Amid poor power supply from the national grid, manufacturers in Nigeria saw their expenses on alternative energy sources (diesel and gas) rise by 50.6 percent in the first half of this year compared to the same period last year.
They spent N67.7 billion on alternative energy sources in H1 2022, up from N45.0 billion in the same period last year, according to the Manufacturers Association of Nigeria (MAN).
In a presentation seen by BusinessDay, Segun Ajayi-Kadir, director-general of MAN, said the increase in cost of energy pushed up global inflation, which affected the cost of importation across the world, including Nigeria.
“With limited foreign exchange (FX) inflow from crude oil sales, FX demand pushed over the bounds of supply and contributed to the depreciation in Naira value,” Ajayi-Kadir said last week.
He said manufacturing in Nigeria is heavily beset by these price developments and manufacturers are contending with these challenges while struggling to sustain production. “Truly, there are forex and energy crises in the country.”
Diesel has a stronghold on the Nigerian economy as it powers a large part of the industrial and commercial activities in the economy, from the trucks used for long-distance haulage of both industrial and finished goods, to small machines used by small-scale enterprises.
The Russia-Ukraine crisis has pushed up diesel price by 174.2 percent to N789.9 per litre in September from N288.1 per litre in January, according to the National Bureau of Statistics.
The spike in diesel prices is affecting many businesses’ operations and sales in the country.
Apart from energy prices, forex liquidity challenges have also increased as a result of the crisis. At the official market, the naira-dollar exchange rate closed at N432/$1 last month from N414/$1 in December 2021.
At the parallel market, it rose to as high as N800/$1 last month from N580/$1 in December 2021.
The surge in FX and energy prices in the country has caused negative impacts in the manufacturing sector such as oscillatory growth, low contribution to GDP, sub-optimal capacity utilisation, high inventory of unsold manufactured goods and declining investment, MAN said.
“The crises are responsible for the unfavorable movements in manufacturing indicators such as capacity utilisation, contribution to real GDP, investment, employment, cost of production, competitiveness, etc.,” Ajayi-Kadir said.
He added that most manufacturers have embarked on strategic measures to minimise the impact of the inclement operating environment on their activities such as cost cutting, product selection and prioritisation and expanding their investment in the development and production of raw materials locally.
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Others are increasingly resorting to self-energy generation and energy mix to complement the inadequate electricity supply from the national grid and dissaving retained earnings to support the current crippling condition, he said.
To mitigate the rising cost of operations for manufacturers, Ajayi-Kadir said allocation of a significant proportion of available forex to the productive sector, particularly manufacturing, is key.
He said: “Carrying out further investment in the electricity value chain and committing to adding 10,000MW to the current electricity distributed in the country.
“Embrace and support significant development of energy mix and renewable energy, suspension of the 15 percent levy on imported wheat and incentivisation of investment in local development of raw materials.”
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