Nigeria’s unemployment rate may experience a surge from its current 33 percent as firms in the country battle unsustainable costs with rising energy costs, widening supply gap, and additional tax burdens in the second quarter of the year, the Lagos Chamber of Commerce and Industry (LCCI) has said.
Speaking during the chamber’s quarterly press briefing on Tuesday, Michael Olawale-Cole, the LCCI president, said the Russia-Ukraine war had triggered a positive oil price shock with spillover effects on operating costs, raw materials, and inflation in countries that are not directly engaged with the war, Nigeria inclusive as prices of goods and services surged with the potential implication of shrinking production of goods and services, especially for manufacturing and agriculture.
He added that in the second quarter, the manufacturing sector would likely suffer some shocks from the rising cost of diesel, logistics, foreign exchange illiquidity, domestic inflationary pressure, weakening purchasing power, poor public infrastructure, and port-related challenges.
“If the above conditions persist, production volumes will be impacted by the raw materials supply chain disruptions caused by the war in Ukraine, the rising cost of diesel, and other internal security crises; Job losses are also very likely due to constrained production and disrupted supply chains,” he said.
Nigeria relies on Russia for commodities like wheat, fertiliser, and potash, and suffers the impact of rising food costs and a reduction in food output as farmers suffer input scarcity.
“The war in Ukraine has disrupted the country’s harvest and planting cycles, meaning less food down the line even if the war ends today, surging prices for oil and shipping will add to food costs,” Olawale-Cole said.
He recommended that the government needs to boost local production of these staples to levels that meet local demand especially as the product is now scarce and difficult to get.
“The government needs to look for ways to resolve the lingering fuel supply crises by increasing importation to meet growing demand which is putting pressure on diesel and fuel prices,” he added.
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Manufacturers have complained that since the outbreak of the pandemic in 2020, the supply gap for raw materials and machinery had widened and was yet to stabilise as different issues pop up to aggravate this.
In addition to this, the much-needed foreign exchange to purchase accessible inputs is not readily available despite the Central Bank of Nigieria’s efforts. Consequently, manufacturers are forced to rely on black market operators for their dollar needs.
Although the black market is much more expensive, it is a faster and less cumbersome process and the dollar is always available, unlike commercial banks which do not have enough to go around.
As an alternative manufacturers try to source raw materials locally which has recorded little success as some of it is not available locally and rising insecurity in the Northern part of the country constrains the availability of inputs. This leaves them in a fix as inputs are unavailable locally and internationally.
Nigeria’s inability to supply and distribute sufficient electricity has left manufacturers at the mercy of alternative energy sources such as the use of generators that consume diesel and petrol.
Shortly after the Russia-Ukraine, manufacturers woke up to a sudden hike in the price of diesel which is not regulated by the government by almost 92 percent and it is yet to stabilize.
“With the cost of diesel at record levels and persisting poor power supply, businesses are running on unsustainable costs and producing at uncompetitive prices, this can lead to job losses as output is constrained due to the unbearable cost of production,” he said.
Already some manufacturers are reducing their production quota, suspending production activities, or looking at a possible increase in the prices of their products.
“In my factory due to low product demand and our inability to compete with imported products, we only utilised 20 percent of our capacity but now we will further reduce it and reduce our production quota because we rely heavily on diesel,” Kwajaffa Hamma, director-general of the Nigerian Textile Manufacturers Association, told BusinessDay.
This was the most feasible option for him noting that effecting a price increase in his products is not possible as they are already suffering losses and dealing with low product demand.
