Tough times as stakeholders see higher production costs in 2015

The significant progress recorded in the manufacturing sector in 2014 may be reversed in the coming year as stakeholders foresee higher production costs and a weaker manufacturing base, both of which could result in locally made products becoming less competitive in the global market.

The stakeholders point out likely factors that would make life tougher for manufacturers in the new year as dollar exposure, the Common External Tariff which will begin this month, the Economic Partnership Agreement with the European Commission, as well as 13 percent Monetary Policy Rate (MPR), which has driven up the interest rate to between 20 and 35 percent for real sector players.

They say devaluation, which has driven up dollar prices to between $/N168 and $/N195 in the official, inter-bank and parallel markets, is taking a heavy toll on their competitiveness, having driven up costs and threatening lay-offs.

The stakeholders further point out that the greater threat is the bar placed on them by the Central Bank in the official market, as they can no longer buy dollars with which to purchase raw materials and machinery from the official market but have been forced to get same from the inter-bank or parallel market, where the rates are higher.

“As a result of the import dependent character of the economy, the sharp declines in exchange rate will naturally push up the operating cost of enterprises in the economy,” said Remi Bello, president, Lagos Chamber of Commerce and Industry (LCCI), in an e-mailed statement.

“Many firms are already feeling the heat across all sectors. In the few weeks, naira exchange rate has depreciated by about 11 percent in the interbank market and over 12 percent in the parallel market. The impact of the depreciation on operating costs will be very profound in 2015,” Bello said.

Sample opinions among manufacturers show they are not yet optimistic about power supply, which has dropped to 8.3 hr/pd in industrial zones across the country. While seeing little reprieve from multiplicity of tax collection agencies, they see the Common External Tariff, which will throw borders open for the 15 ECOWAS member countries, as a potential threat to the industry.

Frank Jacobs, president, Manufacturers Association of Nigeria (MAN) said implementation of Economic Partnership Agreement and the Common External Tariff could throw up fresh challenges in 2015 that might further complicate the current lacklustre performance of the manufacturing sector.

According to Jacobs, the EPA regime would challenge the Nigerian economy, particularly the manufacturing sector, as local markets would be flooded with products made under favourable business environment at relatively lower prices.

The year 2014 has been a relatively good year for the Nigerian manufacturing sector.

During the year, full implementation of the automotive policy, initiated by the Federal Government, attracted 21 companies who signed commitments with technical partners to set up assembly operations with product lines for cars and sport utility vehicles (SUVs) , pick-up trucks , mini-buses, buses  as well as trucks.

Peugeot Automobiles of Nigeria (PAN) PAN resumed assembly of Peugeot cars in July, while VON also started assembly of Nissan and Hyundai vehicles. Innoson also unveiled IVM Fox hatchback and IVM Umu, which are the first ever truly made-in-Nigeria cars, as the vehicles are made up of about 70 per cent locally sourced contents.

Dana Motors signed technical partnership agreements with Kia and Renault for a semi-knocked-down (SKD) assembly plant, while Kewalram Chanrai Group  began discussions and feasibility studies to convert a former textile industry in Isolo to an SKD assembly plant.

Also, Coscharis Motors acquired several acres of land at Lekki, Lagos, for the building of Joylong brand of cars and mini-buses, with feasibility studies ongoing.

Moreover, the cement industry recorded significant growth as Dangote Cement ramped up its capacity to 29 million metric tons per annum (MT), from 20 million MT, while introducing 3X cement brand, as well as 32.5 and 52.5 grades.

Lafarge WAPCO combined its Nigerian and South African businesses to form Lafarge Africa. The deal saw the second largest cement maker ramp up capacity to 8.5 million MT, 4.5 million MT from WAPCO and 4 million MT from the South African business. This does not include 2.5 million MT capacity of the United Cement Company of Nigeria (UniCem) and one million MT of Ashaka Cement.

Bua Group, which bought shares in Edo Cement Company Limited, announced investment of over $500 million in a green-field cement plant at Okpella, Edo State, to add additional three million tons per annum to the Nigerian cement market by February 2015.

The sugar industry reported huge positives as investors pledged to pump $2.6 billion into the sub-sector. Dangote Sugar pumped about $2 billion investments in six states in the country, through its recently acquired Savannah Sugar in Numan, Adamawa State.

HoneyGold Group invested $300 million on two sites in Adamawa state; Crystal Sugar Mills staked $30 million to expand its operations to produce 60,000 tonnes sugar/annum from its acquired 1,500 TCD Sugar plant at Hadejia, Jigawa state, while Confluence Sugar Company threw in $240million in Kogi State.

Dangote Sugar Refinery, Flour Mills of Nigeria plc, McNichols Consolidated plc,  Lucke Sugar  and Dogan Sugar expanded their packaged sugar manufacturing facilities in Nigeria, according to Latif Busari, executive secretary, National Sugar Development Council(NSDC).

“Generally, 2014 was a good year for the manufacturing sector. We anticipate that the Federal Government or whoever wins the 2015 election will fully implement the Nigerian Industrial Revolution Programme,” said the CEO of a multinational firm, who spoke on the condition of anonymity. 

ODINAKA ANUDU