Manufacturers’ confidence in the Nigerian economy dropped in the fourth quarter of last year on the back of surging inflation and foreign exchange crisis, new data released on Tuesday have shown.
The aggregate Manufacturers CEO’s Confidence Index (MCCI) of the Manufacturers Association of Nigeria (MAN) declined to 55.0 points in Q4 from 55.4 points in the previous quarter.
According to the latest index report by MAN, the decline in the aggregate score underscored the persisting challenges and the waning confidence of manufacturers in the economy in Q4.
“The fourth quarter of 2022 appeared to be more difficult to manufacturers than the level of hardship in the preceding quarter due to persisting rise in Consumer Price Index, high cost of energy, unabated erosion in naira value and difficulty in sourcing foreign exchange including the harsh effect of Russian-Ukrainian war,” it said.
It said these issues, among others, were principally responsible for the difficult operating environment and its declining implication on manufacturing activities in the country during the quarter under review.
“The index score of the current quarter, though below that of the previous quarter, indicates that manufacturers generally still have confidence in the economy,” the manufacturers said.
The MCCI is a quarterly research and advocacy publication of MAN, which measures changes in the pulse of operators and trends in the manufacturing sector quarterly, in response to movements in the macro-economy and government policies, using primary data mined through direct survey over 400 CEOs of MAN member-companies.
It is computed using data generated on standard diffusion factors of current business condition, business condition for the next three months, current employment condition, employment condition for the next three months and production level for the next three months.
It has a baseline score of 50 points and scores above the baseline indicate improvement in manufacturers’ confidence in the economy, while an index score of less than the baseline suggests deterioration in the operating environment.
MAN said: “Current employment condition and production level in the next three months scored above the 50 benchmark points though with a decline in the period respectively.
“Employment conditions for the next three months dipped below the benchmark points to 48.8 points which is also below 49.2 points obtained in the preceding quarter.”
It added that employment decisions by manufacturers are so difficult due to the unpredictability and difficulty in macroeconomic movement.
Across sectorial groups, activities in the pulp, paper, printing and publishing as well as motor vehicle and miscellaneous assembly fell below the 50 base points, scoring 49.6 points and 48.4 points respectively.
“Similarly, among industrial zones, activities in Rivers/Bayelsa (48.0 points) and Cross-Rivers/Akwa-Ibom (46.5 points) zones were depressed by high-cost of operating environment as underlined by their index scores which fell below the benchmark points,” the report said.
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BusinessDay had reported last week that the manufacturing sector would record another negative growth in Q4 2022, causing it to enter recession for the first time in two years.
Segun Ajayi-Kadir, director-general of MAN, said the downturn in the sector’s performance was connected to insufficient power supply, high cost of diesel and foreign exchange and brain drain that is shrinking the labour force.
“Even if we enter recession, it is clear that we are going to bounce out of it. But you can imagine the gains that we would have made if we didn’t enter recession,” he said.
According to MAN, it is crucially important for the government to have a shift towards a better exchange rate management, and moderate the rising energy cost via better management of refined petroleum products imported into the country.
“These, among other measures, would no doubt help to reduce the current high inflation, which is fast eating up the working capitals of businesses including manufacturing in the economy,” it added.
