Nigerian manufacturers are rethinking their strategies as the deadly Coronavirus spreads across the world.
Some of the manufacturers are thinking of reducing their foreign exchange exposure as Coronavirus continues to hit crude oil price. Brent crude price tumbled to $50.87 per barrel on Friday as China, world’s largest consumer, cuts oil spending on the back of the spread of the disease in the country.
One senior official in a Fast-Moving Consumer Goods (FMCGs) company told Real Sector Watch over the weekend that his firm had finalised plans to start a backward integration project in Ogun or Edo state.
“We will also, in the interim, increase our local sourcing of raw and packaging materials,” the official, who spoke in anonymity because he was not authorised to speak, said.
“We will not be able to face the shock of FX scarcity to import raw materials if it starts again,” the official further said.
Coronavirus has pummelled all the markets in the world, and there are fears it could drag the global economy into recession. Cases of the disease and death have soared in China, Europe, the United States, Middle-East and several parts of the world. The disease entered Africa’s most populous country last Thursday from an Italian who works in the country. Public health officials have intensified efforts to contain the spread.
The virus has exposed the Nigerian economy as volatile as the fate of oil price determines the state of the economy.
“Coronavirus, perhaps, shows us why we need to look more inwardly as manufacturers, ”Ike Ibeabuchi, CEO of a chemical firm, MD Services, said.
“Coronavirus and African Continental Free Trade Area are making a lot of us tweak tactics,” he said, stressing that he knew many firms that were slightly facing panic already.
In 2016, oil price fell to below $40 per barrel, pushing the Nigerian economy into recession. Fifty-four manufacturing firms shut down in one year, according to Frank Jacobs, the then president of MAN.
A report released by NOI Polls in association with Centre for the Studies of Economies of Africa in 2017 showed that dollar crunch forced 272 firms to shut in one year.
Africa’s most populous country is yet to fully diversify its non-oil sector as crude oil accounts for over 70 percent of foreign exchange.
Mansur Ahmed, president of the Manufacturers Association of Nigeria (MAN), said Nigerian manufacturers importing machineries or inputs from China were already seeking alternatives from other countries in the wake of the spread of the disease.
“Coronavirus is having an impact on trade between Nigeria and China,” he said last week at a press briefing in Lagos.
“Obviously, if you are importing raw materials from China, you may have to look at alternatives,” he further said.
Mansur said this when the disease had not yet been announced in Nigeria.
Nigerian manufacturers import some of their raw materials and most of their machines.
According to MAN’s latest economic review, local raw materials utilisation in the manufacturing sector has maintained a downward trajectory since the first half of 2017 when the Central Bank of Nigeria commenced policy intervention in the official foreign exchange market.
“The relatively more available forex resulting from the intervention may have been rubbing off negatively on backward integration agenda as firms prefer to import raw-materials as against inward looking,” MAN said in the first half of 2019 economic review.
In the first half of 2019, local sourcing of raw-materials in the manufacturing sector stood at 57 percent as against 56.87 percent recorded in the corresponding half of 2018, representing 0.13 percentage point increase over the period. It was, however, a decline of 6.7 percentage point when compared with 63.7 percent recorded in the preceding half.
