Dollar flow raises capacity utilisation in manufacturing sector to 60%

Capacity utilisation in Nigeria’s manufacturing sector spiked to 59.18 percent in the second half of 2016, the highest in more than five years.

This represents a 19.2 percent surge from 49.64 percent recorded in the corresponding period of 2015, data obtained exclusively from the Manufacturers Association of Nigeria (MAN) shows.

Manufacturers attribute this dramatic rise in capacity to the Central Bank’s foreign exchange intervention in the sector from August to December of 2016.

“The increase in capacity utilisation in the second half of 2016 is attributable to the 60 percent preferential FX allocation to the manufacturing sector, for importation of raw-materials and machinery that are not locally available,” says MAN.

“The guideline made FX more available to the sector or their imports needs,” MAN adds.

Capacity utilisation is a measure of the rate at which productive capacity is used. High or rising capacity utilisation implies that manufacturers are closing the gap between actual output and potential output.

Capacity utilisation in the manufacturing sector was only 44.3 percent in the first half of 2016. In H2 2014, capacity utilisation in the sector was 54.2 percent, as against 52.7 percent in the corresponding period of 2013.

Nigeria was hard hit by foreign exchange crunch in 2015 and 2016, owing to low dollar inflows into the economy, resulting from the oil price crash and threat of US shale oil.

Consequently, manufacturers, who imported many of their inputs, struggled to find dollars to sustain production and maintain their staff.

The Central Bank of Nigeria (CBN) intervened in August 2016 by giving manufacturers access to 60 percent of the available dollars in the foreign exchange market. This infuriated players in other sectors who felt they were as important as manufacturers. However, this raised the capacity of factories and restored the confidence of real sector players.

The CBN in February this year, reversed the 60 percent FX allocation to the sector, in order to make dollars available to all sectors of the economy.

“We are disappointed that the 60 percent preferential FX allocation to the manufacturing sector was withdrawn mid-way,” MAN said.

“The change was ill-timed in view of its impact on manufacturing projections and plans for 2017. Most manufacturers at that time were just beginning to resume production, while others were looking inwards for the development of the needed raw-materials locally,” the association, led by Frank Jacobs, said in a statement to BusinessDay.

The Purchasing Managers Index (PMI), which indicates levels of expansion in manufacturing, stood at 52.9 index points in June 2017, indicating expansion in the manufacturing sector for the third consecutive month.

The PMI is 0.4 index points higher than the level of 52.5 index point in the preceding month.

Nigeria’s manufacturing sector lost 54 firms to dollar crunch, while 222 small and medium businesses across the country fell to the sledge hammer, leading to loss of 180,000 jobs, according to a survey carried out by NOI Polls Limited and the Centre for the Studies of Economies of Africa.

“The figures we see today in the manufacturing sector do not tell the whole story. Yes, capacity may be rising because people can get more dollars. Yes, PMI may be high, but what about other issues that have been left unattended to, like power, like logistics, like funds,” said Ike Ibeabuchi, CEO of MD Services, servicing firm with a chemical manufacturing plant.

According to Segun Kuti-George, chairman, Nigerian Association of Small-Scale Industrialists (NASSI), Lagos State Chapter, what is important now is to make the naira needed to buy dollars available for manufacturers.

“The dollar is available. The $20,000 for small and medium enterprises per quarter is available to us but we need naira to buy dollars,” Kuti-George said.

“Funding is needed now, more than ever, considering the fluctuations of the naira-dollar exchange rate. Even at the current exchange rate, our cash-flow has depleted,” Kuti-George said.

 

ODINAKA ANUDU