consumer goods and cement respectively.

The report stated that, “manufacturers are extremely groaning in pain due to these issues that are frustrating their contribution to the economy,” and caused a decline in the Aggregate Index Score (AIS) of the MCCI to 52.7 points in the second quarter of 2023 from 54.1 points it recorded in the first quarter of 2023.

It further stated that the operating environment impacted most negatively on the activities of the motor vehicles and miscellaneous assembly, which deteriorated further below the benchmark of 50 points from 48.6 to 46.7 points.

It added that, “these operators were adversely affected by the exorbitant new premium rate for motor insurance and the abrupt subsidy removal which significantly worsened sales performance and increased the consumer’s preference for fairly used vehicles as a result of low purchasing power.”

On the major indicators that altered negatively in the Q2’23, the MCCI stated: “Production and distribution costs escalated by 17.3 per cent in the quarter under review. 

“Capacity utilisation nosedived further by 5.6 per cent in the quarter under review from a contraction of 5.0 per cent witnessed in the preceding quarter.

“Volume of production contracted by 6.1 per cent in the quarter under review from a contraction of 13 per cent recorded in the previous quarter.

“Manufacturing investment dipped further by 5.6 per cent in the second quarter of 2023 from 3.0 per cent contraction recorded in preceding quarter.

“Manufacturing employment reduced further by 5.7 per cent in the second quarter of 2023 from 3.0 per cent contraction recorded in preceding quarter.

“Sales volume plummeted by 6.3 per cent in the second quarter of 2023 against the 13 per cent contraction witnessed in the preceding quarter;

“Cost of shipment rose by 14.3 per cent in the second quarter of 2023 though witnessed a slowdown from the 20 per cent increase recorded in the first quarter of 2023.”

It, therefore, concluded that, “a critical evaluation of the analysis above provides an inference that major performance indicators of the manufacturing sector all recorded unfavorable changes.”

It attributed the deterioration the manufacturing sector experienced to the harsh business-operating environment evidenced by poor macroeconomic indices.

“The underperformance was largely driven by the slow recovery from the cash crunch, high cost of energy, high transportation cost and partially by the abrupt removal of subsidy that took effect towards the end of the second quarter of 2023.

“The economic turmoil disrupted the manufacturing value chain, escalated cost of manufacturing operations and resulted in reduction in manufacturing patronage,” the report stated.

The MCCI added that, “sequel to the naira redesign and the new cash withdrawal limits by the Central Bank of Nigeria (CBN), the scarcity of both old and new naira notes across all banking halls and electronic payment channels in the country meted severe hardship on manufacturers.

“The prolonged crisis nearly crippled manufacturing companies with about 20 per cent and 30 per cent decrease in sales for consumer goods and cement respectively.

“The crisis impacted negatively on the manufacturers by directly limiting their working capital, thus halting their daily business operations. In addition, the naira scarcity crushed the consumer patronage of manufacturing firms and resultantly escalated their volume of inventories, especially for retail goods.

“By exposing the highly cash-based distributive trade sector to great risk, the economic crisis had severe consequences on the manufacturing value chain and cost of logistics.”

In addition, the report noted that manufacturing activities in the second quarter of 2023 was adversely affected by escalation in the Consumer Price Index (CPI), continuous erosion in naira value and difficulty in accessing foreign exchange, as well as high cost of energy, exorbitant taxes, high lending rates, persistent, insecurity, domino effects of the lingering Russian-Ukrainian war, slow recovery from the cash crisis.

The report warned that Nigeria’s transition to a cashless economy required no urgency or policy aggressiveness considering that a lot of progress had already been made.

It stated that, “a comparative analysis of the country’s cashless status has shown that while the ratio of cash to GDP in Europe, United States of America and South Africa are respectively about 10 per cent, 6.0 per cent and 3.5 per cent while Nigeria’s ratio is impressively below 1.5 per cent.

“Therefore, achieving a full cashless economy should not be the pressing issue when there are tougher challenges of insecurity, exchange rate volatility, skyrocketing inflation, energy disruption, over bloated fiscal debt, dwindling foreign reserves, business collapses and daily divestments.”