As Macro-economic Factors Drag Manufacturing Sector Downward

The Nigerian manufacturing sector has reflected the persisting challenges and the waning confidence of manufacturers in the economy in the fourth quarter (Q4) of 2022. 

In the fourth quarter of 2022, according to the Manufacturers CEO’s Confidence Index (MCCI), the Aggregate Index Score (AIS) declined to 55.0 points down from 55.4 points recorded in the third quarter of the year. The index score of the current quarter, though below that of the previous quarter, indicates that manufacturers generally still have confidence in the economy. 

Across Sectoral groups, activities in the Pulp, Paper, Printing & Publishing with index score of 49.6 points and Motor Vehicle & Miscellaneous Assembly (48.4 points) are negatively affected by the harsh operating environment in the quarter under review as their index scores fell below the 50 base points. 

Similarly, among industrial zones, activities in Rivers/Bayelsa (48.0 points) and Cross-Rivers/Akwa-Ibom (46.5 points) zones were depressed by high-cost of operating environment in the fourth quarter of 2022 as underlined by their index scores which fell below the benchmark points. 

The Manufacturers CEO’s Confidence Index (MCCI) of the Manufacturers Association of Nigeria (MAN) is a quarterly research and advocacy publication of the Association, which measures changes in pulse of operators and trends in the manufacturing sector quarterly, in response to movements in the macroeconomy and government policies using primary data generated from direct survey of over 400 chief executive officers of MAN member-Companies.  

MAN said: “the AIS declined in the quarter under review due to the persisting increase in the Consumer Price Index (CPI), erosion in Naira value. difficulty in sourcing forex for productive use, high cost of energy, the issue of insecurity and the lingering Russian-Ukrainian war including the associated adversities.” 

According to MAN, the fourth quarter of 2022 was adversely affected by escalation in the Consumer Price Index (CPI), continuous erosion in Naira value and difficulty in accessing forex, high cost of energy, persisting insecurity and the consequences of lingering Russian-Ukrainian war.  

“These issues among others are principally responsible for the difficult operating environment and its declining implication on manufacturing activities in the country during the quarter under review,“ it said. 

Way Forward 

The director-general of MAN, Mr. Segun Ajayi-Kadir, said: “consequent upon the above trends, it is crucially important for the government to have a shift towards a better exchange rate management; and moderate the rising energy cost via better management of refined petroleum products imported into the country.  

“These among other measures would no doubt help to reduce the current high inflation, which is fast eating-up the working capitals of businesses including manufacturing in the economy.” 

The director-general of Lagos Chamber of Commerce & Industry (LCCI), Dr. Chinyere Almona, said: “the federal government needs to sustain its targeted interventions in selected critical sectors like agriculture, manufacturing, export infrastructure, tackling insecurity, and free more money from subsidy payments.  

According to Almona, it is very imperative that we need sound monitoring and evaluation over the budget allocations to capital projects and defence spending to respectively tackle infrastructural deficit and the fight against insurgency.  

“We urge the government to tackle oil theft to earn more foreign exchange, borrow from cheaper sources to reduce the burden of debt servicing, and pave way for the removal of the fuel subsidy by the incoming government. With increased spending by the government for census and general elections, the government must block revenue leakages, reduce costs, and empower the private sector to create jobs and generate more revenue for the government,“ Almona pointed out. 

The CEO of Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, stated that, to unlock growth and investment in 2023, the government must undertake some urgent reforms, saying, the enactment of the Petroleum Industry Act (PIA) was a major step towards the reform of the oil gas sector and there is a need to also consolidate the power sector reform. 

Yusuf stated that, “an enabling environment must be created to sustain current private sector investment in the sector and attract new private capital to the electricity sector. Urgent reforms are vital with respect to electricity tariffs, metering and deepening of energy mix. We need robust incentives (fiscal and monetary) to boost private investment in renewable energy. 

“We should reform the budget and appropriation processes to prioritise infrastructure financing and human capital development.  This would boost productivity and the competitiveness of the economy. Adoption of these reform initiatives would guarantee progression towards fiscal consolidation, reduction in fiscal deficit, diminishing need for borrowing and abating debt service burden.”