Stakeholders are seeking government’s intervention in policies that will boost the manufacturing sector, OLUSHOLA BELLO writes.
by Olushola Bello
The importance of a vibrant manufacturing sector in emerging economies cannot be over-emphasised.
A functional manufacturing base attracts increased research, productivity, and exports. In addition, due to its extensive value-chain, the sector is capable of boosting jobs across different economic classes. There are several factors that could support the steady expansion of a country’s manufacturing sector. These factors trigger demand and supply dynamics which are essential for a thriving manufacturing base. They include consumption patterns, money circulation, fx liquidity, infrastructure (power, inclusive) and supply chain among others.
In the manufacturing sector, growth slowed to 2.3 per cent year-on-year in fourth quarter (Q4) compared with 4.3 per cent year-on-year recorded in third quarter (Q3). For full year, 2021, the sector grew by 3.5 per cent year-on-year compared with a contraction of -2.8 per cent year-on-year recorded in 2020.
Also, following Russia’s invasion of Ukraine, oil prices have surged above $100 per barrel to hit their highest level since 2008. Unlike premium motor spirit (PMS), diesel has been deregulated. As such, the surge in global oil price has led to an increase in diesel price.
According to the Manufacturers Association of Nigeria (MAN), the situation has resulted in soaring operational costs as most businesses rely on diesel-powered generators in the absence of reliable grid electricity.
The proposed take-off of the Dangote Refinery in Q4, 2022 is expected to help improve the supply of petroleum products in Nigeria. Russia and Ukraine are also major exporters of agricultural commodities, particularly grains. The Russia-Ukraine crisis has halted shipments from the Black Sea, which has adverse implications for global trade activity.
The CEO of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf noted that “The major headwinds to economic growth and business performance in recent months include the worsening security situation in the country, the escalating energy cost, exchange rate depreciation, liquidity crisis in the foreign exchange market and the spiking inflationary pressures.
According to Yusuf, the consequences of these were the escalation of production and operating cost across all sectors. Cost of transportation, especially haulage cost similarly spiked because most haulage trucks are powered by diesel.
“Many businesses were not able to pass on the increase in energy cost to their consumers. Many investors have scaled down their operations, while several others have suspended operations.”
He also noted that the the state of insecurity in the country has reached a frightening level deserving of a state of emergency declaration, saying that the omens are very bad.
“This trajectory portends serious adverse implications for economic growth prospects and investment outcomes. We cannot retain, scale or attract investment in an environment that is not secure. This is true of domestic and foreign investments, he said.
He added major macro-economic indicators suggest that the Nigerian economy is floundering and is being further weakened by these headwinds, noting that a stumbling economy cannot afford these multiple shocks. The government therefore needs to take urgent steps to pull the economy from the brink.
A report by Coronation Merchant Bank noted that the absence of constant power supply has contributed to the slowdown of Nigeria’s much-needed industrial take-off as self-generation places pressure on operating expenses.
It also noted that “The Central Bank of Nigeria (CBN) has disbursed N1.28 trillion to power sector players since 2017, under the Nigeria Bulk Electricity Trading Payment Assurance Facility (NBETPAF). In addition, N232.9 billion has been released to distribution companies (DISCOs) under the Nigeria Electricity Market Stabilisation Facility – Phase 2 (NEMSF-2).
“These interventions are designed to improve access to capital and support the development of enabling infrastructure within the country’s power supply value chain.”
It explained further that the African Continental Free Trade Area (AfCFTA) agreement is expected to contribute significantly toward the development of regional value chains, saying that “To maximise the benefits of the agreement, Nigeria’s manufacturing sector needs to be strengthened through the provision of adequate infrastructure; improvements in ports, transportation and power.
“Furthermore, there is need for significant improvement by local manufacturers in terms of product standards and service delivery. This must be achieved if local manufacturers are to be competitive in an expanding intra-continental marketplace.