Here’s how manufacturers adapted to survive the pandemic
The confirmation of Nigeria’s first coronavirus case in February 2020 and the subsequent large-scale outbreak of the pandemic which placed immense pressure on the health, economic, social and political structures of the country caused the manufacturing sector to undergo some monumental adjustments in its production and commercial operations.
365 days later, COVID-19 cases in Nigeria have grown to over 153,000 with nearly 2,000 deaths, according to the Nigeria Centre for Disease Control (NCDC), breeding the possibility of many more adjustments going forward in order to suit the new normal.
While official numbers are not out yet, business and economic experts affirm that no less than 50 Micro, Small and Medium Scale Enterprises (MSME) shut down operations indefinitely due to the pandemic.
Furthermore, many businesses are still reeling from the adverse impact of the lockdown measures and the cut in supply chain and are being forced to embark on extreme cost cutting measures affecting productivity.
In its economic review for the first half of 2020, Manufacturers Association of Nigeria (MAN) affirmed that the pandemic championed the sector’s unimpressive performance, adding that the measures taken by leaders globally and locally to curb the spread of the virus like the lockdown was also detrimental to the sector.
This was evident in the quarterly Manufacturers CEOs Confidence Index (MCCI), which hovered between 40.2 points and 44.2 points, remaining stagnant below the benchmark of 50 points all through the year. Similarly, the unimpressive performance also reflected in the sector’s growth as it declined to -2.75 percent in 2020 from 0.8 percent in 2019, according to the National Bureau of Statistics (NBS).
Emanating from China, the world’s manufacturing powerhouse and Nigeria’s largest trading partner especially for manufacturing inputs, the COVID-19 pandemic caused an abrupt stop in the supply of raw materials, goods, tools and machinery for manufacturing companies which forced many of them to suspend business operations.
Furthermore, Brent crude oil which serves as the major provider of the country’s FX experienced an historic fall during this period, reaching a two-decade low in April at $15.98 a barrel. This drop triggered the prevailing FX shortage and also caused the naira to be greatly devalued thereby impeding the procurement operations of local manufacturers.
Upon resumption, more manufacturers adopted the backward integration model leading to a marginal increase in the local sourcing of raw-materials, as such local input sourcing grew to 58.4 percent from 57.0 percent recorded in the corresponding half of 2019.
Producers of non-essential items like the brewers are still finding it tough to adjust as the pandemic forced consumer’s preference to tilt more towards essential items like food and drugs, the impact of which is evident in their sales volume and income. Consequently, some manufacturing outfits have been forced to reduce production quantity due to a decline in sales volume.
The pandemic caused some manufacturers to revise their business models to suit the new normal occasioned by the pandemic. A good example are the garment makers based in Aba industrial cluster, who took to producing personal protective equipment (PPE) items like medical aprons, coveralls, gloves, masks, etc. this period also saw a rise in producers of soaps, disinfectants, sanitizers, etc.
Furthermore due to the global lockdown, influx of imported goods reduced to the barest minimum, paving way for increased demand of locally produced items forcing local producers of essential items to ramp up production.
The Q4 MCCI survey confirmed this as five percent of manufacturing CEOS reported an increase in production volume due to the activities in the macroeconomic environment.
The pandemic however dampened the initial excitement manufacturers had about the African Continental Free Trade Area (AfCFTA) as cross border trade activities were also suspended thereby hindering the possibilities of a wider market reach. This also slowed down manufacturers preparation to compete in a wider market
The pandemic also prompted a rise in mergers and acquisitions in the sector as firms struggled to remain above the headwinds, Friesland Campina kicked this off in 2020 when it acquired Nutricima, a subsidiary of PZ Cussons at an undisclosed amount.
“The manufacturing sector will witness mergers and acquisitions going forward in order to prevent a shutdown because the macroeconomic condition is not really favourable for their consumers therefore affecting the volume of sales,” said Mobola Adu, research analyst at GDL Nigeria.
In addition, he noted they have to contend with higher production costs and bleak revenue outlook on the back of weak economic output.