…bemoans multiple challenges confronting the sector
The Manufacturing Association of Nigeria (MAN) has said that manufacturing performance within the economy is beginning to gain moderate traction, as a result of the evidence by the improvement in the Aggregate Index Score to 53.5 points from the 51.8 points recorded in Q4 2023.
The result of the first quarter (Q1) 2024 Manufactures CEO Confidence Index (MCCI) survey shows the perceptions of manufacturers on movements in the macroeconomic environment, compared with the operating environment in the fourth quarter (Q4) of 2023
The association expressed this when its president, Otunba Francis Meshioye, presented the outcome of the Manufacturers’ CEO Confidence index for quarter one, 2024, at its headquarters in ikeja, Lagos.
While thanking stakeholders and contributors to Confidence index report, the MAN President advised the Central Bank of Nigeria (CBN) to consider other alternatives to checkmate the current inflation rate in the country.
According to him, the recent decision at the Monetary Pricing Committee has far-reaching implications on Nigeria’s manufacturing sector. He said the Nigeria economy has encountered significant challenges in recent years. These include foreign exchange volitality, escalating energy cost and food insecurity among others. These challenges are impeding the growth of the manufacturing sector.
The report said even though the moderate improvement in the AIS is the first in the last six quarters, it is confirmation that the sector is already on the path of restoration to the level recorded in Q3 2022 This also signifies the level of resilience of operators despite the numerous challenges confronting the sector.
The intensity of performance would have been higher but for the Current Business and Current Employment Condition indices that performed below the standard score. In addition, the observed improved perception about the business environment was majorly attributed to the consistent gains recorded by the Naira in the last part of the quarter under review.
This was strengthened by the expectation of reasonable reduction in diesel price, further improvement in the value of Naira, seamless disbursement of the presidential intervention funds for the manufacturing sector and stronger clarity on the policy direction of the Government. The Good news however is that the findings from the analysis specifically revealed that among the diffusion factors, the projections of confidence indices for the next quarter signpost expectations of improved performance above the 50-point threshold.
The development of manufacturing should be at the front burner for economic policymakers as the sector is the most essential for sustained economic growth and shared prosperity.
However, the subdued performance of the sector is attributed to some ongoing harsh economic reforms that have compounded the long-standing challenges confronting the sector. This is confirmed by the finding of this report which reveals that forex scarcity, inadequate power supply, high inflation, rising energy cost, multiple taxation, policy inconsistency, exorbitant interest rate, poor infrastructure and high logistics costs are the top ten challenges depressing productivity in the sector.
“The Manufacturers Association of Nigeria acknowledges the efforts of Government aimed at revitalizing the manufacturing sector evidenced by the recent monetary policy initiatives targeted at salvaging the economy. However, it must be made clear that most of these policy initiatives have not resulted in a win-win situation. Most notably, the consecutive hikes in the Monetary Policy Rate by 600 basis points to combat inflation and encourage the inflow of foreign portfolio investment will not result in sustainable gains for the Naira.”
“ Foreign portfolio investments are hot monies that only result in short-term gains for the naira. The limited access to credit by the manufacturers has been further worsened by the upward adjustments of the cash reserve ratio and the recent reduction of the loan-deposit ratio without due consideration of the negative consequences on the survival of operators, especially the Small and Medium Industries (SMI).”
“In its bid to bring high inflation under control, the apex bank must strike a balance by implementing policies that stimulate foreign investment and promote an enabling environment for domestic manufacturers to flourish. It is high time the government focused more on promoting foreign direct investment and exports of high-value added manufactured goods that are capable of boosting the country’s forex reserves and sustaining the appreciation of the Naira.
“It is important to emphasise that monetary tightening is rather more effective for combatting demand-pull inflation. However, the economy is more plagued by cost-push inflation that is stoked by supply-side bottlenecks. Hence, the high inflation is yet to respond to the ongoing contractionary monetary policies that have rather choked the real sector. Therefore, ensuring price stability without undermining real sector growth requires the concerted efforts from both the monetary and fiscal authorities. “
“MAN expects the Government to frontally address insecurity, improve electricity supply, promote fiscal sustainability, and ensure policy consistency. Among other priorities, the fiscal authority must also lend supportive measures by adequately incentivising the manufacturing sector and other productive sectors. This is very important to boost non-oil export earnings in addition to the increase in oil export proceeds occasioned by increased oil production, rising global oil prices and the coming on stream of the Dangote Refinery.”
- RECOMMENDATIONS
On a final note, MAN implores the Government to decisively implement the following specific recommendations in order to revamp the manufacturing sector and reposition the economy towards attaining sustainable growth:
- Stabilising the Exchange Rate and Improving Access to Forex
- Prioritise forex sale to productive sectors of the economy, particularly the manufacturing sector.
- Stabilise the value of the Naira by managing the floating exchange rate within a business-friendly threshold and introduce other measures that will promote healthy dollar transactions.
- Direct the CBN to clear all outstanding dollar obligations on the FX Forward contracts of manufacturing concerns to engender confidence in the market.
- Review the foreign exchange rate for import duty assessment for production inputs, including raw materials, machines and spare parts that are not locally available by pegging the rate at N800, pending the stabilisation of the exchange rate.
- Discontinue the operation of the Price Verification System as the arbitrary margin has been reduced considerably and it serves majorly to arm-strong the operation of private businesses.
- Promoting Energy Security
- Direct the NERC to review the high electricity tariff for Band A Customers as no manufacturer has access to the stated 20 hours minimum of electricity supply per day.
- Strictly enforce the implementation of the privatisation agreement with the Distribution Companies to enhance effective delivery of power.
- Prioritise the domestic supply of gas to make it more accessible for local manufacturers and enforce the pricing of domestic gas supply in Naira as it is only a fraction of gas export.
- Refocus the Gas Master Plan to ensure sufficient supply of gas for power generation.
- Reduce energy transmission and distribution losses by adopting modern technologies such as smart sensors and machine learning algorithms for rapidly predicting and detecting technical faults to enable quicker repairs.
- Leverage the Electricity Act to engage sub-nationals and regions for integrated electricity solutions tailored to their specific requirements, securing their backing for financing large-scale solar projects and investments in other cleaner energy sources.
- Urgently develop a detailed gas development blueprint that incorporates regulatory gas pricing and improves public-private engagement in the sector.
- Give effect to the recommendation of the inter-ministerial committee on gas which was set up to develop the roadmap for addressing the challenges of gas pricing, gas flaring, gas infrastructure and policy gaps.
- Promote energy efficiency, conservation, and sustainability by raising awareness of renewable energy, establishing standardized policies, and adopting local production of energy-efficient appliances.
- Encourage investment in the electricity value chain and revisit the power sector reform processes to close electricity access deficit and ensure efficiency in the performance of Generation, Transmission and Distribution companies through improved public- private sector partnership.
- Ensure the connection of all consumers to the electricity grid through adequate metering to avoid free riding and unfair charges on the few connected consumers.
- Ensuring Affordable Lending rate and Increased Access to Credit
- Create special windows for delivering single-digit interest rate to productive sectors of the economy, while ensuring the relaxation of stringent conditions that deny SMI’s access to such funding scheme.
- Recapitalise the Bank of Industry (BoI) to match the huge credit demand of industries.
- Identify and address the intended and unintended consequences that may occur during the bank recapitalisation process in order to maintain financial stability.
- Upgrading Infrastructure
- Ensure adequate installation of scanners, functional CCTVs, adoption of digital automation solutions of all port processes to aid clearing of goods at the port.
- Decentralise seaports nationwide to decongest the ports in Lagos.
- Prioritise budgetary allocation for the construction of infrastructure along strategic economic hubs.
- Ensure the commencement of the Brass Methanol Project and fast-track the completion of the Assa North-Ohaji South (ANOH) Project, the Obiafu/Obrikom/Oben (OB3) Gas Pipeline project and the Ajaokuta-Kaduna-Kano (AKK) Gas Pipeline Project to improve the capacity of the midstream gas sector.
- Upscale the involvement of the private sector in the infrastructure concession window to enhance the rapid development of infrastructure including road and rail networks, and rehabilitation of access roads to the ports.
- Partner with domestic and international investors that possess both the financial and technical expertise to fund the re-construction of Tin Can Port
- Addressing High and Multiple Taxation
- Implement the recommendations of the Presidential Fiscal Policy and Tax Reforms Committee and ensure the provision of consistent fiscal incentives for exporters of manufactured products.
- Reduce the over 1000% increase in the EAR and EMP by NESREA to 100% increase.
- Maintain the current excise of N10 per litre on non-alcoholic beverages as contained in the 2022-2026 roadmap to avoid the shutdown of the non-alcoholic beverage industries.
Ensuring Food Security
Ensure adequate security in the geographies surrounding food production belts and farmlands including access roads, etc. to encourage movement of farmers back to farmlands.
Promoting Local Patronage
- Set up an Inter-Ministerial Committee to monitor and enforce the implementation of the Executive Order 003 and the Public Procurement Act 2007.
- Mandate contractors in Government Ministries, Departments and Agencies at the different tiers of government including security, military and para-military agencies to give priority to the patronage of made-in-Nigeria products in line with the Executive order 003.
- Effectively apply the subsisting margin of preference of 40% and introduce monitoring mechanisms as well as sanctions for non-compliance, including prosecution of offending public servants.
- Address Policy Inconsistency
- Encourage regular meetings, consultation and collaborations among the CBN, the Federal Ministry of Finance, the Tariff Technical Committee (TTC) and the private sector.
- Lift the ban on Styrofoam and Single Use Plastics (SUPs) and enforce the states to align with the timeframe stipulated in the national regulation.
- Direct SON to revert to the issuance on generic MANCAP permits to encourage innovation in the production of domestic appliances.
- Improving Trading Activities
- Set KPIs for Nigerian diplomats and High Commissions aimed at doubling the country’s export value through effective marketing of Made-in-Nigeria goods.
- Direct the Nigeria Customs Service (NCS) to upload approved items of Chapter 99 on their platform immediately.
- Adequately mobilise the NCS and other agencies of government to checkmate the influx of substandard products and high level of counterfeiting.
- Enact a Law for the establishment of the Nigeria Office for Trade Development by merging the National Action Committee on AfCFTA with the Nigeria Office for Trade Negotiation.