–by Barnabas Esiet
The general manufacturing environment in Nigeria is dominated by the large corporate and multinationals and the Small and Medium Enterprises (SMEs) with the latter being in the majority.
Major manufacturing industries include rubber, wood, textiles, cement and other construction materials, food products, footwear, pharmaceutical, chemicals, fertilizer, printing, ceramics, steel, and shipbuilding and repair.
The manufacturing sector in Nigeria in its early days produced a range of goods including milled grain, vegetable oil, meat products, dairy products, sugar refined, soft drinks, beer, cigarettes, textiles, footwear, wood, paper products, soap, paint, pharmaceutical goods, ceramics, chemical products, tires, tubes, plastics, cement and glass.
The industry witnessed a terrible collapse in the mid-1980s leaving about ten factories in stable condition in 2004. During the period between 2000 and 2008, records show that the industry experienced its worst nightmare as 820 manufacturing firms either closed shop or suspended production with the textile and garment sub-sector taking the hardest blow. At its peak, the textile sector was the second largest employer of labour in Nigeria and had a turnover of about $8.95 billion employing nearly 700,000 people.
Data from the Central Bank of Nigeria however, indicates that since April 2017, the manufacturing sector of the economy had been expanding, basically driven by a new foreign exchange policy initiated two months earlier to stem the widening gap between the inter-bank foreign exchange and parallel market rates.
Prior to the pandemic era, the manufacturing industry in Nigeria was facing a lot of challenges including multiple levies and taxation, inadequate power supply, poor government policies, stiff competition from imported products and border closure among others.
Despite the challenges, however, manufacturers were still able to carry out production activities, buoyed by entrepreneurial creativity and expensive bank credit facilities.
According to the Chairman of the Pharmaceutical Sector of the Manufacturer Association of Nigeria (MAN) and Founder/ Chief Executive of Fidson Pharmaceuticals, Dr Fidelis Ayebae the industry is suffering under the burden of multiple taxation and illegal levies by the government and its agencies.
“ In a situation where local manufacturers are playing catchup and where they are almost not competitive in terms of pricing compared with other countries where huge capacities have been built for competitiveness, how do you compete when 7.5per cent of VAT is added to your cost which is already too high for the ordinary Nigerian.” He queried.
The pandemic effect
Analysts believe that the Manufacturing sector in Nigeria may now be facing one of the toughest times in its history after months of inactivity following the outbreak of Coronavirus (Covid-19) pandemic that had seen the shutdown of many economies across the world.
The World Bank and IMF have predicted that Nigeria’s economy would shrink by 3.5 percent leading to about 49 million job losses by the end of 2020, owing to the pandemic.
After the first case of coronavirus disease was recorded in Lagos, Nigeria on 27 February 2020 and the subsequent spread of the disease across the country, both the federal and state governments started locking down the economy in the months that followed.
These measures had a significant impact on the lifestyle of Nigerians and businesses especially in the manufacturing sector where critical actions were taken such as cutting down the workforce, work hours, budgets, salaries and adoption of new business models among others.
During the larger part of the nation-wide lockdown that economic activities came to a standstill, except for essential services, most manufacturing companies in the country remained closed while few operated at a marginally lower level in terms of capacity utilization, employment and output.
After being caught unawares by the lockdown there were many disruptions in the demand and supply chain of the sector as revenues fell and debtors delayed payments or became insolvent. Many companies in the sector encountered cash flow management issues as they waited endlessly to replenish stock of raw material, secure credit facilities or service existing ones.
It became almost impossible for firms in the sector to prepare for resumption of activities even as the global economy was also on lockdown.
The Purchasing Managers Index (PMI) is an indicator of economic health for the manufacturing sector. The index is derived from a survey of purchasing and supply executives across 13 locations in Nigeria. It provides information about current business conditions to company decision makers, analysts and purchasing managers.
PMI is presented as an average of variables (from 0 to 100) comprising: production level, new orders, supplier deliveries, employment level and inventories.
A reading above 50 indicates an expansion; below 50 represents a contraction; while 50 indicates no change. The further away from 50 the greater the level of expansion.
According to data released by the central Bank of Nigeria, the PMI in the month of July stood at 44.9 index points, indicating a contraction in the manufacturing sector for the third consecutive month.
The July figure shows negligible growth compared to 41.1 and 42.4 index points recorded in June and May 2020.
The New Normal
Following the phased easing of the lockdown, manufacturers are now grappling with the difficulties of an entirely altered system of operation. Obtaining new credit facilities from the banks and sourcing for raw materials being the immediate major challenges.
As part of efforts to mitigate the negative effect of the covid-19 lockdown on the economy, the Central Bank of Nigeria (CBN) provided a N100bn bailout fund for manufacturers in the healthcare sector. Despite this gesture, the President of the Pharmaceutical Society of Nigeria (PSN) Sam Ohuabunwa says many companies that access the facility are running a risk of losing a substantial value of the money owing to inflation and depreciation of the naira.
““We are now looking to buy forex from the parallel markets and you know the rate at which parallel markets go, so inflation and depreciation are major threats to proper utilisation of the funds.” He noted.
“We have also sent and issued requests to CBN to make a special forex provision for the pharmaceutical industry and other healthcare entrepreneurs who have taken advantage of this healthcare and pharmaceutical sector fund and to extend the moratorium for repayment beyond one year.” Ohuabunwa said.
President PSN, Sam Ohuabunwa
Rasheed Adegbenro, is the Technical Adviser to the Manufacturers Association of Nigeria, he paints a very gloomy picture of the industry “The unprecedented happened in 2020 as Covid-19 came with the lockdown and many companies were trapped, nobody was accepting orders in Asia or Europe where most of these raw materials come from until the lockdown was eased in May/June, indication is that the suppliers already had a very huge backlog of orders to fill so if you make your request in May/June, you’re likely to start receiving deliveries October/November.” He told Newsshelve in a telephone conversation.
According to Adegbenro, “Though the lockdown has been lifted May/June, food production may not commence until December and you know December is usually festive and closure period, the implication is that for one year many SMEs would have had dull production history in their records.”
Notwithstanding the negative consequences of border closure on the activities of the manufacturing sector with respect to trade within the sub region, the difficulties associated with accessing bank credits and foreign exchange is another kettle of fish.
According to the CEO of Stellarchem Nigeria Limited, Ikpong Umoh, many SMEs are finding it difficult to do business after the lockdown especially those using bank credit facilities as the banks are basing their lending criteria on turnover which was almost zero during the lockdown.
The banks are also refusing to issue Letters of credit claiming that the apex bank often turns down or drastically reduces their request for such facilities forcing manufacturers to depend more on forex.
“What is likely to happen is that small scale manufacturers would have to plough back their limited reserves which implies that the quantity of inputs and outputs would shrink as they are now sourcing dollars from the black market.” Umoh noted.
CEO of Stellarchem Nigeria Limited, Ikpong Umoh
There is growing global apprehension that things may never return to what used to be the normal in the era before the pandemic even as the pandemic is becoming endemic in some western countries. Already, some businesses that were once considered the bedrock of the global economy have suddenly crumbled with massive job losses and widespread unrest across the world.
To survive the critical times ahead many SMEs that live virtually on credit may have to emulate the Multinationals that do forward planning with cash reserves to back their productions, Government can also do a lot to support small manufacturing companies by implementing a supportive policy framework to help resuscitate the sector.
**This report was facilitated by the US Embassy and Civic Hive through the Atupa Fellowship Programme.