Subtle Recovery for Nigerian Industrialists

As the Nigerian economy reels under the impact of economic reforms, stakeholders in the country’s industrial sector expect a subtle recovery in the second half of 2024, writes Dike Onwuamaeze

Will the fortunes of operators in the Nigerian industrial sector improve in 2024? The answer to this questions, according to the Manufacturers Association of Nigeria (MAN) and other stakeholders and commentators in the sector, is that 2024 would start on a tough note for manufacturing businesses in the country, but might end with some measured improvements because of the envisaged policy reforms, improved commitment to domestic production and general positive outlook that seemingly looked favourable to the sector. 

The MAN surmised in its “Manufacturing Sector Outlook for 2024,” that, “judging from the observed trend, it is obvious that the outlook for the manufacturing sector in 2024 may not be a positive one, at least in the first half of the year.

“The period will be challenging, with a subtle possibility of recovery from the third quarter. The envisaged recovery is highly dependent on the deployment of policy stimulus supported with a synthesis of domestic growth driven, export focused and offensive trade strategies. This will promote resilience, steady growth and ensure that the sector gains meaningful traction in the later part of the year.”

The MAN’s outlook projected that, “in 2024, the manufacturing sector’s real growth is expected to hit about 3.2 per cent; its contribution to the economy will most likely exceed 10 per cent and the Manufacturers’ CEOs Confidence Index is predicted to rise above 55 points thresholds by the end of Q4 2023.”

“In addition, average capacity utilisation will still hover around the 50 percent threshold as the forex-related challenges and high inflation rate limiting manufacturing performance may linger until mid-year.

“The sector may experience a meagre improvement in manufacturing output as forex and interest rates-related challenges are expected to subside from the third quarter,” MAN projected.

Macroeconomic Challenges

The 2024 outlook, which was issued last week by the Director General of MAN, Mr. Segun Ajayi-Kadir, observed that a quick examination of the trajectory of manufacturing globally portrayed a struggling sector that is now more than ever challenged by key macroeconomic variables and externalities, leading to dwindling growth.

Ajayi-Kadir cited China, USA, and South Africa among the countries where manufacturing growth rates had been on a decline. The World Bank reported that the manufacturing sector in China declined from 8.7 per cent in 2021 to 4.8 per cent in Q3 2023; in USA, the sector performance dwindled to -0.9 per cent in Q3 2023 from the 6.8 per cent recorded in 2021 while South Africa also recorded a decline to -0.17 in Q3 2023 from 6.7 per cent of 2021.

He averred that Nigeria would not be exempted from this decline as the manufacturing growth rate nosedived to 0.48 per cent in Q3 2023 as against 2.4 per cent it recorded in 2021.  

Ajayi-Kadir also unveiled the projections of the MAN for the manufacturing sector in 2024. Some of these projections stated that, “there will be clarity on the actual and specific policy direction and priority areas of the current administration, especially around deepening industrialisation.  

“Hopefully, the Government will see the manufacturing sector as the key driver of sustained economic growth and will give the sector the priority that it deserves. 

“Higher manufacturing output is envisaged from the beginning of the third quarter of the year as the government disburses capital provisions of the budget to abandoned, ongoing and new capital projects with expected special preference for locally made products.

“The ongoing concessions of seaports, airports and roads may also provide opportunities for the cement sub-sector and contribute to infrastructure upgrade needed to enhance manufacturing productivity.”

Monetary Policy Stability

The MAN’s 2024 outlook also projected reasonable stability in the monetary policy ambience as the apex bank reverts to playing its conventional roles and deliberately improve forex supply to the productive sector for import of inputs not available locally.

It projected further that the emerging upward surge in global oil prices, domestic oil and gas production, local refining of petroleum products and envisaged gains of exchange rate unification would promote stability in the forex market and impact manufacturing positively from the second half of the year.

This would lead to reduction in the pressure on demand for forex and improve the inflow of export proceeds from oil and gas.

Moreover, the ongoing tax reforms and the envisaged bank recapitalisation would frontally address the challenges of multiple taxation and poor access to credits that have continued to limit manufacturing sector performance, if successfully implemented.

Improved electricity supply

In addition, MAN projected that electricity supply would be improved in 2024, which would be driven by dynamic implementation of the Electricity Act 2023. This would increase private investment in renewable energy, enhance energy efficiency and improve electricity supply to the manufacturing sector.

“The improved electricity supply will ameliorate the issue of inadequacy, reduce the disruptions occasioned by frequent outages and in turn improve energy security.”   

It also advised the federal government to deploy a bouquet of production focused policies that were backed with more structural measures to combat the peculiar inflationary pressures from insecurity, energy and transport cost.

It also recommended that the government should overhaul the power sector and incentive investment in renewables to boost electricity generation and promote energy-cost efficiency. Also sub-national governments and private investors should be encouraged to leverage the opportunities provided by the Electricity Act 2023 to improve energy security in Nigeria.

It said: “Government should lead by example and give priority to patronage of made-in-Nigeria product in all its purchases and for all government contracts and projects. Government should mandatorily upscale patronage of made in Nigeria products by deliberately reducing the excessive reliance of the country on imported products. The three tiers of Government should enforce the implementation of the Executive Order 003 in same for their ministries, departments and agencies.

“Government should encourage local sourcing of raw materials through comprehensive and integrated incentives to address the challenges of low productivity and imported inflation.

“Utilise the 2024 Budget to sustain effort at improving infrastructural developments, especially in strategic industrial hubs to reduce operation and logistics cost and promote competitiveness.”

Managed float exchange rate

The MAN also recommended to the Central Bank of Nigeria (CBN) to revert to managed float exchange rate system within an acceptable lower and upper bound, pending the actualisation of a net-exporting economy aspirations while maintaining all measures that would boost the level of liquidity and degree of transparency in the official foreign exchange window even as the backlog of $7 billion foreign exchange obligations is being cleared.

“Prioritise foreign exchange and credit allocation to the manufacturers and reduce the number of BDCs into large and well-established operators to curb their excesses and untoward operations through effective management and supervision.

“Encourage inflow of foreign direct investment into pre-determined and domestic production-enhancing businesses. Should intentionally guide diaspora remittances into non-oil sectors, especially manufacturing to aid foreign exchange inflows and curb rising inflation.

“The CBN should intensify its collaboration with the fiscal authority; Federal Ministry of Finance and by extension the Tariff Technical Committee (TTC) for proper policy alignment on the appropriate HS Codes for items that Nigeria has sufficient capacity to discourage importation and save scarce foreign exchange.

“The apex bank should allow forex access for importation of vital industrial inputs that are currently not available locally and subject them to backward integration policy that gives priority to a predictable sunset clause. MAN offers to be part of a monitoring and evaluation team to ensure that government gets value for incentives offered to achieve this objective.”

MAN also called on the CBN to develop a sustainable framework that would channel credit interventions into the manufacturing sector, apart from its direct intervention. Additionally, the central bank should mobilise commercial banks to intentionally provide long term single digit interest loans to the manufacturing sector to fast-track the actualization of a $1 trillion dollar economy.”

laudable policies

Speaking in the same vein, the Director General of Nigeria Employers’ Consultative Association (NECA), Mr. Adewale-Smatt Oyerinde, hoped that 2024 would be a better year as the gains of the laudable policies of President Bola Ahmed Tinubu’s administration would begin to impact the economy from the second half of the year. 

Oyerinde also pointed out that innovation would take the centrespace in 2024 within the context of how businesses would generate their own forex revenue or how they would you reduce their exposure to the fluctuations in the forex market.

He noted that one of the ways this innovation would take place is to deeply explore the concept of backward integration. “We have many of our members that have started that process now and have started local sourcing of raw materials that they were previously importing from abroad. Some of them have started to develop raw materials locally and export them to earn forex they will use to import their inputs,” Oyerinde said, emphasising that this is one of the key lessons that employers have taken from the preceding year.

Another key lesson is the need to contain cost as production and labour costs continue to escalate. He said: “It becomes imperative to start asking where we cut costs. Or where do we minimise waste so that the business will continue to be sustainable and move to the context of competitiveness? These are the critical two lessons that employers have learnt.”

Oyerinde, on the other hand, hoped that the current administration has learnt some lessons on fiscal discipline and the need to set its priorities right in line with the country’s development plan. One of the ways to express fiscal discipline is by letting the budget speak to the development plan.   

“The budget as a developmental document should speak to the government’s seven point agenda. The government mentioned employment, infrastructure, food security, security, etc. So, the expectation is that the budget shall speak to these areas the government has marked out as its priorities,” he said.