The Manufacturers Association of Nigeria MAN and the Lagos Chamber of Commerce and Industry (LCCI ) have reacted to the recently released inflation figure which is 24.08 percent for the month of July, saying the significant rise in inflation largely reflects fuel subsidy removal and exchange rate devaluation.
The two foremost associations said they are concerned that there may be more inflationary pressures in the coming months due to the volatility of the Naira as well as the lagged effects of subsidy removal and its transmission to general prices.
According to Segun Ajayi-Kadir, MAN’s director general in a statement, he stated: “As you would expect, the current inflationary condition in Nigeria is adversely affecting the operations of the manufacturing sector, just like most other sectors of the economy.
He listed Some of the impacts of the rise in inflation on manufacturing including:
Increase in Cost of Production: Rising inflation often leads to higher costs of raw materials, labour, and other production inputs. Manufacturers might find it more expensive to procure resources necessary for their production processes, thereby squeezing profit margins.
Reduced Profit Margin: As costs increase due to inflation, manufacturers might struggle to pass on these cost increases to consumers in the form of higher prices. This will result in reduced profit margins, especially as it is becoming more difficult to pass the burden to the consumers as a result of income squeeze leading to price resistance.
Supply Chain Disruptions: Inflation is disrupting supply chains, making it difficult for manufacturers to obtain necessary materials and components. This will lead to delays in production and potentially halt operations as key supplies become scarce or unavailable.
Uncertainty in Planning: Inflation introduces a level of uncertainty in economic conditions. Manufacturers will continue to find it challenging to make long-term business plans due to unpredictable cost fluctuations, demand shifts, and overall economic instability.
Reduction of Consumer Spending: High inflation often reduces consumers’ purchasing power. As prices rise, consumers are cutting back on discretionary spending, including manufactured goods. This leads to decreased demand for products which adversely affects manufacturers’ sales.
MAN stated that elevated inflation serves as a significant sign of underlying macroeconomic weaknesses, and neglecting to tackle the underlying causes will exacerbate constraints on economic expansion and elevate the unemployment rate within the country. It’s important to note that addressing inflation is a complex and long-term endeavor that requires a coordinated effort from various stakeholders, including the government, central bank, private sector, and civil society.
A combination of these recommendations, tailored to Nigeria’s specific economic circumstances, can help mitigate inflationary pressures and promote sustained economic growth. Some of the ways that will ensure effective and conducive operations of manufacturers in the Nigerian economy includes:
- Striving towards a stable exchange rate is crucial to controlling inflation. The CBN should implement effective exchange rate policies that prevent sharp depreciation of the currency, which has continued to lead to imported inflation. Addressing the problem of free fall of Naira in both official and parallel markets by improving liquidity in I&E window.
- Employment of collaborative fiscal policy measure through budgeting and effective taxation to complement the monetary policy actions taken by CBN.
- Increased targeted support to the agricultural sector to enhance productivity, reduce reliance on imports and stabilize food prices.
- Formulation of policies that promote a stable and conducive business environment which can attract both local and foreign investments, leading to increased production, job creation, and ultimately, stability in prices.
- Communicate effectively with the public and stakeholders about the government’s commitment to controlling inflation. This can help manage inflation expectations, which can influence price-setting behavior.
- Addressing the challenges of insecurity.
7.Deploying fiscal reforms that prioritize productivity and intensify infrastructural development to stimulate economic activity, create jobs and improve living conditions.
- Implement structural reforms that enhance transparency, reduce bureaucracy and improve the ease of doing business.
The LCCI in its reaction stated that Nigeria’s headline inflation rate accelerated for the seventh consecutive month to 24.08 percent in July 2023 from 21.82 percent in January, according to the latest inflation figures released by the National Bureau of Statistics (NBS).
“The rate is the highest since September 2005. It increased by 1.29 percentage points when compared to the previous month, 22.79, and on a year-on-year basis, it went up by 4.44 percentage points compared to 19.64 recorded in July 2022. The significant rise in inflation largely reflects fuel subsidy removal and exchange rate devaluation.”
Food inflation it stated increased by 1.73 percentage points to 26.98 percent from 25.25 percent the previous month. Core inflation also increased by 0.41 percentage points to 20.47 percent when compared to 20.06 in the previous month and increased by 4.41 percentage points when compared to the corresponding month in 2022. Furthermore, the data revealed that the highest increases were recorded in the prices of food and non-alcoholic beverages, housing, water, electricity, gas, and other fuel, clothing & footwear, and transport (including prices of passenger transport by air, passenger transport by road, vehicle spare parts, etc.)
According to Dr. Chinyere Almona, director general of LCCI, the Chamber is concerned that there may be more inflationary pressures in the coming months due to the volatility of the Naira as well as the lagged effects of subsidy removal and its transmission to general prices.
The LCCI therefore recommends that the government should step up efforts to tackle food costs, especially staple food items. We commend the Federal Government’s declaration of a state of emergency on food security and urge them to prioritize farmers’ areas of assistance, fertilizers, and seeds to mitigate the effects of subsidy removal as well as strengthen strategic food reserves to be used as price stabilization mechanisms. The Chamber implores the government to hasten the provision of the anticipated palliatives to lessen the impact of the rising trend in prices on economic agents.