Business

Manufacturing sector stunted by macro-economic challenges

Year 2021, for the country’s manufacturing sector, was characterised by myriads of macroeconomic challenges amplified by COVID-19 crisis, insecurity, electricity tariff hike and nonimplementation of AfCFTA, amongst others. TAIWO HASSAN reports

 

COVID-19

 

The coronavirus-induced affliction on all facets of the country’s key sectors of the economy was carried over to 2021 from the previous year. However, the difference between 2020 and this year was the absence of lockdown.

 

Late in 2020, the Federal Government and some states decided to open up the economy that was mostly under lockdown for businesses to bounce back in the year under review.

 

Notwithstanding, the pandemic, in 2021, caused disruptions to supply chain to micro, small and medium scale enterprises (MSMEs) and other key sectors like aviation and hospitality sectors. With the economy experiencing straits in all fronts, businesses continued to weather the storm as many of them faced challenges over inability to import raw materials for production.

 

However, during year 2021, the country received another shock with the emergence of the omicron variant of coronavirus with countries cancelling flights coming from Nigeria and disrupting distribution, supply and demand value chains. In fact, economic analysts noted that the omicron variant of COVID- 19 was another setback for the country’s fragile economy.

During the year, Nigeria experienced second, third and fourth waves of the pandemic.

 

Hike in electricity tariff

 

One of the major activities that shaped year 2021 aside the pandemic was the sudden approval by Nigerian Electricity Regulatory Commission (NERC) of over 50 per cent hike in electricity tariff.

The news was received by Nigerians, the business community and members of the organised private sector as a bad gift from the Federal Government.

They faulted government for implementing tariff that would further impoverish the generality of Nigerians and businesses that were yet to recover from COVID-19 shock. The OPS, which is the voice of the country’s business community, emphasised that it was aware of planned hike in electricity tariff by the power distribution companies in the first quarter of 2021.

 

According to them, the new electricity tariff would be monumentally challenging for business owners, manufacturers, MSMEs, households and the Nigerian economy in general.

 

FG/state govts’ VAT spat

Also during the year, there was an unending rancour between the federal and state governments over who has the constitutional right to collect value added tax (VAT) in the country. Rivers and Lagos State houses of assembly and others passed their respective bills into law to start collecting VAT.

 

The tango between the federal and state governments over the control of VAT spelt doom for Nigerian businesses as members of the organised private sector (OPS) raised the alarm that Nigerian businesses were now confused over multiple deduction of VAT. The Lagos Chamber of Commerce  manufacturand industry (LCCI) stated that the controversial VAT move had put Nigerian businesses in a state of confusion on who is in charge of VAT collection.

 

LCCI noted that this was not healthy for the business community at this period that challenges were facing the country’s tax system.

 

The Director-General of LCCI, Dr. Chinyere Almona, said that the VAT collection imbroglio had put many Nigerian businesses into confusion as they cannot be paying the same taxes to the federal and state governments.

 

Almona explained that the Chamber was apprehensive and thinking along same direction with the Nigerian business community on the looming VAT feud between the federal and state governments.

 

Rising ex-factory cement price

Also, another thing that greeted the year 2021 was the rise in the exfactory price of cement despite the manufacturers denial of having hands in the increment when, early in the year, cement price hit N4,000 per bag in the open market.

 

However, the price increase was traced to rising inflation in the country. On the part of the cement manufacturers, Dangote Cement, BUA Cement, Lafarge Cement and others operating in Nigeria’s cement industry, the inflation rate truly pushed up cost of production and other inputs of cement manufacturing in the country.

 

Despite this burden caused by the rising inflation, these popular cement manufacturers maintained that they did not increase ex-factory price of the product, rather, they are improving cement production to make Nigeria attain self-sufficiency.

 

In its reaction, the management of Dangote Cement Plc maintained that the price of a bag of cement from its factories and plants across Nigeria (as at April 12, 2021) was N2,450 in Obajana and Gboko and N2,510 in Ibese, inclusive of value added tax (VAT).

 

According to Dangote Cement, the clarification was coming in view of recent insinuations that the company sells cement in Nigeria at significantly higher prices relative to other countries, particularly Ghana  and Zambia.

A manufacturer’s ordeal

Also in the year under review, the Group Managing Director of Chemstar Paints Industry Nigeria Limited, manufacturer of Finecoat Paints and Shield Paints, Mr. Adedayo Paseda, came out openly to bemoan the heightened insecurity in the country, saying it had caused his company a huge loss.

According to him, the company has since last year (2020), at the peak of Coronavirus (COVID-19) outbreak and lockdown, as well as the heightened insecurity in the country, been operating between 50 and 60 per cent of its production and output capacity.

 

“Our operations cover the entire country, but there are several states and areas across the federation where we could not send our staff or vehicles with our products because of insecurity. There are places that our vehicles can no longer go, even in the South-West, to deliver our products,” he said.

 

Paseda, who lamented the huge losses the global health challenge and lack of security in the face of incessant kidnapping and killing by bandits and Boko Haram insurgents, noted: “We have recorded losses in terms of man-hour and output; even when the COVID-19 lockdown was relaxed, our output was less than 50 per cent of what it usually be.

 

“At least, 30 per cent less throughout last year, except at the end of the years when it rose between 50 and 70 per cent of what we used to record before the outbreak of COVID-19 and high level of insecurity.”

 

NESG’s economic reports on Nigeria

 

However, a 2021 macro-economic outlook report from the stable of the Nigerian Economic Summit Group (NESG) rolled out in the year under review indicated that the only way to get out of the woods relating to the country’s foreign exchange crisis rocking the economy is to aggressively develop the real sector.

 

NESG, in its manufacturing report made available to the media, stated that Nigeria’s manufactur  ing sector is among the largest in Africa, with numerous opportunities.

In the report, NESG explained that the sector has the potential to create jobs and lift millions of Nigerians out of poverty if government addresses the current challenges in the sector, bothering on poor quality of infrastructure, which remains the longest standing problem of the sector in Nigeria, contributing to the high cost of production, bad road networks and inadequate electricity supply.

 

According to NESG in the report, all these make it difficult for businesses to maximise returns and limit operations costs in the sector.

 

The report also maintained that prior to 2020, the sector faced several structural challenges, which have caused many manufacturing firms to shut down, limiting growth and investment inflows into the sector.

 

Multiple regulation

 

Another challenge was the alarm raised by manufacturers that they were still facing multiple regulations from government agencies, which is currently depressing productivity in the country’s manufacturing sector.

 

Despite the worsening crisis hitting many key sectors, government’s MDAs are not allowing firms operate freely as they keep coming up with multiple taxes and others. MAN President, Mansur Ahmed, disclosed that despite government’s commitment to the revival of the country’s industrial sector to attain optimum growth in value chain, it was shocking that agencies of government were frustrating local manufacturers from making headway and achieving sustainable productivity.

 

The MAN president explained that often times, agencies of the federal, state and local authorities regulated the same manufacturing process, resulting in man-hour losses, supervisory duplication, using similar checklist and multiple regulatory charges, which often culminates in increased overheads for manufacturers.

AfCFTA

Almost one year after the commencement of trading under the African Continental Free Trade Area (AfCFTA) agreement began, Nigeria is yet to join the list of countries that are either trading or about to trade.

 

There are indications that the country’s GDP (Gross Domestic Product) could have lost about $1.18 billion (N566 billion) revenue this year following the non-implementation of the continental trade treaty.

Last line

The challenges of 2021, regrettably, led many firms to close down their factories as they could not cope with the harsh operating environment.

 

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