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Nigeria’s manufacturing
sector performed dismally in 2016 as manufacturers faced several challenges
which affected them negatively.
News
Agency of Nigeria report continues:
The
Central Bank of Nigeria, CBN, said the industrial sector recorded a general
decline between January and November as indicated by the Purchasing Managers
Index (PMI).
The
PMI is an indicator of the economic health of the manufacturing sector.
The
index stood below 50 index point in the months of January to November which
indicated decline in industrial production.
The
PMI is based on five major indicators – new orders, inventory levels,
production, supplier deliveries and the employment environment.
Operators
said that the sector was faced with myriads of challenges ranging from scarcity
of foreign exchange, infrastructure deficit, high banking charges and lack of
raw materials.
About
272 firms were shut, while some reduced their production, staff strength and
remuneration of workers.
Frank
Jacob, the President, Manufacturers Association of Nigeria (MAN), said that
industrial capacity utilization hovered around 20 per cent during the year.
“More
than half of the surviving firms are classified as ailing which posed serious
threat to the survival of the manufacturing sector.
“The
business environment was plagued by epileptic power supply, bad roads, high
interest rate and high cost of energy which contributed to high cost of
production and impediment to competitiveness of the sector,” Jacob said.
A
major challenge was the acute scarcity of foreign exchange which restricted the
ability of manufacturers to import raw materials for production.
The
apex bank had earlier maintained an official exchange rate with the bound of ₦197
to ₦199/USD from February 2015 to June 2016.
To
address the problem of foreign exchange scarcity, the CBN introduced a new
foreign exchange system and some monetary controls in June 2016.
Under
the new flexible exchange rate system, the naira exchange rate to the dollar
depreciated to the average of ₦320 in the official market and ₦485 in the
parallel market during the year.
The
CBN also banned 41 raw materials from getting foreign exchange for importation
at the official segment of the foreign exchange market.
MAN,
however, said that the new foreign exchange system worsened the plight of
manufacturers as it led to a cumulative loss of ₦500 billion for manufacturers
in 2016.
Babatunde
Odunayo, the Chairman, Apapa Branch of MAN, said that some Letters of Credit
and Form Ms, approved to manufacturers at ₦197/US$ before the introduction of
the flexible exchange system, were redeemed at ₦320.
He
said this meant a huge loss to manufacturers as the related goods had mostly
been sold before the commencement of the new exchange rate system.
Mr.
Odunayo said that the exchange rate loss of ₦500 billion reflected in their
accounts and led to factory closures, unemployment and loss of investments.
According
to him, the exchange rate losses required additional working capital to shore
up cash differences of between ₦320 and ₦197.
To
further address the foreign exchange crisis, the CBN, on August 22, directed
banks to allocate 60 per cent of their foreign exchange sales to manufacturers
for procurement of raw materials, plants and machineries.
In
spite of this directive, the problem of foreign exchange scarcity persisted.
Hamma
Kwajaffa, the Director-General, Nigerian Textile Manufacturers Association
(NTMA), said that the textile industry nearly went into extinction due to
inability to access foreign exchange for critical raw materials.
Mr.
Kwajaffa said that no textile manufacturer had accessed foreign exchange in
spite the US$660 million earmarked for manufacturers at the official interbank
market.
Nnamdi
Okafor, the Managing Director, May and Baker, said the inability of
manufacturers to access foreign exchange through the interbank affected
industrial production and contributed to inflation.
“It
has been a herculean task running any business in Nigeria, especially
import-dependent manufacturing business.
“I
can confirm to you that as a company, we have not been able to access official
forex allocation in the past six months.
“In
fact, some of the letters of credit we opened as far back as the fourth quarter
of 2015 have not been funded by the banks.
“Consequently,
we incurred huge exchange rate losses in 2016 and these will likely impact on
bottom-line at the end of the year,” Mr. Okafor said.
Erisco
Foods Limited, an indigenous tomato paste manufacturer, relocated its 150
million dollars tomato paste processing plant to China due to the same problem.
Erisco
Foods had a production capacity of 450,000 metric tons of tomato paste annually
and had 22 brands with over 2,000 workers in Nigeria.
Eric
Umeofia, the Chief Executive Officer, Erisco Foods, said that the company
relocated to friendlier business environment since it lost over ₦3.5 billion in
Nigeria.
Muda
Yusuf, the Director-General, Lagos Chamber of Commerce and Industry (LCCI),
said the inability of manufacturers to access foreign exchange at the interbank
market impeded growth in the real sector.
He
urged the Federal Government to ensure more liquidity in the foreign exchange
market to restore investors’ confidence in the economy.
Industry
experts also urged the CBN to review its policy on the 41 items restricted from
the official foreign exchange market as it had stifled production and forced
many firms out of business.
They
urged the apex bank to redirect its policies towards stimulating the economy
rather than tightening money supply.
They
said that monetary and fiscal policies should be coordinated for economic
revival and growth.
The
experts also called for review of some monetary and fiscal policies that had
hindered the growth of the manufacturing sector.
However,
there seems to be a ray of hope for the sector in 2017 as indicated by the PMI.
The PMI recorded some improvement in December which elicited optimism that 2017 will be a better year for the sector.
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