The first quarter of year 2021 in the country’s real sector faced some challenges, even though the economy exited recession earlier than expected. TAIWO HASSAN reports
Nigeria’s recession exit
For members of the organised private sector, the unexpected announcement by the National Bureau of Statistics (NBS) that the economy exited recession with the the gross domestic product (GDP) recording a 0.11 per cent growth in Q4’20 came as a pleasant surprise. The OPS had said that the improvement in quarterly output performance showing real GDP growth rose by 0.11 per cent in Q4’20, compared to 3.62 per cent contraction in the preceding quarter, was not expected. This, no doubt, may not be unconnected to the facts that the economy contracted the most in at least three quarters in 2020, yet, unexpectedly exited recession in Q4. In short, many members of the OPS had expected the economy to be out of recession in the second quarter of 2021.
COVID-19’s second wave
In Q1’21, COVID-19’s second wave crisis was prevalent. Precisely, the crisis, since its emergence in 2020 in Nigeria, had disrupted economic projections of many private firms/individuals, government/ public and foreign firms. The OPS noted the economy risked further decline in GDP if the pandemic persists. However, the arrival of vaccine has seen serious drop in daily infection in Nigeria.
In Q1’21, a survey on the stable of the Lagos Chamber of Commerce and Industry (LCCI) showed that most businesses (72 per cent) resumed activities this year, but below pre-lockdown level. The Chamber, in the survey, stated that this was due to weak consumer demand as most Nigerians are yet to recover from the tough economic conditions following the ripple effects of the lockdown. According to LCCI in the survey, just 14 per cent of the respondents have fully resumed their business activities as most of the businesses have not been able to adapt quickly to technology. Similarly, LCCI also said that about 15 per cent respondents were yet to resume business activities, which depicts that these businesses might have been badly disrupted by the lockdown. This also reflects the weak purchasing managers index, which endured six months of contraction from May till October and only gained momentum in November 2020 at 50.2 per cent. The Chamber further reported in the survey that 18 per cent of the respondents were attacked and looted. These businesses are part of those currently operating below the pre-lockdown capacity. LCCI in the survey added that this further deteriorated their current state as most of them would be forced to face difficulties in terms of continuing with their business activities in 2021.
Also, the much-anticipated African Continental Free Trade Area (AfCFTA) commenced on January 1, with all eyes on the continent’s markets. Following the continental trade, the private sector group emphasised that reopening of the land borders should act as succour to the manufacturing sector, even as AfCFTA serves as avenue for manufacturers to penetrate new African markets. However, they projected that critical challenges such as forex scarcity, inconsistent foreign exchange policies, inefficient transport infrastructure, high production cost, weak consumer demand and the new competitiveness pressure foisted by AfCFTA may dampen the recovery prospects of the sector this year.
BoI’s $1bn loan for MSMEs
Also, in the quarter under review, the Minister of Industry, Trade and Investment, Mr. Niyi Adebayo, disclosed that the Bank of Industry (BoI) was planning to deploy a $1 billion syndicated-term loan to support the Micro Small and Medium Scale Enterprises (MSMEs) sector. He said the move was part of Federal Government’s efforts towards economic recovery and sustainable growth, working with international partners to boost the sector. Adebayo noted that the Federal Government was discussing with Dunn & Bradstreet to establish an SME risk rating institution, the SME Rating Agency of Nigeria (SMERAN), to provide an empirical basis for analysing the eligibility of SMEs to access credit. He stated that the initiative would enhance the capacity of the bank to support small businesses across key sectors of the economy through the provision of affordable loans of medium to long-term tenor with moratorium benefits. The minister said the survival fund could save at least 1.3 million jobs while strengthening the growth potential of beneficiary businesses. He added that the successful implementation of the scheme had so far contributed to pulling the country out of the COVID- 19-induced recession.
OPS kicks against increase in electricity tariff
The quarter also witnessed members of the OPS faulting the Federal Government, through the Nigerian Electricity Regulatory Commission (NERC), approving over 50 per cent hike in electricity tariff effective January 1, 2021. The group said the tariff would further impoverish the generality of Nigerians and businesses that are yet to recover from COVID-19 shock and also facing second wave. 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 electricity distribution companies in the first quarter of 2021, but only expecting the quick implementation of the new 50 per cent hike in electricity tariff, considering its impact on households and businesses that were yet to recover from COVID-19 shock. They said that the new electricity tariff would be monumentally challenging for business owners, manufacturers, MSMEs, households and the Nigerian economy in general this period. According to OPS, local manufacturers and MSMEs have been groaning over the incessant increase in electricity tariff. The President, MAN, Mansur Ahmed, said: “We acknowledge the postponement of the planned hike in electricity tariff by the power distribution companies in the first quarter of 2021, last year. “We understand that the upward review of power tariff is inevitable due to the rising cost of electricity generation in the country. Current tariffs represent 60 per cent of actual cost-reflective tariff, while the shortfall is being covered by the Federal Government through subsidies. “Electricity supply is being challenged by inappropriate tariffs, which undermines the economics of investment in the power sector and consequently inhibiting investment in the sector.”
The director-general of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, said inadequate forex supply had been putting pressure on manufacturing sector in year 2021 in the light of relatively lower dollar inflow from oil, foreign investment and diaspora remittances. He said that this was the reason MAN, the umbrella body regulating local manufacturers in Nigeria, was again raising the alarm that stiffling foreign exchange (forex) was causing manufacturing, production and distribution to go up astronomically. According to him, causes of fears among local manufacturers in the country have been the multiplier effect of COVID-19 on the country’s external reserves following the distortion in oil price at the international market. Consequently, the drop in oil price culminated in sliding down the country’s external reserves and is affecting accrued forex generation for government in running the economy optimally with the real sector feeling the pinch most. Invariably, the Central Bank of Nigeria (CBN) has always maintained support for the productive arm of the economy in terms of forex allocation to genuine manufacturers, but the issue has been that the FX available could not go round effectively.
Non-access to CBN stimulus
Following the Central Bank of Nigeria (CBN)’s various interventions to stimulate growth in the economy amid COVID-19, especially with respect to the N1 trillion manufacturing and import substitution facility and others, MAN disclosed that poor implementation was hindering the attainment of the noble objectives as manufacturers hardly access these funds. With this, MAN emphasised that as the umbrella organisation of manufacturers in the country, it solicited CBN’s consideration to be part of the monitoring process. MAN Director-General, Segun Ajayi-Kadir, in a reaction to the fund for manufacturers and Naira- 4-Dollar scheme in Lagos, stated that some manufacturers were not having access to these intervention funds with respect to the N1 trillion manufacturing and import substitution facility, the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMED), the 100 billion Health Care and Pharmaceuticals Support Funds and N300 billion Real Sector Support Facility (RSSF) despite government’s commitment to economic rebound where the real sector holds the ace. According to him, a survey carried out by MAN observed through feedbacks from members and interaction with the CBN on several occasions that these facilities and funds have not been adequately accessed by manufacturers due mainly to the prevarication of the participating financial institutions, which includes commercial banks and development banks that manage the package on behalf of CBN and government.