Indeed, the second quarter of the year 2020 saw the height of COVID-19 in Nigeria and globally with key facet of the economy contracting in growth and performances. The country’s manufacturing sector was not spared as massive job losses, disruptions in supply chains, recession were pronounced. Taiwo Hassan reports
In fact, the country’s manufacturing sector has never witnessed a lull in growth and performance it recorded during the COVID-19 lockdown. It was the period the country’s real sector of the economy entered into dormancy as many manufacturing firms struggled to survive. The second quarter was very challenging for members of the organised private sector and the business community as a whole as the the pandemic caused severe dislocations in businesses and the economy generally. There were disruptions in supply chains, travel restrictions, exchange rate depreciation, breach of contractual agreements, macroeconomic shocks, loss of revenue, suspension of business activities, erosion of investors’ confidence and many more.
Also, in the quarter under review, the Manufacturers Association of Nigeria (MAN) raised the alarm that the global pandemic had resulted to firms struggling to pay workers’ salaries promptly with majority of them resorting to slashing payments amid challenges. In fact, at the height of COVID- 19, the association noted that some manufacturing firms had been overstretched beyond meeting salary payments of workers, even as they struggled to remain in business following government’s policy on border closure and COVID-19 issues. The Acting Director-General of MAN, Ambrose Oruche, in an interview with New Telegraph in Lagos, affirmed that the delay by government not to roll-out stimulus package (bailout) to manufacturing firms wqs worsening the situation. This consequently caused mass redundancy in workforce, salary pay cut, arrears of workers’ salaries, factory shutdown and others.
Rising cost of financing
During the period under review, MAN also raised the alarm that there was rise in the cost of financing in the country’s manufacturing sector. MAN President, MansurAhmed, said that the Federal Government and the Central Bank of Nigeria should urgently intervene in monetary policy to ensure bringing down cost of financing in the country’s manufacturing sector. He particularly stated that the reduction in cost of financing in the sector could only be achieved in this trying period if government and the apex bank work out modalities that will see Nigerian banks scaling down cost of financing in the financial systems.
Likewise, in the second quarter, the PricewaterhouseCoopers (PWC) in a report said that small business owners in Nigeria identified problem of accessing funds as the biggest challenge hampering their growth initiatives, and by implication, their capacity to improve their contribution to the nation’s Gross Domestic Product (GDP). According to the PWC report, they also listed the problems of finding customers and infrastructure deficits among the hurdles impacting their operations. Presenting the result of the survey findings recently, Partner and Lead, Private Wealth Services of PwC Nigeria, Esiri Agbeyi, noted that 22 per cent of the respondent MSME owners identified obtaining finance as the biggest challenge facing them, while 16 per cent agreed that finding customers was a big problem and 15 per cent hinted that infrastructure deficits constituted a major constraint to their operations.
State of emergency
Following the development, MAN urgently urged the President Muhammadu Buhari-led Federal Government to declare a state of emergency in the manufacturing sector. Similarly, MAN also clamoured for government to immediately place the sector on an integrated policy ventilator through the provision of a comprehensive support systems and stimulus packages to swiftly return the sector to the path of sustained production. The chief executive officers of manufacturing companies in Nigeria emphasised that the country’s manufacturing sector was indeed in a precarious state and requires a lifeline to recover fully from the impact of the outbreak of COVID-19. Particularly, MAN noted that losses associated with the lockdown period and the multidimensional challenges of the post-lockdown operating environment severely impaired the first quarter 2020 MAN CEOs Confidence Index (MCCI) aggregate index and the indexes of the various diffusion manufacturing factors to fell below the 50 points benchmark.
Weak purchasing power
In the second quarter, the Chairman of Council, Nigerian Association of Small and Medium Enterprises (NASME), Orimadegun Agboade, disclosed that there was rising weak purchasing power of many average Nigerians. Agboade pointed out that it had resulted to the common man finding it difficult to afford consumer goods and food items conveniently in the market. He said a survey conducted by NASME among households showed that many of them were already severely depressed over the negative impact the novel pandemic is having on standard of living, which is becoming unbearable and costly due to the weakening purchasing power in country.
It was disclosed by the Lagos Chamber of Commerce and Industry in the second quarter that thousands of businesses operating in Lagos lost trillions of naira during the five-week lockdown (March 31-May 3, 2020). Similarly, the chamber also said investors lost N2.7 billion in revenue by sampled businesses to the lockdown during the same period under review. The LCCI in its business survey carried out to determine the impact of the lockdown on businesses, using Lagos state as a case study being the choice of its commercial and economic importance to Nigeria, revealed that significant fraction of sampled businesses, precisely 81 per cent, were severely affected by the lockdown with an average revenue loss of N17.5 million by each of the business operators spanning across various sectors of the economy including food processing, agriculture, financial services, professional services, ICT, exports, trade and freight forwarding.
Following the massive drop in global oil prices amid the pandemic which translated to reduction in foreign exchange (forex) inflow into the country, manufacturers confirmed in the second quarter that it was pretty difficult to source forex from all the available windows. In its MAN CEOs Confidence Index (MCCI), it explained that manufacturers were dismayed over the refusal of the Central Bank of Nigeria to make forex available for over five weeks during the lockdown period as against the usual interventions. Particularly, MAN pointed out that the drop in global oil prices and the emergence of the pandemic were the reasons for the development that compelled the apex bank to adjust the exchange rate upward in the quarter under review.
Letter of Credit rejection by banks
Another major event in the second quarter under review was the pronouncement by the Manufacturers Association of Nigeria that local manufacturers’ letter of credit (LC) requests to their foreign partners for raw material importation were being rejected by Nigerian banks following scarcity of forex. Particularly, MAN noted that local manufacturers were currently battling to meet up with payment of their foreign business partners’ request via the LC already with the Nigerian banks. With this in place, MAN explained that the situation posed high risk to the country’s manufacturing sector in terms of producing at optimum capacity for manufacturers.
It is very clear that in the second quarter of this year, the manufacturing sector was confronted with two COVID-19 issues; one was the threat to lives of citizens and the other is the negative impacts of the virus on all the facets of the economy. So the virus also opened up the fact that government and leaders of private sector organisations need to quickly work together to remain relevant and guarantee survival of businesses post-COVID-19.