Forces against manufacturing

      Forces against manufacturing

The aggregate Manufacturers CEO’s Confidence Index (MCCI) score stood at 53.9 points in Q1 2022, indicating a decline of 1.5 points from 55.4 points recorded in Q4 2021. Although the slight decline in the index still confirmed the sector’s sustained confidence in the economy, it was indication that the sector was still under severe pressure, and its performance below the desired threshold. Assistant Editor CHIKODI OKEREOCHA looks at forces that constrained the sector’s performance in the period under review, and what, according to operators, must be done to guarantee robust performance going forward.

Even before the second quarter of this year kicked off, manufacturers were already worried over the outlook for the quarter, which appeared somewhat bleak.

Their worry, The Nation learnt, stemmed from the manufacturing sector’s performance in the previous quarter (Q1 2022), which, based on their own quarterly research, was less than sterling. The crux of the matter was that the aggregate Manufacturers CEO’s Confidence Index (MCCI) declined to 53.9 points in Q1 2022, from 55.4 points recorded in Q4 2021, indicating a decline of 1.5 points.

The MCCI is an index created by the Manufacturers Association of Nigeria (MAN) to measure changes in pulse of operators and trends in the manufacturing sector quarterly, in response to movements in the macro-economy and government policies. The Index uses primary data mined through direct survey on over 400 Chief Executive Officers (CEOs) of MAN member-companies.

The MCCI has a baseline index of 50 points that suggests a stationary point in the economy and affirms the level of confidence and performance in the quarter under review. Points above 50 points indicate that manufacturers have confidence in the economy and improvement in manufacturing performance, while any index point below 50 points indicates otherwise.

Since the second quarter of last year, MCCI score has remained above the 50 neutral points, reaching 55.4 points in the fourth quarter. The score indicated manufacturers’ sustained confidence in the economy and improved manufacturing performance over the period. However, with the Index score of Q1 2022 standing at 53.9 points, which is a decline of 1.5 points from 55.4 points Index score of Q4 2021, operators are worried.

Although many of them admitted that the slight decline still confirmed sustained confidence of manufacturers in the economy, and that the overall result shows that even though the economy recorded positive improvement despite unstable macro-economic fundamentals, the manufacturing sector was still largely under severe pressure. According to them, the sector’s health was still in the fringes and below the desired performance threshold.

MAN in the MCCI identified a number of factors that forced the decline in the Index score for Q1 2022. Some of them include the prevailing familiar binding constraints to the steady growth of the manufacturing sector, which manufacturing have been complaining about, such as limited supply of electricity, high cost of local and imported raw-materials, and acute shortage of forex for importation of machine and raw materials not available locally.

Other factors that limited the sector’s performance in the period under review include the pervasive and seemingly intractable insecurity across the country; the eroding disposable income of consumers, high interest rate, excessive drive for revenue by various tiers of government, and of late, the obvious neglect of the economy for politics as the 2023 general elections draw near.

However, the litany of woes that plagued operators in the sector in Q1 2022 was not entirely local in nature; some of them were foisted on the sector by developments in the global economy. For instance, based on feedbacks from manufacturers, the quarterly research and advocacy publication, which was obtained by The Nation, the immediate impact of the Russia-Ukraine war was top on the list of their woes.

Indeed, since the outbreak of the war, prices of diesel, wheat and other imported manufacturing inputs have skyrocketed, leading to rise in the cost of bread and other food items in the market, for instance.

“The growing concern of future increase in the prices of wheat and fertiliser manufacturing input occasioned by the Russian invasion of Ukraine are contributory factors that impacted the aggregate MCCI,” manufacturers said, in the publication.

It is easy to see why this is so, particularly in Nigeria’s case. The obvious reality is that when disruption occurs in any part of the global economy, only countries with automatic stabilisers and strong internal economic mechanisms will be able to respond appropriately.

Unfortunately, the needed automatic stabilisers and strong internal economic mechanisms to respond appropriately to the crisis thrown up by the invasion of Ukraine by Russia was evidently lacking in Nigeria. The nation’s economic managers have not been able to address most of the local issues constraining manufacturers let alone put mechanisms in place to shield manufacturers from shocks from global economic crisis.

This must be why manufacturers did not mince words that “The ongoing invasion of Ukraine will continue to have negative spiral effects on every sector of the economy if not halted as soon as possible.”

They specifically warned: “The implication of allowing the invasion to continue for the manufacturing sector will include enormous decrease in capacity utilisation (as factories begin to experience stock-out situations), inflation, dwindling sales, lower productivity, unemployment and heightened insecurity.

“Certainly, all of these would also have severe implications for economic and social well being of over 200 million Nigerians.”

According to manufacturers, the general decline in the index point and the dimmed outlook for the second quarter evidenced by expectations of lower production, employment and unfriendly business condition, is a cause for concern.

“Undoubtedly, the precarious situation that the manufacturing sector is in and the looming dangers ahead call for a National Response and Sustainability Strategy to guarantee the survival of the sector and avoid further de-industrialisation,” MAN said.

The association added that as customary, it will include findings in the advocacy submissions to the government, backed with detailed recommendations on measures to address identified challenges inhibiting scale and competitive production in the manufacturing sector.

Some of the key issues manufacturers will likely canvass to achieve scale and boost competitiveness include, but not limited, to steady electricity supply, which, according to MAN President Ahmed Mansur, accounts for as much as 40 per cent of manufacturers cost of production; more rigorous monetary management measures that would encourage reduction in lending rates on loans to the productive sector by commercial banks.

Lending rate to the real and the manufacturing sectors by commercial banks has been at double digit, as high as 22 per cent, sometimes 25 per cent, with manufacturers screaming blue murder that cost of funds in Nigeria has always been one of the core challenges of the sector, and this is because it tells directly on cost of production and the sector’s competitiveness.

The situation, according to manufacturers, arose because of the increased presence of the government in the money market – government treasury bill, bonds, sukuk, etc, which have almost crowded out private sector borrowing in the market. This is why manufacturers are pushing that government balances its participation in the money market with the interest of the private sector.

To enhance the sector’s performance going forward, manufacturers, as part of their recommendations to government, are also renewing their push for the resuscitation of the Backward Integration Policy (BIP) and resource- based industrialisation programmes of the government.

At the core of the BIP, The Nation learnt, is the need to create a competitive supply value chain and reduce dependence on imported raw materials. Businesses are said to pursue backward integration with the expectation that the process will result in cost savings, increased revenues, and improved efficiency in the production process.

The adoption of the policy of resource-based industrialisation by the government, on the other hand, aims at utilising the country’s abundant natural resources to sustain the manufacturing sector.

Indeed, the capacity of the BIP and the resource-based industrialisation initiative to turn around the fortunes of the manufacturing sector has never been lost on manufacturers.

For instance, BIP, according to experts, will help develop local raw materials for industrial use and ultimately, improve the manufacturing sector’s performance. Besides, leveraging the BIP to source raw materials locally for production will help save scarce foreign exchange, boost capacity utilisation in the sector and also curb the difficulties experienced at the ports while waiting longer time for the shipments of imported raw materials.

The challenge of insecurity across the country is also on the front burner, with the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), for instance, calling on the Federal Government, through its security agencies, to intensify efforts to counter and end the activities of kidnappers, bandits, terrorists, and other perpetrators of violence.

At a recent briefing in Lagos by the Chamber, its National President, Ide J. C. Udeagbala, lamented that insecurity was dampening investor-confidence and labelling the country as unsafe to do business.

“Such a situation does not present our country in good light to the rest of the world. NACCIMA hereby calls on the relevant Ministries, Departments and Agencies (MDAs) of government, responsible for protecting lives and property, to work concertedly and intensify their efforts, especially as we approach the general elections,” he said.

He added that the Chamber was ready to partner these MDAs using institutions such as the Police Community Relations Committee, to increase the effectiveness of security policies and measures.

While Nigeria’s economic managers, admittedly, have no control over the impact of the Russian invasion of Ukraine on the aggregate MCCI for the quarter under review, the rethinking, and rightly so, is that addressing the afore-mentioned local constraints to the manufacturing sector’s growth will at least, help shield the Nigerian economy from any headwinds from any global economic crisis.