Nigerian manufacturers lament: 272 firms shut, 20% capacity utilisation, other challenges in 2016

Dangote Cement Factory in Ethiopia [Photo credit: www.tigraionline.com]
Dangote Cement Factory in Ethiopia [Photo credit: www.tigraionline.com]

Nigeria’s manufacturing sector performed dismally in 2016 as manufacturers faced several challenges which affected them negatively.

The Central Bank of Nigeria, CBN, said the industrial sector recorded a general decline between January and November as indicated by the Purchasing Managers Index (PMI).

The PMI is an indicator of the economic health of the manufacturing sector.

The index stood below 50 index point in the months of January to November which indicated decline in industrial production.

The PMI is based on five major indicators – new orders, inventory levels, production, supplier deliveries and the employment environment.

Operators said that the sector was faced with myriads of challenges ranging from scarcity of foreign exchange, infrastructure deficit, high banking charges and lack of raw materials.

About 272 firms were shut, while some reduced their production, staff strength and remuneration of workers.

Frank Jacob, the President, Manufacturers Association of Nigeria (MAN), said that industrial capacity utilisation hovered around 20 per cent during the year.

“More than half of the surviving firms are classified as ailing which posed serious threat to the survival of the manufacturing sector.

“The business environment was plagued by epileptic power supply, bad roads, high interest rate and high cost of energy which contributed to high cost of production and impediment to competitiveness of the sector,” Jacob said.

A major challenge was the acute scarcity of foreign exchange which restricted the ability of manufacturers to import raw materials for production.

The apex bank had earlier maintained an official exchange rate with the bound of N197 to N199/USD from February 2015 to June 2016.

To address the problem of foreign exchange scarcity, the CBN introduced a new foreign exchange system and some monetary controls in June 2016.

Under the new flexible exchange rate system, the naira exchange rate to the dollar depreciated to the average of N320 in the official market and N485 in the parallel market during the year.

The CBN also banned 41 raw materials from getting foreign exchange for importation at the official segment of the foreign exchange market.

MAN, however, said that the new foreign exchange system worsened the plight of manufacturers as it led to a cumulative loss of N500 billion for manufacturers in 2016.

Babatunde Odunayo, the Chairman, Apapa Branch of MAN, said that some Letters of Credit and Form Ms, approved to manufacturers at N197/US$ before the introduction of the flexible exchange system, were redeemed at N320.

He said this meant a huge loss to manufacturers as the related goods had mostly been sold before the commencement of the new exchange rate system.

Mr. Odunayo said that the exchange rate loss of N500 billion reflected in their accounts and led to factory closures, unemployment and loss of investments.

According to him, the exchange rate losses required additional working capital to shore up cash differences of between N320 and N197.

To further address the foreign exchange crisis, the CBN, on August 22, directed banks to allocate 60 per cent of their foreign exchange sales to manufacturers for procurement of raw materials, plants and machineries.

In spite of this directive, the problem of foreign exchange scarcity persisted.

Hamma Kwajaffa, the Director-General, Nigerian Textile Manufacturers Association (NTMA), said that the textile industry nearly went into extinction due to inability to access foreign exchange for critical raw materials.

Mr. Kwajaffa said that no textile manufacturer had accessed foreign exchange in spite the $660 million earmarked for manufacturers at the official interbank market.

Nnamdi Okafor, the Managing Director, May and Baker, said the inability of manufacturers to access foreign exchange through the interbank affected industrial production and contributed to inflation.

“It has been a herculean task running any business in Nigeria, especially import-dependent manufacturing business.

“I can confirm to you that as a company, we have not been able to access official forex allocation in the past six months.

“In fact, some of the letters of credit we opened as far back as the fourth quarter of 2015 have not been funded by the banks.

“Consequently, we incurred huge exchange rate losses in 2016 and these will likely impact on bottom-line at the end of the year,” Mr. Okafor said.

Erisco Foods Limited, an indigenous tomato paste manufacturer, relocated its 150 million dollars tomato paste processing plant to China due to the same problem.

Erisco Foods had a production capacity of 450,000 metric tons of tomato paste annually and had 22 brands with over 2,000 workers in Nigeria.

Eric Umeofia, the Chief Executive Officer, Erisco Foods, said that the company relocated to friendlier business environment since it lost over N3.5 billion in Nigeria.

Muda Yusuf, the Director-General, Lagos Chamber of Commerce and Industry (LCCI), said the inability of manufacturers to access foreign exchange at the interbank market impeded growth in the real sector.

He urged the Federal Government to ensure more liquidity in the foreign exchange market to restore investors’ confidence in the economy.

Industry experts also urged the CBN to review its policy on the 41 items restricted from the official foreign exchange market as it had stifled production and forced many firms out of business.

They urged the apex bank to redirect its policies towards stimulating the economy rather than tightening money supply.

They said that monetary and fiscal policies should be coordinated for economic revival and growth.

The experts also called for review of some monetary and fiscal policies that had hindered the growth of the manufacturing sector.

However, there seems to be a ray of hope for the sector in 2017 as indicated by the PMI.

The PMI recorded some improvement in December which elicited optimism that 2017 will be a better year for the sector.

(NAN FEATURES)


DOWNLOAD THE PREMIUM TIMES MOBILE APP

Now available on

  Premium Times Android mobile applicationPremium Times iOS mobile applicationPremium Times blackberry mobile applicationPremium Times windows mobile application

TEXT AD:Discover!!New Solution Helps Men Get Bigger Penis size!!To 7inch without Side Effect and Last 25minutes in bed During Sex Click Here To Read...


TEXT AD:WARNING TO MEN: These 3 Foods are Killing Your Erection. Click Here to Know Them...


All rights reserved. This material and any other material on this platform may not be reproduced, published, broadcast, written or distributed in full or in part, without written permission from PREMIUM TIMES.


  • Es3

    During Jonathan’s time. we had reports from MAN indicating new manufacturing companies have sprung up across the country!

    But during Buhari/APC Change government, we are MAN is telling us this tale of woes!!!

  • Maverick

    Yet PreslDIOT Buhari said he’d create two million jobs for Southeast geopolitical zonesmgrip only.

    On the contrary, over two million Nigerians have lost their jobs.

  • Sanssouci

    What do you expect when economic illiterates draft policies? I am sure Even Buhari now knows that although corruption is a problem, it is not our biggest problem, not by a longshot. Investor confidence that he used his own mouth to scatter landed us where we are. Even if you stamp out corruption 100% without an idea on how to stimulate manufacturing and production you have only played to the gallery. You want to give 5000NGN to the most vulnerable, sorry to say that is idiotic and nothing more than political rhetoric, 5000NGN a month is about 34 cents a day, that will make zero economic impact and will still keep the beneficiaries in abject poverty. Buhari it ain’t too late, swallow the humble pie and bring in thinkers, your system is not working.

    • real

      that 5000 payment is the worst thing any government can do and it is the absolutely worst thing this government can do. it was a pure waste of money and it would not move the needle at all. as a matter of fact it would make the situation even worst. it would have being better for the government to use that money, purchase some kind crop seed or even poultry and give to this people to farm. Then tell them to plant or raise the animal and the government would come back and purchase the yield or eggs from them at harvest time. That is increasing production and adding value. how much and how long is 5k going to feed a family. it is not even enough to buy a bag of rice.

  • Abdullah Musa

    Manufacturers Association of Nigeria is bereft of ideas, and is not willing to listen to those offering fresh vision.

  • Gouken

    Never thought I’d say this BUT compared to what’s going on now…

    President Goodluck Jonathan’s days were ‘the good old days’.

  • Decimator

    Next time a stark illiterate, a Tyrant, a known dictator, a blood sucking Vampire, an autocrat to the core who’s only idea is violence(threatening to soak the Dogs and Baboons(his fellow Citizens) with Blood), a jihadist, a Sadist, a Vendetta to say the least, will connive and borrow the “Change Mantra” of his fellow Jihadist in democratic camouflage, Barrack Hussein Obama, the Muslim president of the United States, to present himself to the gullible citizens of the Nigerian Enclave as the messiah of a rotten system he helped to build and nurture, and people will sheepishly follow him to the mods.

    In any case he has really helped to bring the non-existing One Nigeria Unity to its final end. Kudos to him.

  • thusspokez

    Erisco Foods Limited, an indigenous tomato paste manufacturer, relocated its 150 million dollars tomato paste processing plant to China due to the same problem.

    You mean to outsource the manufacturing process to China and then import the tomatoes back to Nigeria?

    This Erisco is not prepared to contribute to the Nigerian employment population, but nevertheless wants to sell its products to them. If every major company follow Erisco’s example, who then will provide Erisco Nigerian customers jobs to enable them buy Erisco tomatoes paste? In my republic, I would ban the import of such products into Nigeria.

    Anyway, I read on this website that Dangote is to resume his tomatoes factory in Kano state , I can see him getting the federal government — as he often does– to put a hefty import duties on the import of tommato paste or even an outright ban.

  • thusspokez

    About 272 firms were shut, while some reduced their production, staff strength and remuneration of workers.

    Well, I am not sure about this few number of firms. Nigeria is in worst recession in 30 years and yet only 272 firms shut down? It could be an under-counting or Nigeria simply don’t have many medium/large businesses in this category

    Anyway, these are facts, namely companies are struggling to keep afloat. And if this is the case, from where are jobs to come? Buhari “N-Power” gimmicks are short term solutions — if they are solutions at all. The question is: where will the participants in the various Buhari’s gimmicks [oops! ‘programmes’] find the jobs after the show-time is over in a few months?

  • real

    He urged the Federal Government to ensure more liquidity in the foreign exchange market to restore investors’ confidence in the economy.
    This statement coming from a business man or leader of a company, shows the main problem with some businesses in Nigeria. How is the government going to ensure more liquidity with forex. Does Nigeria government print dollar or pounds? due to our useless leaders, Nigeria earns majority of it forex from oil sale. That forex is what the whole of Nigeria import dependent economy is trying to use to fund their operation. The only solution for most businesses is to begin to massively look inward for it equipment, raw material and other imported items. useless the country increases its export, or oil price rebound massively, we are not going to be earning much more dollar.