The Manufacturers Association of Nigeria (MAN) has just released the 2019 second quarter (Q2) Manufacturers CEOs Confidence Index (MCCI). Unlike the first quarter where 200 chief executives of manufacturing firms were interviewed, the Q2 captured the views of 400 CEOs.
The MCCI is primarily targeted at examining what chief executives think about their sector.
According to the report, MCCI for the second quarter was 50.9, which are few points above the 50 points benchmark of a good performance. It represents a 0.4 percent decline from the 51.3 percent recorded in the previous quarter of the year, indicating a decline in the industry’s productivity and activities.
A composite manufacturing index above 50 points indicates that the manufacturing economy is generally expanding, 50 points indicates the average position and below 50 points indicates that it is generally contracting.
The report highlights major challenges facing manufacturers, including difficulty in accessing loans, high interest rate and insufficient working capital.
The issue of funding has been a constant problem for manufacturers who need it for business expansion, improved productivity, procurement of raw materials and business development purposes.
The majority (76 percent) of the CEOs interviewed were of the opinion that the rate at which commercial banks lend to manufacturers discourages productivity in the sector. Only 12 percent disagreed.
Regarding the size of loans issued, 66 percent of the CEOs claimed that the size of loans allotted to industry players by commercial lenders further contributes to low productivity in the sector and also discourages foreign and local investments.
Nigeria’s benchmark interest rate is among the highest in Africa at 13.5 percent. Ethiopia’s is 7 percent; Kenya’s is 9 percent; South Africa is 6.75 percent; Zambia is 10.25 percent, and Cameroon is 4.25 percent.
Similarly, Rwanda is 5 percent; Mauritius, 3.5 percent; Algeria is 8 percent, and Senegal is 4.5 percent.
The National Bureau of Statistics (NBS)’s recent MSME report shows that 85 percent of businesses could not have access to external financing within 2013 and 2017.
In fact, only 5.3 percent of SMEs had access to bank credit, even with 40 percent of them having relationships with banks.
Due to high inflation rate and the monetary policy rate, deposit money banks give out loans at 20 to 35 percent interest rates per annum with a usually 12-month tenor while development banks like the Bank of Industry capable of issuing loans at single-digit interest rates lack the required capital to keep up with its activities.
A CEIC data show that the lending rate of Nigerian banks dropped by 7 percent, from 16.08 in February to 14.92 in March 2019. In 2018, MAN said in its economic review that lending rate to the manufacturing sector dropped to 22.21 percent in 2018, from 22.84 percent in 2017. But analysts see that rate as high and incapable to awakening the majorly comatose productive sector.
Data from the NBS show that banking sector credit to the economy declined by 2.9 per cent, from N15.6tn in Q3 2018 to N15.1tn in Q4 2018. Similarly, the number of customers borrowing from commercial banks also headed south.
As a possible solution, MAN advocates policy measures from the CBN that will lower the cost of borrowing and increase productivity in the sector.
“The current CBN policy aimed at increasing loan to the real sector of the economy to stimulate production, is a step in the right direction and should therefore be conscientiously,” respondents in the survey said.
The report further buttresses the 2019 World Bank’s Doing Business Index, which scored Nigeria 52.89 out of 100 points and giving a ranking of 146 out of 190 countries surveyed.
Ninety-four percent of chief executives of manufacturing companies across the country reported that congestion at the ports significantly affects productivity negatively.
The CEOs complained that delays in clearing raw materials and machinery often result in high demurrages which increase production costs and slow down manufacturing operations.
The report taps inadequate space inside the ports, weak trade facilitation infrastructure, poor road network and the associated traffic gridlock as critical issues that require government attention.
A 2018 report by the Lagos Chamber of Commerce and Industry (LCCI) had supported the CEOs point. The report by the LCCI had disclosed that 5,000 trucks seek access to Apapa and Tin Can ports in Lagos every day even though they were originally meant to accommodate only 1,500 trucks.
The report said that Nigeria loses N600 billion in customs revenue, $10 billion (N3.6trn) in non-oil export sector and N2.5 trillion in corporate earnings across various sectors on annual basis due to the poor state of Nigerian ports.
The LCCI report further noted that 25 percent of cashew nuts exported from Lagos to Vietnam in 2017 went bad or were downgraded owing to delays at Lagos ports. Similarly, only 10 percent of cargoes were cleared within the set timeline of 48 hours while the majority of cargoes took between five and 14 days to clear. The report added that some cargoes took as many as 20 days to be cleared at the ports.
Just like the LCCI report of 2018, MAN’s survey generally shows that CEOs are frustrated by the state of the ports. Many of them want the federal government to improve the state of ports outside Lagos to decongest Apapa and Tin Can.
In the first quarter survey, 92 percent of CEOs said multiple taxation was their biggest impediment. But in the second quarter, the number rose to 95 percent.
“This is substantiated by the numerous taxes, levies, fees and other charges that manufacturers pay to agencies of the federal, state and local governments,” the report says.
“Consequently, there is the need to streamline multiplicity of taxes and ensure that only approved taxes/levies/fees are charged,” it says.
Furthermore, half of the respondents disagreed that government capital expenditure implementation encourages productivity in the sector.
The CEOs’ perception rested principally on the delay in budget approvals, low implementation of budgetary provisions, award of contracts to foreign firms and dearth of basic infrastructure such as inefficient port infrastructure, inadequate electricity supply, deplorable road networks, and low patronage.
“This therefore confirms the need to review the infrastructure development plan to deliberately stimulate sustained productivity in the real sector,” it adds.
The report further shows that foreign exchange access is still a critical challenge for many manufacturers, as 46 percent disagreed that the rate at which the sector sources foreign exchange (forex) has improved.
While 36 percent agreed that there was more dollar access, 18 percent were not sure that forex has improved.
The survey cited inadequate access to foreign exchange and dilapidated infrastructure as major issues that pose threat to the growth of the sector.
Manufacturing companies in Africa’s biggest oil producing country faced the problem of acute dollar shortage after it slipped into a recession that happened in 2016.
In August 2016, the MAN and the NOI Polls reported that 222 small-scale businesses closed shops, leading to 180,000 job losses. This was attributed to FX challenges. About 54 manufacturing firms also closed shop, according to MAN.
The CBN has taken several steps to bring stability in the FX market, but manufacturers still see the foreign exchange as a key problem, given that many of them import their inputs.
Only 21 percent of CEOs agreed that patronage of Nigerian manufactured products has improved as a result of the implementation of Executive Order 003.
The Order mandated all government establishments to make Nigerian manufactured goods first choice in public procurement processes.
However, 34 percent of those interviewed were not sure while 45 percent disagreed.
“This indicates the need to urgently step up the campaign on Buy-Made-In-Nigeria, interrogate the implementation of the EO003 to ascertain the degree of compliance of ministries, departments and agencies (MDAs) and establish support-structures that would ensure that government patronage of goods manufactured in Nigeria improved as expected,” the report recommends.
Furthermore, 55 percent of the chief executives disagreed that inventory of unsold manufactured products in the country has reduced over the last three months. Twenty-one percent agreed while the remaining 24 percent were not sure.
“The high level of disagreement among respondents indicates the need for government to introduce disposable income enhancing fiscal policy measures that would be in sync with existing monetary policies,” the report suggests.
The survey examined manufacturers’ perception using a set of diffusion factors which included current business condition, business condition for the next three months, current employment condition, rate of employment, employment condition for the next three months and production level for the next three months.
Manufacturers in Nigeria over time have battled with various challenges to which they have been seeking succour mostly through personal efforts.
Regardless, the challenges have continued to linger on and have shown little signs of improving.
Gbemi Faminu & Michael Ani
