Recession: Manufacturers groan under high production cost, low consumer purchasing power

Nigerian manufacturers have found themselves in a situation best described as being caught between the devil and deep blue sea, as many of them are realigning their thoughts on plans to make an exit from the country as a result high production cost and low consumer purchasing power, among other challenges.

While many are presently having skeletal operations, others have moved their production outfits to neighbouring countries, due to high production costs and the recession situations facing their businesses in Nigeria. Others are hoping to join if the situation persists and when the proposed common passport by the African Union (AU) becomes operational.

However, for firms that had moved, it was learnt that there are possibilities of reconsidering their stance in the face of rising protectionist policies and xenophobia in the host countries, as well as such countries having smaller consumer markets compared to Nigeria.

Indeed, many industrial firms, especially those operating in the food, beverages and conglomerates sub-sector had about a decade ago, relocated to Ghana, after being offered incentives like 15-year tax holiday, free land and other waivers, which would drive their businesses.

Specifically, many operators within the food, paper, plastic and textile industries, according to the most recent statistics from Manufacturers Association of Nigeria (MAN) form the bulk of firms that exited Nigeria to other West African states.

Explanation from MAN showed that while many firms had in the past always left from Nigeria to South Africa and Ghana, many of such firms have had to go back to their bases, because the South African business environment is no longer friendly after the Xenophobia attacks, which led to the exodus of some Chinese and other African nationals from the country.

In the case of firms leaving Nigeria, MAN noted that some Indian companies are going back to India, while others are operating skeletal services. MAN President, Dr Frank Jacobs stated that with dropping capacity utilization amidst rising cost of production, many firms may latch on the proposed union by AU believed to have capacity to facilitate free movement of persons, goods and services around the continent, thus fostering intra-Africa trade, integration and socio-economic development.

According to him, the overhead cost incurred in providing alternative infrastructure like power is becoming unbearable for large and small-scale industrial firms who do not have capacity to invest in gas generators.

Highlighting some of the challenges in the real sector propelling exit moves, MAN explained that many firms are leaving due to little or no access to raw materials, dearth of infrastructure, incessant increase in price, weak purchasing power of Nigerians, insecurity in some parts of the country that curtailed market penetration to the hinterland, public sector procurement that favoured foreign goods importation, rather than local patronage, activities of some foreigners that have taken over local businesses, smuggling and illegal trade, a weak currency and general economic downturn.

For the Nigerian Textile Manufacturers Association (NTMA), the problem with the real sector borders also on the ability to implement policies that can revive the ailing sector, noting that while the Federal Government might have enacted and launched a policy on Cotton Textile Garment (CTG) with a view to setting up industrial park since 2015, the policy is yet to be implemented.

The Director General of NTMA, Hamma Kwajaffa, stated that its members find it difficult to access foreign exchange, noting that they cannot export their products due to un-competitiveness, thereby not being able to harness AGOA opportunities and export generally due to high over-head cost and freight charges.

“Many more firms may soon leave if the foreign exchange problem persists, as well as the Common External Tariff (CET), which is not in favour of Nigerian manufacturers, though Nigeria controls 80 per cent of the West African market,” he added.

In the view of the Pharmaceutical Manufacturers Group of Manufacturers Association of Nigeria (PMG-MAN) while the decision by the Central Bank of Nigeria (CBN) to ensure that 60 per cent of foreign exchange is made available to manufacturers for raw materials, there is a need to address the anomalies created by the CET.

Chairman, PMG-MAN, Okey Akpa, stated that efforts made so far in addressing the CET imbalance were laudable, but warned that the high attrition rate in the sector, and the consequences of further delays indicated the need for government’s imminent intervention.

Although Vice President, Professor Yemi Osibanjo, recently stated that government was unveiling measures to address the fiscal policy issues, the real sector players noted that government needs to review current trade policy measures in order to reduce the pressure of cost on investors and citizens.

While Jacobs had stated that over 50 industrial firms have shut down operations with many more struggling to stay in business as capacity utilisation level drops further, MAN added that many more may leave the country if nothing is done to address policy issues before the end of the year.

“Government is yet to come out with any concrete policy pronouncement. The major problem was created by the CBN, last year, when it hastily barred 41 items from official forex market. Whatever measure the CBN is putting on now is an afterthought as they have created a bigger problem and these will take a longer time to redress, more so with the state of things in Nigeria.

“Apart from the monetary authority’s blunder, government has compounded the problem with the non release of the fiscal policy. It is also worrisome that regulatory agencies of government are also creating bigger problems for investors with their uncoordinated and forceful implementation of statutory mandates,” MAN added.

The Central Bank of Nigeria ( CBN), had recently, reported that activities in the manufacturing sector in the Nigerian economy shed weight by 2 per cent compared with that of July.

In its Manufacturing Purchasing Managers’ Index (PMI) Report, the apex bank said activities declined to 42.1 index points in August 2016, compared to 44.1 in the preceding month, thus confirming an e Arlie’s survey conducted by NOIPolls in May, which indicated that activities in the sector were on the downward trend.

The CBN PMI Report interpreted the August survey thus: “This implies that the manufacturing sector declined at a faster rate during the review period. Of the sixteen manufacturing sub-sectors, fifteen recorded decline in the review month in the following order: nonmetallic mineral products; transportation equipment; petroleum and coal products; fabricated metal products; furniture and related products; cement; appliances and components; printing and related support activities; paper products; computer and electronic products; food, beverage and tobacco products; primary metal; textile, apparel, leather and footwear; plastics and rubber products; and chemical and pharmaceutical products. The electrical equipment sub-sector remained unchanged in the review period,” it added.

For the nation to come out the current recession, there is the need for the government at all levels to take very seriously issues that are militating against the manufacturing sector in the country.