On September 4 , the Flour Mills of Nigeria had its annual general meeting in Lagos. Its group financial statement showed that revenue fell 3 percent to N527.4 billion in March 2019, as against N542.7 billion in March 2018. Profit from continuing operations slumped by 71 percent to N4 billion, from N13.61 billion in the previous year. The revenue and the profit were fairly good, considering the tough environment in which the conglomerate and other manufacturers operate.
Many manufacturers have released their financial statements in recent times, with lamentations on why their top- and bottom-lines headed south.
Dangote Sugar’s 2018 result showed a group turnover N150.4 billion, a 26 percent decrease over N204.4 billion in 2017. Both profit before tax and profit after tax also fell. Smuggling and Apapa gridlocks contributed to the decline experienced by the company in 2018.
Guinness Nigeria recorded N131.5 billion in turnover in the year ended June 30, 2019 , which was a decline of 8 percent when compared with N143 billion in the corresponding period of 2018. The decline cut across both the domestic and export sales. In the domestic market, Guinness Nigeria realised N124.9 billion, a decline of 7.9 percent when compared with N135.7 billion it made in the same market during a corresponding period in. 2018
Nigerian Breweries sales fell by 5.9 percent. Local sales in the financial year ended December 31, 2018 stood at N324.20 billion, representing 5.9 percent decline.
Sales, however, rose by 57.4 percent from N121.03 million in December 2017 to N190.5 million in December 2018.
Okomu Oil has had its margins shrink as poor sales and smuggling of palm oil weakened revenue. In fact, the entire palm oil industry is struggling to stay afloat.
The profit of palm oil maker slumped by 57 percent in the first half of 2019.
Okumu Oil posted a profit of N2.53 billion for six months to June 30, about half of the N5.94 billion announced as profit in the same period last year.
In the six-month period, the palm oil maker saw sales drop to N8.57 billion as against N12.94 billion last year. Revenue weakened by some 34 percent in the review period. Many manufacturers struggle to raise their margins in Africa’s biggest oil producing nation, with purchasing power heading increasingly south. The economy sluggishly grew at 1.94 percent in the second quarter of 2019, from 2.10 in the first quarter, according to the National Bureau of Statistics (NBS).
Ninety-eight million Nigerians are in multidimensional poverty and cannot afford to buy a number of products made by Nigerian manufacturers.
Unemployment rate in Nigeria increased to 23.10 percent in the third quarter of 2018 from 22.70 percent in the second quarter of 2018, according to the NBS.
The Nigerian manufacturing sector, which is supposed to be an engine of growth to create jobs and solve the country’s poverty problem, headed southwards in the second quarter of 2019, according to the latest data released by the NBS.
Since the 2016 recession that crippled business activities and brought the economy to its knees, the sector has continually recorded an inconsistent movement, reporting modest growth and later on contracting.
The sector appeared to be getting a facelift after it limped 1.36 percent in the first quarter of 2017—as the country began to heal from the shock of a 2014 oil price collapse that made the central bank devalue the naira—after a four-quarter of negative growth.
After picking up in the first two quarters of 2017, the sector plunged back into a negative trajectory, recording -2.85 percent growths.
In Q4 2017, growth in the manufacturing sector was positive at a 0.14 percent as economic activities gradually returned to normal and companies got more dollars at their disposal to command more inputs. However, for the first time since the fourth quarter of 2017, the sector contracted by -0.13percent year on year, lower than the corresponding quarter of 2018 and Q1 2019, showing that it is not the best of times for manufacturing companies as the sector faces a number of challenges.
The growth rate of the sector, on a quarter-on-quarter basis, stood at –4.41percent. The contribution to real GDP in Q2 2019 was 9.10percent, which is lower than 9.29 percent recorded in the previous year and 9.79 percent recorded in first quarter 2019.
The shrinking consumer wallet means companies can no longer pass the cost to the final consumers who are price-sensitive and always ready to shift loyalty to cheaper brands. The big players in the consumer goods space are also threatened by small players, mostly unquoted companies cannibalising on their sales.
The manufacturing sector has 13 activities namely oil refining; cement ; food, beverages and tobacco; textile, and footwear; wood and food products; pulp paper and paper products; chemical and pharmaceutical products; non-metallic products, plastic, and rubber products; electrical and electronic, basic metal and iron and steel; motor vehicles and assembly; and other manufacturing.
The chemical and pharmaceutical products under manufacturing sector contracted -1.27percent in Q2 2019, from 1.66percent in Q1 2019 and 1.52percent in Q4 2018.
However, the cement subsector under grew by 1.58percent in Q2 2019 from 2.81percent in Q1 2019 and 0.98percent in Q4 2018. Food, beverage and tobacco sub-sector grew by 1.22percent in Q2 2019 from 1.76percent in Q1 2019 and 2.22percent in Q4 2018.
The Manufacturers Association of Nigeria (MAN) recently released the 2019 second quarter (Q2) Manufacturers CEOS Confidence Index (MCCI), where 400 chief executives of firms made clear their positions about the Nigerian economy.
According to the survey, the majority (76 percent) of the CEOS interviewed were of the opinion that the rate at which commercial banks lends to manufacturers discourages productivity in the sector. Only 12 percent disagreed.
The 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. 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.
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,” the association recommended.
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.
Many manufacturers have high inventories, with MAN attributing it to shrinking wallets, smuggling, and counterfeiting of Nigerian-made products.
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.
Economists suggest that efforts must be made to lift people out of poverty through radical reforms, such as revolutionising the power sector to activate SMES and create jobs. “The way forward is entrepreneurship,” said an economist.
“Support entrepreneurs to grow,” he said.
“For companies, create an enabling environment. Remove barriers to trade and government hold on electricity, foreign exchange and petrol markets ,” he suggested.
