New Telegraph

AGO as depressant for manufacturing sector

With the price of automotive gas oil (AGO) otherwise known as diesel still on sharp increase nationwide, the Manufacturers Association of Nigeria (MAN) is once again complaining of the hardship being experienced in the manufacturing sector, TAIWO HASSAN reports

The on-going war between Russia and Ukraine that has unexpectedly led to increase in energy cost globally is now a nightmare for Nigeria’s economy as key sectors are feeling the negative effects. One of the key sectors witnessing the direct impact of the war in Ukraine is the manufacturing sector, which is currently battling the astronomical increase in the price of diesel with dire consequences in their bid to remain in production.

Manufacturing sector at a glance

Manufacturers are heavy users of electricity in Nigeria and this naturally necessitates the keen interest in all electricity and alternative energy supply related discourse and development. Again, the manufacturing sector in Nigeria employs over five million workers, directly and indirectly, with 8.46 per cent contribution to Gross Domestic Product. The sector also dominates export trade in the West African region, generates foreign exchange, contributes substantially to revenue of government and human capital development in Nigeria. It is therefore imperative that manufacturing be given priority attention and safeguarded against steep decline. This should be backed with comprehensive and integrated support system during times of crisis. Its performance should be enhanced through a pro-manufacturing policy that will encourage scale and lower unit cost of production.

Challenges

Over the years, the manufacturing sector has been battered by numerous challenges that have plummeted the number of industries in Nigeria and converted industrial hubs in many parts of the country to warehouses of imported goods and event centres. Top on the list of challenges confronting the sector is high operating cost occasioned largely by inadequate electricity supply and the high cost of alternative sources, excessive regulation and taxation, and inadequate supply of foreign exchange for importation of raw materials, spare parts and machinery that are locally available. All these have culminated in the lacklustre performance of the sector.

Global energy market

Global events have shown that the world is like a village. The emergence of a challenge in one country can become a major constraint with spiral effects for the world. Often times, when disruption occurs in any part of the global economy, only countries with functional institutions and strong internal economic mechanisms will be able to respond appropriately to such external shocks. The current increase in prices of crude oil and other refined petroleum products such as diesel is one of such disruptions occasioned by external shocks that confirms the interwovenness of economies in the world. No doubt, the recent short supply and over 200 per cent increase in the price of AGO are part of the backslashes from the on-going invasion of Ukraine by Russia. This resulted in numerous economic sanctions against Russia by the United States and European Union, which propped up the price of crude oil to $120 per barrel (now moderated to about $100) as Russia oil export is isolated.

MAN groans

However, the Manufacturers Association of Nigeria has disclosed it is greatly concerned about the implications of the over 200 per cent increase in the price of AGO on the Nigerian economy and the manufacturing sector. More worrisome is the deafening silence from the public sector as regards the plight of manufacturers. There are four obvious questions, according to MAN, that readily come to mind and are seriously begging for answers. “What can we do as a nation to strengthen our economic absorbers from external shocks? “Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange and now over 200 per cent increase in price of diesel be advised to shut down operations? Should we fold our arms and allow the economy to slip into the valley of recession again? Is the nation well equipped to manage the resulting explosive inflation and unemployment rates?” The Director-General of MAN, Segun Ajayi-Kadir, said in the short term, the disruption occasioned by the invasion of Ukraine by Russia would continue to ruffle the global energy space and upset the supply of petroleum products, thereby causing persistent increase in the price of refined petroleum products including AGO. Also, the MAN DG noted that in the long run, it would result in enormous increase in the prices of other manufacturing inputs like wheat, maize, fertiliser and the raw materials. Ajayi-Kadir explained: “By the time the current domestic reserve of manufacturing inputs is exhausted, in the face of acute shortfall in supply, we are afraid that the prices of manufactured products will soar. “Ironically, the Nigerian economy is completely dependent on importation of refined petroleum products, including diesel and other vital manufacturing raw materials and there are currently no sufficient alternatives.”

Implications of rising AGO price

MAN pointed out that many local manufacturers were now feeling the pains of the over 200 per cent AGO price increase in the country. The MAN DG stated: “We are concerned about the implications of the sharp increase in the price of diesel on the manufacturing sector, which include the exertion of untold hardship on the manufacturing sector, leading to the closure of many industries, reduction in capacity utilisation, further decline in GDP, large scale unemployment across 76 sub-sectors and increase in crime rate, further decrease in foreign exchange earnings from the manufacturing sector as high cost of production feeds into export commodity prices and sharp reduction in government tax revenue, among others.

Last line

In the light of the gravity of the precarious situation that local manufacturers have found themselves, their expectations are that government should urgently address the country’s energy crisis so as to allow manufacturing thrive.

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