MAN says naira devaluation raising production cost

Increases in the cost of goods and services across sectors are imminent as Nigeria’s manufacturing sector reels under the yoke of vaulting production cost caused by the devaluation of the naira, itself occasioned by the plunge in the price of crude oil.

Members of the Manufacturers Assocition of Nigeria (MAN) say some of their rank are already passing the burden of higher production cost to the consumer, while many others are on the verge of following suit.

In the light of this challenge, MAN says it has gone into a strategy meeting to find solution to this gloom.

MAN says its members depend largely on imported raw materials and that with the naira fast depreciating against the dollar, the natural tendency is for prices of goods and services to go up.

Already, some sectors of the economy have reacted to the reality of consequential crippling budget shortfalls. For instance, banks have increased their interest rates to avoid liquid erosion, while players in the Fast Moving Consumer Goods (FCMG) are currently reviewing their prices. Just last Monday,banks reportedly increased their interest rate from 25 to 26 per cent, while other manufacturing companies have also jerked up their prices.

Ngozi Okonjo-Iweala, minister of finance and co-ordinating minister of the economy has warned in the wake of the development that the country needed to brace for tougher times ahead, by reviewing its expenditure and building economic buffers through budgets that would be based on modest oil prices.

An economic expert, Joel Bisola observed that the present situation has put Nigerian manufacturers in a tight corner because the government’s reaction to the falling price of oil would lead to the lowering of the purchasing power of the local currency, increase the cost of inputs.

Bisola also pointed out that the resultant effect would be that goods emanating from Nigeria would cost more than imported ones. This, he added, “will sound a death knell to the indigenous manufacturers, or whatever is left of that sector.”

Our correspondent gathered that following series of complaints by members, the MAN hurriedly summoned an emergency meeting of its Economic Policy Committee (EPC) in Lagos to discuss the issues and the way forward.

Sources close to the meeting said members lamented the severe impact of the erosion of the naira’s purchasing power on their businesses and the attendant increase in prices of their raw material, machineries, spare parts and all other import-dependent procurements.

The meeting, it was learnt, reviewed the present scenario and concluded that it has led to very significant increase in the cost of production, leading to uncompetitiveness of local products, especially in the face of the impending implementation of the ECOWAS Common External Tariff (CET) in January 2015, which will allow goods from any other part of West Africa move into Nigeria without the imposition of any form of tax, import duty or levy.

A top management member of a manufacturing company, who is a member of MAN EPC summed up their frustration when he said the naira is going to end up at 200 to a dollar, a 33 per cent depreciation.

According to him, the cost of machinery, spare parts, refractory, explosives, lubricants, LPFO, which is imported, are all going up and will likely end up 33% higher. He said the same would be the case for diesel, sea freight, coal and gas for which price is fixed on dollar basis.

“The worst problem is that the dollars are not even available, as the CBN has virtually stopped offering dollars, thus affecting all our activities, and leading to stoppage of our plants”, he added.

Some Chief Executive Officers of Fast Moving Consumer Goods (FMCG) companies, as well as building materials companies, pharmaceutical manufactures and food processors among others, who were present at the meeting, sources say, all said they had been forced to increase the prices of their products as their cost of production spiral out of control. Those who have not increased prices say they are on the verge of doing so.

A senior member of the MAN told our reporter that “we are forced to raise the prices of our products because our cost of production has gone up significantly, due to the devalued naira but also our customers who have been affected by the downturn in the economy may now be unable to buy up these products, leading to increased inventory in our factories and all the attendant problems.”

MAN which has made medium and long term mitigation recommendations to the Federal Government at the end of the meeting, to save their businesses stated that they expected volatility in the interbank market which would lead to instability and unpredictability in procurement planning by the industrial operators as a result of the crisis.

“There is likely to be the occurrence of cost-push inflation which may lead to resistance by consumers, thereby creating depressed demand and the resultant high level of inventory of finished products by manufacturers.

“The high inventory of finished goods, will result to cut in production, lay-off of workers, massive unemployment and the consequent factory closures and escalation of poverty contrary to the Transformation Agenda of the present Administration.

“Reduced capacity that would arise from the above will further increase dumping and smuggling of imported finished products to the country”, MAN warned.