By Merit Ibe
Manufacturers in the country have identified unstable, high exchange rate and scarcity of forex as the topmost challenges facing operators.
This was according to the first quarter 2024 Manufacturers Association of Nigeria (MAN) CEOs Confidence Index (MCCI) released yesterday.
The survey suggests that manufacturers in the country are facing a myriad of problems that hamper progress in the sector and result in poor performance.
According to the report, the aggregate Index Score (AIS) of MCCI increased by 1.7 points to 53.5 points in Q1 2024 from 51.8 points recorded in Q4 2023. This marks the first increase since the third quarter of 2022.
Notwithstanding, this performance shows that the manufacturing sector is set on the path of restoration and recovery, at least to the level recorded in Q3 2022 with the hope of improvement in the next quarter.
During the survey, manufacturers identified and ranked the challenges facing their operations in order of severity to include unstable and high exchange rate/scarcity of forex; inadequate power supply/frequent power outages; high inflation/ high operating cost (of raw materials, labour, equipment and maintenance); high cost of energy (petrol, diesel, gas); high and multiple taxes, charges, levies.
Others include insecurity; over- regulation and policy inconsistency; high interest rate/inadequate access to credit; poor infrastructure and distribution channels/multiple check points/gridlock at the national ports and high cost of transportation/logistics costs;
Commenting on the survey President of the association, Francis Meshioye said the MCCI report has marked a significant milestone in the journey of the manufacturing industry in Nigeria.
Meshioye noted that the manufacturing sector plays a pivotal role in the economic growth and development of the nation, and this report sheds light on the current state of the industry, its challenges and the opportunities that lie ahead.
He said it is notable that the strategy of raising the Monetary Policy Rate (MPR) has persisted for nearly two years without yielding positive results. “MAN had hoped that the Central Bank of Nigeria (CBN) would explore alternative measures, particularly in addressing the underlying causes of inflation, primarily cost-push factors.
“MAN, earnestly urges the MPC to carefully evaluate the effects of these monetary policy actions on both the manufacturing sector and the broader economy.
“Achieving a delicate equilibrium between addressing macroeconomic challenges and fostering the growth and resilience of the manufacturing industry is crucial.
Therefore, MAN advocates for robust collaboration between monetary and fiscal authorities and suggest they Implement targeted interventions aimed at mitigating the underlying cost-push factors driving inflation, thereby alleviating the financial burden on manufacturers; Prioritise forex and credit allocation to the manufacturers and fast track the proposed recapitalization of the banking sector.; Emphasize the development of infrastructure within industrial hubs and bolster nationwide investments in renewable energy sources to alleviate logistical expenses and enhance competitiveness; Further reduce the reliance of the country on imported products and raw materials by providing incentives for investment in backward integration and local sourcing to reduce the pressure on the dollar to the barest minimum.
For his part, Director General of the association, Segun Ajayi-Kadir noted that the aggregate performance of 53.5 points is attributable to the undying resilience of manufacturers, the reasonable gains recorded by the Naira in the latter part of the first quarter and the expectation of reasonable reduction in diesel price.
“Others include the hope that the presidential intervention funds for the manufacturing sector will be disbursed seamlessly, and the policy direction of the Government will become clearer.”
He emphasised undoubtedly that the manufacturing sector remains the most sustainable driver of steady economic growth, inflow of foreign exchange and enduring shared prosperity.
He said the association is therefore expectant that the government will intentionally prioritize the manufacturing sector by implementing the sector-specific recommendations contained in this report and providing the required policy support and incentives.
“ This is the surest way of revamping the sector and repositioning the economy towards sustainable growth and development.”
The report further recommended that in its bid to bring high inflation under control, the apex bank must strike a balance by implementing policies that stimulate foreign investment and promote an enabling environment for domestic manufacturers to flourish.
“ It is high time the government focused more on promoting foreign direct investment and exports of high-value added manufactured goods that are capable of boosting the country’s forex reserves and sustaining the appreciation of the naira.
“It is important to emphasise that monetary tightening is rather more effective for combatting demand-pull inflation. However, the economy is more plagued by cost-push inflation that is stoked by supply-side bottlenecks. Hence, the high inflation is yet to respond to the ongoing contractionary monetary policies that have rather choked the real sector. Therefore, ensuring price stability without undermining real sector growth requires the concerted efforts from both the monetary and fiscal authorities.
“MAN expects the government to frontally address insecurity, improve electricity supply, promote fiscal sustainability, and ensure policy consistency. Among other priorities, the fiscal authority must also lend supportive measures by adequately incentivising the manufacturing sector and other productive sectors. This is very important to boost non- oil export earnings in addition to the increase in oil export proceeds occasioned by increased oil production, rising global oil prices and the coming on stream of the Dangote Refinery.
In the report, the association
implored the government to decisively implement specific recommendations to revamp the manufacturing sector and reposition the economy towards attaining sustainable growth: The association wants the government to stabilise the exchange rate and improving access to forex: prioritise forex sale to productive sectors of the economy, particularly the manufacturing sector; Stabilise the value of the Naira by managing the floating exchange rate within a business- friendly threshold and introduce other measures that will promote healthy dollar transactions.
“Direct the CBN to clear all outstanding dollar obligations on the FX Forward contracts of manufacturing concerns to engender confidence in the market.
“Review the foreign exchange rate for import duty assessment for production inputs, including raw materials, machines and spare parts that are not locally available by pegging the rate at N800, pending the stabilisation of the exchange rate.
“Discontinue the operation of the Price Verification System as the arbitrary margin has been reduced considerably and it serves majorly to arm-strong the operation of private businesses