The outlook for Nigeria’s manufacturing sector in the fourth quarter of 2024 appears grim, according to the Manufacturing Association of Nigeria (MAN).
The Director General of MAN, Segun Ajayi-Kadir, expressed concerns about the industry’s challenges, highlighting how the rising costs of production, coupled with decreased sales, have left manufacturers with little hope for improvement.
Reflecting on the sector’s third-quarter performance, Ajayi-Kadir stated, “Earlier in the year, we imagined that the second half would be better… But rather than experience an upswing, we have continued to face a downturn.” He identified key challenges such as rising interest rates, high diesel prices, and increasing electricity tariffs as significant obstacles.
The manufacturing sector’s contribution to Nigeria’s GDP has been declining, dropping to 8.46% in Q2 2024 from 8.62% in Q2 2023 and falling short of the 9.98% contribution seen in Q1 2024. “The interest rate has continued to rise, the exchange rate hasn’t improved, and we’ve seen an increase in electricity tariffs,” Ajayi-Kadir noted, underscoring how these factors are affecting growth.
He added that unless immediate action is taken, the sector could face an even worse performance in the final quarter of the year. “We have just finished the third quarter, and reports from our members show no improvement,” he said.
The association’s Manufacturers Confidence Composite Index report for H1 2024 had previously highlighted similar challenges, emphasizing the adverse effects of rising interest rates. In response, the Central Bank of Nigeria (CBN) raised the interest rate last month by 50 basis points, bringing it to 27.25% from 26.25%, marking the fifth increase this year as part of its strategy to control inflation.
Ajayi-Kadir also pointed to energy costs as a major burden, despite a slight drop in diesel prices due to the impact of the Dangote Refinery. “While we have seen some improvement, the cost remains high,” he said.
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He acknowledged that recent economic moves, including the naira-for-crude sale agreement between the Nigerian National Petroleum Company and the Dangote Refinery, could have a positive impact. “The sale of crude oil in naira has just begun, and it’s too early to assess its full impact, but it should reduce forex pressure, which is crucial for domestic stability,” he explained.
Muda Yusuf, Director of the Centre for Promotion of Private Enterprise (CPPE), also voiced concerns about the foreign exchange market’s volatility, which continues to affect the manufacturing sector. “Our manufacturing sector is highly exposed and sensitive to fluctuations in the forex market,” he said. The reliance on imported raw materials and machinery, coupled with the depreciation of the naira, has increased production costs significantly.
Yusuf emphasized that stabilizing the forex rates is essential for any improvement in the sector’s outlook. He noted that the Dangote Refinery’s ability to source crude oil in naira could help reduce energy costs but warned that applying international crude prices domestically might limit the benefits.
The recent hike in petrol prices to N1,030 per litre has sparked criticism from MAN, CPPE, and the Nigerian Labour Congress, all demanding a reversal. Yusuf called for swift government action in the forex market to improve the sector’s Q4 outlook, urging for favorable policies to ease financial pressures on manufacturers.
He also mentioned the government’s proposed economic stabilization plan currently under review by the National Assembly. “I am somewhat optimistic that if the plan is implemented quickly, it may provide some positive outcomes for the manufacturing sector,” he added.
Yusuf concluded that if Nigeria’s refineries, particularly the Dangote Refinery, could produce sufficient petroleum products locally, it could significantly reduce forex pressures by minimizing the need for imports. “Reducing the importation of petroleum products would lessen the strain on our forex,” he argued.
Source: The PUNCH
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