Manufacturers hinge 2017 rebound on energy price and exchange rate stability

Nigeria’s manufacturing sector could rebound this year, but this is predicated on the stability of the dollar-naira exchange rate and energy prices.

Gas price went above $8 per cubic metre in Nigeria last year, but was lower than $3 in the global market. Diesel price was above N200 per litre in 2016 and has already risen higher than N210 per litre so far in 2017. In 2015, diesel price was as low as N150-N170.

The price of petrol was hiked to N145 last year and there are already fears that it could go as high as N230 per litre this year, as marketers say the landing cost is above N210 per litre. Gas, diesel and petrol are three major energy sources used by most manufacturers, which also have an impact on cost of production.

Similarly, the official dollar rate was N305 to US$ for the larger part of 2016, even though this went as high as N480 to the US$ in the parallel market. Manufacturers need dollars to import raw materials, machinery, and spare parts that are not yet manufactured in the country.

In an e-mail response to BusinessDay, Frank Udemba Jacobs, president of the Manufacturers Association of Nigeria (MAN) said the quantum of dollars allocated to manufacturers would determine the productivity level in the sector in 2017.

Jacobs had earlier told BusinessDay that high-energy prices were hitting manufacturers hard, raising production cost and upsetting firms’ targets.

Bassey Edem, national president of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) said manufacturers would need to have access to dollars this year. Edem added that the flexible exchange rate policy introduced by the Central Bank of Nigeria (CBN) in 2016 provided mixed results.

According to him, manufacturers faced energy frustrations in 2016. He further called for the use of renewable energy in 2017 to cut production cost.

Micheal Ola Adebayo, chairman of the Manufacturers Association of Nigeria (MAN) Gas Users Group, told BusinessDay that the government should endeavour to resolve the high price of  gas supplied to manufacturers.

“We buy at about $8 per standard cubic metre, but we need a lower price, because we are facing a lot of challenges, especially with foreign exchange to import inputs,” said Adebayo.

Adebayo said there is a need to modify the Gas Subsidy Law of 2008 with a view to reclassifying gas supply to manufacturers from commercial to industrial.

Manufacturers spend 40 percent of their expenditure on alternative power sources, owing to poor power supply from private energy distributors in the country. This has led manufacturers, under the aegis of MAN, to set up the Power Development Company, with a view to reducing production costs.

Gas was scarce in 2016, pushing manufacturers to resort to Low-Pour Fuel Oil (LPFO), which was more expensive.

A senior staff of a cement company in Nigeria, told BusinessDay that scarcity of gas and use of the more expensive LPFO were responsible for the woes of the industry in 2016. The profits of many cement makers fell year-on-year in 2016.

Manufacturers likewise use coal-fired plants for production but this is expensive to develop or install. Aliko Dangote started developing a coal-fired plant for cement production in 2016, while Ashaka Cement is spending N100 billion in building the same plant in Gombe.  Sokoto Cement is doing the same.

In 2015, Nigerian manufacturers spent N59 billion on gas, diesel, and petrol, generating plants, electricity purifying and storage systems, such as uninterrupted power source (UPS) and inverters, according to MAN’s data. This represents a 135.28 percent spike from N25 billion spent by manufacturers on alternative power sources in 2014.

  “The most critical problem we have here is power,” Sada Suleiman, head of corporate affairs of the Cement Company of Northern Nigeria (CCNN), Nigeria’s fifth largest cement maker, told BusinessDay.

“We are developing a coal mill from where we intend to source our power,” he said, adding that the firm had 16 megawatts of power with which it sustains its production.

ODINAKA ANUDU