A Year of Losses, Shutdowns in Industrial Sector
One year of President Bola Ahmed Tinubu’s administration has triggered on unprecedented losses, high cost of doing business, closures and exits in Nigerian industrial sector, writes Dike Onwuamaeze
Operators of the Nigerian manufacturing sector approached the 2023 presidential election with the expectation that better days are coming their way irrespective of the presidential candidate that would win the election.
Their hope was hinged on the calculation that any of the three leading candidates that won the election, namely Senator Bola Ahmed Tinubu of the All Progressive Congress (APC); Alhaji Atiku Abubakar of the Peoples’ Democratic Party and Mr. Peter Obi of the Labour Party, would have better understanding of the economy that would inform introducing and implementing economic policies that would have more positive impacts than the then incumbent President Muhammadu Buhari.
Eventually, when President Tinubu was declared the winner of the presidential election, the operators of the Nigerian industrial sector had no cause to worry.
In his presidential inaugural address, President Tinubu spoke as a man who has a clear vision about where he wanted the economy to be. Tinubu said that his administration would target a higher GDP growth and significantly reduce unemployment by taking the following steps: The first step is embarking on a budgetary reform that would stimulate the economy without engendering inflation. The second step is an industrial policy that would utilise the full range of fiscal measures to promote domestic manufacturing and lessen import dependency. The third step is ensuring that “electricity will become more accessible and affordable to businesses and homes alike.
He said: “I have a message for our investors, local and foreign: our government shall review all their complaints about multiple taxation and various anti-investment inhibitions.”
Tinubu also terminated the vexatious issue of petrol subsidy because it “can no longer justify its ever-increasing costs in the wake of drying resources” and ordered the CBN to work towards a unified exchange rate.
He also said that “interest rates need to be reduced to increase investment and consumer purchasing in ways that sustain the economy at a higher level.”
In addition, The Nigerian manufacturers heaved a sigh of relief on July 6 when President Tinubu announced four executive orders that override certain unfriendly fiscal policy measures of ex-President Muhammadu Buhari’s administration
The Presidential Special Adviser on Special Duties, Communications and Strategy, Mr. Dele Alake, who announced the orders during a press briefing in Abuja explained that the executive orders were needed to avoid making “life difficult for Nigerians or asphyxiate corporate entities.”
The new executive orders differed the commencement date of “the Finance Act (Effective Date Variation) Order, 2023, from May 28, 2023 to September 1, 2023, to ensure adherence to the 90 days minimum advance notice for tax changes as contained in the 2017 National Tax Policy (NTP). Similarly, the effective date for the introduction of the Customs, Excise Tariff (Variation) Amendment Order, 2023, was also shifted from March 27, 2023, to August 1, 2023, in line with the NTP
Furthermore, President Tinubu also gave an order suspending the 5.0 per cent excise tax on telecommunication services as well as the excise duties escalation on locally manufactured products.
Alake also announced that in furtherance of Tinubu’s commitment to creating a business-friendly environment, “the president has ordered the suspension of the newly introduced Green Tax by way of excise tax on Single Use Plastics (SUP), including plastic containers and bottles. In addition, the President has ordered the suspension of import tax adjustment levy on certain vehicles.”
As soon as Alake was done with the announcement of the executive orders, the Nigerian manufacturers went agog in jubilation. They described the executive orders as a very good development.
MAN
The Manufacturers Association of Nigeria (MAN) said that the new executive orders “obviated the looming existential threat on some sub-sectors in the manufacturing landscape.” The Director General of MAN, Mr. Segun Ajayi-Kadir, commended Tinubu for issuing the executive orders.
However, the honey moon between the manufacturers and the Tinubu’s administration was short lived. The biting unintended consequences of the removal of petrol subsidies, floating of the Naira at the foreign exchange market, upward review of electricity tariff as well as monetary tightening measures of the Central Bank of Nigeria that kept interest rate going up contrary to Tinubu’s promises combined to push the manufacturing sector to the brink in the first one year of Tinubu’s administration.
Accirding to Ajayi-Kadir, the first year of Tinubu’s administration was tough for manufacturers in Nigeria.
He said: “We have had quite a number of reforms that came with this administration, necessary reforms I must say, but they have thrown up issues that we needed to deal with quickly for us to be able to get the economy back on track, and for us to consistently work towards ensuring that those reforms lead to gains that they were intended.
“So, I think these are tough times. We need our thinking caps on and for all hands to be on deck, particularly government cooperating with the stakeholders so that we are able to go through the period that is obviously tough, not only for businesses but for individuals in the country.”
“There has been quite a number of reforms that this administration has taken and whether we like it or not, it is the way to go. But then, how do we deal with the fallout activities? That is what is very important. There is no doubt that we needed to float the forex rate, we needed to remove subsidy. But how do we deal with the negative fallout?
“The manufacturing sector in Nigeria has continued to underperform not because we do not have entrepreneurs that have gone into manufacturing to be able to produce and advance the performance of the sector, but because of the binding constraints that the environment has continued to.”
Most Nigerian manufacturers booked losses in the 2023 Financial Year reports and suffered outrageous foreign exchange losses as the value of the Naira nosedived from less that N500 per dollar on May 2023 to N1, 900 before coming down to N1,500 per dollar currently.
What the first year of Tinubu in office meant for Nigerian manufacturers was succinctly stated by the Interim Chairman of Nigeria Breweries PLC, Mr. Sijbe Hiemstra. According to him,
“it was a year of unprecedented challenges and uncertainties, one of the most turbulent in recent years.
“In a bid to address some of the perennial macroeconomic volatilities in the country, the new administration that came in at the end of May 2023 introduced structural economic reforms via fiscal and monetary policies. The subsidy removal resulted in about 300 per cent increase in the pump price of the product with huge impact on the costs of transportation, energy, and other utilities as well as drastic reduction in the purchasing power of the citizenry.
“The floating of the Naira led to a massive devaluation of the currency by more than 200 per cent in one year, with businesses struggling to access FX for imports payment, huge spike in import costs and revaluation of FX payables to overseas partners, the latter culminating in huge foreign exchange losses for many businesses.”
In addition to the aforementioned difficult economic issues of 2023, the interim chairman of NB Plc said that the brewed product market was severely impacted by the economic realities of 2023, which included huge input and operating costs and consumers’ weak purchasing power.
The brewed product market “suffered a volume decline and the erosion of profitability leading to an unprecedented combined pre-tax loss of N266 billion amongst the main players. The revaluation of outstanding foreign debts and payables to overseas partners due to the devaluation of the Naira was the main reason for the huge loss recorded,” he said.
The harsh operating environment forced some multinational companies to announce their exit from the Nigerian market while some, like the NB Plc shutdown some of their plants in the country.
Among the companies that either exited the nation or shut down or changed their business model included Jubilee Syringe Manufacturing (JSM), Proctor & Gamble, Unilever Nigeria Plc, PZ Nigeria Plc, GSK Nigeria Plc, Sanofi Pharmaceuticals, Bolt Food, Nampak, Microsoft, Jumia Food, Equinor (oil & gas), Mayor Biscuits Company Limited, Greif Nigeria among others, with many other multinational companies declaring over N1 trillion in combined losses.
According to the MAN, manufacturers recorded a bourgeoning N350 billion goods, which were unsold. The same fate is faced by Small and Medium Scale industries (SMEs). Indeed, the manufacturing sector is on the precipice of collapse with massive consequences for jobs.
Last week, MAN stated that the persistent macroeconomic instability in Nigeria, resulting from sustained monetary policy decisions has negatively impacted the manufacturing sector.
This instability, compounded by various constraints affecting sectoral performance, continued to disrupt production plans, undermine investments, and cast uncertainty over prospects.
Furthermore, recent decisions by the Monetary Policy Committee (MPC) exacerbate these challenges by further tightening credit interventions, increasing loan costs, raising production cost, limiting fund accessibility, and eroding investment and competitiveness within the manufacturing sector.
It is evident that the MPC leans towards prioritising the financial sector over the real sector, rather than striving for a balanced approach between the two.
These effects are intensified by the current monetary stance, contributing to constraints on investment and expansion.
According to MAN, “the combination of heightened borrowing costs and reduced liquidity will hinder manufacturers’ ability to invest in innovative technologies, expand production capacities, or venture into new markets.
“As a result, this could lead to delays or cancellations of planned initiatives, ultimately constraining the sector’s potential for growth and its overall contribution to economic growth and development,” MAN said.
Further Decline in Manufacturing Competitiveness
It also said that the decision made by the MPC would further compound the already high cost of doing business, consequently diminishing the competitiveness of Nigerian products in the global market.
“The high lending rate exceeding 30 per cent will increase the cost of borrowing and make Nigeria goods less competitive to products from other nation.
“This is evident in the substantial downturn in global demand for Nigerian goods. Notably, data sourced from the World Trade Organisation reveals a stark contrast in manufacturing export values between Nigeria, South Africa, Egypt and Morocco in 2022, with South Africa, Morocco and Egypt recorded $45.38 billion, $30.61 billion, $20.14 billion respectively compared to Nigeria’s modest record of $3.21 billion. Such a glaring divergence underscores the significant disparity in competitiveness of Nigeria.
“Moreover, according to MAN survey the capacity ultilisation of the manufacturing sector reduced from 56.4 per cent recorded in 2022 to 55.1 per cent in 2023.
“Also, the growth of the sector reduced to 1.40 per cent in 2023 from 3.35 per cent and 2.45 per cent recorded in 2021 and 2022 respectively.”
