Consumers’ low purchasing power occasioned by the surging inflation rate in Nigeria is making many products unaffordable as manufacturers’ inventory of unsold finished goods rose by 45.4 per cent in one year, according to the Manufacturers Association of Nigeria (MAN).
Inventory of unsold products in the manufacturing sector rose to N272 billion in the first half of 2023 from N187.1 billion in the same period of last year, MAN’s latest half-yearly review report released yesterday shows.
“This indicates a substantial rise of N84.9 billion or 45.4 per cent over this timeframe. However, there was an N11.6 billion or 4.1 per cent decline when compared with the inventory value of N283.6 billion recorded in H2 2022,” the report said.
However, the manufacturing sector factory output value increased to N4.10 trillion in the same period.
It stated that the manufacturing sector factory output value rose to N4.10 trillion from N3.99 trillion recorded in the corresponding half of 2022, indicating 2.8 per cent increase over the period. It also increased by 52.8 percent when compared with N2.68 trillion recorded in the preceding half.
The MAN report attributed the increase in inventory to a weakened purchasing power of the consumers, brought about by diminishing real household income resulting from the ongoing escalation of inflationary pressures, compounded by the scarcity of naira in Q1 and the aftermath of the subsidy removal.
When President Bola Tinubu announced the removal of the petrol subsidy on May 29, pump prices surged to as high as N617 per litre from N184, while the value of the naira has plunged following the floating of the currency.
The floating of the currency has increased the official rate from N463.38/$ to N773.25/$ as at Monday. The gap between the official and black market expanded to N227.
The high cost of dollars and the implementation of a 7.5 per cent value added tax on diesel imports have pushed its pump price to as high as N1,200 per litre.
According to MAN, the 2.8 percent increase in the monetary value (not real output) of manufacturing sector production over the period of one year when inflation is at 24.08 percent at the same period indicates a struggling sector.
“The manufacturing sector faced myriads of challenges in the first half of 2023. The residual effect of naira redesign and the removal of fuel subsidy towards the end of the period under review triggers inflationary pressure, cost of transportation, cost of production and other macroeconomics imbalances, thereby worsening the purchasing power of the households.
“Key sectors like manufacturing and agriculture, which play a vital role in Nigeria’s economy, suffer as higher fuel costs drive up expenses related to machinery, irrigation, and transportation.
“These led to increase in the prices of food and other products, impacting both productivity and social stability. The uncertainty stemming from this policy change has undermined investor confidence, hampering both domestic and foreign investments that are crucial for economic growth and job creation,” MAN pointed out.
Meanwhile, capacity utilisation in the manufacturing sector in the period under review, declined by 1.4 per cent year-on-year to 56.5 percent from 57.9 percent recorded in the corresponding half of 2022.
The director-general of MAN, Segun Ajayi-Kadir said that 2023 started with uncertainty in the economy as a result of Naira redesign policy of the Central Bank that led to naira crunch and the usual dormant economic activities prior to general election.
He noted that the re-infusion of the old currency notes which was initially moved out of circulation brought a promising outlook to the economy. Consequently, a short-lived uptick in economic activities, especially in the informal sector was experienced.
In restoring economy growth trajectory, Ajayi-Kadir stated that the government should engage in constructive dialogue with the stakeholders in the private sector; provide clear and consistent policies to provide certainty for businesses; conduct a comprehensive economic impact assessment of the fuel subsidy removal, exchange rate changes, and other policy measures; ensure effective implementation of the plans to support the manufacturing sector and MSMEs; infrastructure development; transparent and efficient implementation; regulatory reforms; among others.
He added that the government should prioritise forex intervention for raw materials and machinery for industries; improve forex allocation to the industrial sector; develop a roadmap for improved power supply, including off-grid solutions and private sector-driven independent power projects; resuscitate national refineries for local fuel production; review domestic gas pricing among others.
Last month, the country’s inflation rate rose to an 18-year high of 25.80 percent from 24.08 percent in July, according to the National Bureau Statistics (NBS).
Data from the latest Purchasing Managers’ Index, by Stanbic IBTC Bank, shows that high inflationary pressures dropped business activities for the third straight month to 50.2 in August, the lowest in five months from 51.7 in July.
The latest aggregate Manufacturers CEO’s Confidence Index (MCCI) of MAN also shows that manufacturers’ confidence in the economy dropped to the lowest in nearly two years Q2.
The index declined for the third straight quarter to 52.7 points in Q2 from 54.1 points in the previous quarter.
The challenging macroeconomic issues impacted on the manufacturing sector as its growth rate slowed to the lowest in three years.
Data from the NBS shows that the real GDP growth of the sector stood at 2.2 percent in Q2, the lowest since Q2 2020.
The subsidy removal and exchange rate unification policy towards the end of the first half left the economy uncertain, causing a ripple effect that further eroded investors’ confidence, according to manufacturers.
“As a result, businesses and foreign investors are increasingly wary of committing capital, thereby hindering economic growth and prospects for recovery,” they said.
The MAN report also revealed that a total of 3,567 jobs were lost in H1, indicating 1,855 more job lost when compared with the 1,709 jobs lost in corresponding half of 2022 and 850 more jobs lost when compared with 2708 jobs lost in the last half of last year.
“The decline in the number of jobs created in the sector during the period further highlighted the unfriendly business environment resulting from the hasty policies and residual effect of the currency redesign policy that led to naira crunch,” it said.
According to the association, capacity utilisation declined to 56.5 percent from 57.9 percent recorded in the corresponding half of 2022 and cost of funds for manufacturers rose to 24 percent from 22.0 percent in H2 last year.
“The continuous upward adjustments significantly influence the lending rates offered by commercial banks to industries in the Monetary Policy Rate,” MAN said.
The association recommends that the challenges in the manufacturing sector should be promptly and effectively addressed.
“The sector urgently requires measures to mitigate the adverse effects of these policies and restore its growth trajectory.”