Manufacturing sector rises by most since 2016 amid FX pressures

Nigeria’s manufacturing sector is showing strong signs of recovery in numbers following the outbreak of the COVID-19 pandemic as it expanded 5.89 percent in the first quarter of 2022 from 3.40 percent in the same period of 2021.

This is the highest figure the sector has recorded since 2016, when the economy experienced a recession, according to data from the National Bureau of Statistics (NBS).

Despite the improvement in figures moving from 2.28 percent in the fourth quarter of 2021, manufacturers in Nigeria say activities in the sector have dragged significantly due to challenges around foreign exchange (FX) shortages with ripple effects on raw material supply and production operations, among others.

Frank Onyebu, chairman of Manufacturers Association of Nigeria (MAN), Apapa branch, said the sector is grappling with a lot of challenges, particularly the availability of FX for the import of raw materials and machines.

“The foreign exchange shortage has gradually worsened because financial institutions do not have enough to go round and manufacturers keep going back to the black market to source FX at exorbitant rates which is not sustainable,” he said.

Currently, it costs N415 to get one dollar from the Central Bank of Nigeria (CBN) while it costs about N600 in the parallel market, giving a difference of at least N185 per dollar.

Although the black market is much more expensive, manufacturers say it is a faster and less cumbersome process, and most importantly, dollars are always available with them, unlike commercial banks that do not have enough to go round.

MAN revealed in 2020 that on average over 40 percent of manufacturers cannot get the funds they require to give their operations a full capacity.

He added that the weakness of the Naira against the dollar and constant devaluation has worsened this issue.

“Bigwigs in the sector can still manage themselves but manufacturers under the Small and Medium Scale bear the brunt especially as the financial regulator implements protectionist policies that are adverse to their business,” he said.

FX shortages have been an ongoing challenge in Nigeria and led to the death of 54 manufacturing firms in 2016 alone according to reports from the MAN; many more have followed since then with manufacturers saying they get two to 10 percent of their dollar needs from the market even after waiting for 30-90 days which has negatively impacted the sector’s performance.

In 2020, the pandemic caused a fall in the price of crude oil which affected Nigeria’s foreign exchange earnings and consequently the availability of FX for businesses. However, since the Russia-Ukraine crisis, oil prices have picked up but the country still cannot benefit from this as it does not produce enough to export.

The fall in oil production in the country has had an impact on the government’s external reserve, which is heavily reliant on oil exports for foreign exchange.

Experts are of the opinion that if issues around FX availability and accessibility are not addressed promptly, many of these companies will fold up which will consequently collapse the sector, which they say will adversely affect the economy.

Speaking on the performance of the sector, Onyebu acknowledged that there was some form of improvement since 2020 when the pandemic struck as the economy recovered from a halt in activities, however, things have worsened overtime especially since the Russia-Ukraine crisis began in February.

“Since the crisis began, manufacturers have not been able to access raw materials for production, and their energy costs has more than doubled due to the surge in the price of diesel and the national grid constantly collapsing,” he said.

An industry analyst who pleaded anonymity said that the recorded growth comes as an effect of a low denominator adding that the challenges of manufacturers have gotten worse over time.

“I do not believe the figures depict realities in the sector given that the inherent challenges have worsened and even best performers such as producers of essential items like food, beverages, and pharmaceuticals are not left out of the problems,” the source said.

The sector’s performance was driven majorly by five subsectors that recorded positive growth and they are the food, beverage, and tobacco subsector which grew to 9.81 percent from 7.11 percent in the same period of 2021 while the chemical and pharmaceuticals recorded 10.33 percent from 3.91 percent in the previous year,

Wood and wood products moved from -2.36 percent to 2.27 percent in 2022, motor vehicles and assembly grew to 5.01 percent from 3.29 percent in 2021, while non-metallic products grew to 3.55 percent in 2022 from 2.88 percent in the same period of 2021.

Subsectors that declined include Cement which dropped to 9.57 percent from 11.20 percent in 2021, pulp, paper, and paper products which further declined to -1.42 percent from -0.26 percent, electrical and electronics fell to -4.87 percent, while plastic and rubber products declined to 0.35 percent in the review period.

Temiloluwa Bamgbose