More Job losses as manufacturers struggle to pass costs to consumers

Manufacturers could embark on job cuts next year in order to protect slim margins as they increasingly find it harder to pass costs onto consumers already distressed following constantly falling disposable income.

This is because in a period of prolonged low demand in an economy where capacity utilisation rates are dropping, and sales growth are unable to offset fixed cost, companies are forced to trim work force to stay afloat.

Already, decrepit infrastructure, high energy cost and low consumer disposable income have hindered firms from delivering a higher return on investment to owners of the business.
“We will see some layoffs but it will be worse for companies at the lower segment that do not have a large market share or competitive advantage,” said Christian Orajekwe, equity research analyst at Cordros Capital Ltd.

“Productions on the floor of the big firms are technology driven and some of their distribution channels are outsourced,” said Orajekwe.

However, Orajekwe said he doesn’t see macro conditions deteriorate in 2019.
Forty percent of manufacturing expenditure goes to alternative energy.

Manufacturers have spent N212.85 billion on alternative energy sources between the second half of 2016 and the first half of 2018, according to data from the Manufacturers Association of Nigeria (MAN).

This is over 100 percent higher than what was incurred in the previous four halves. Manufacturers told BusinessDay that logistics costs have risen by 50 to 100 percent in the last two years, owing to poor state of roads and lack of good transport system.

Firms bringing in raw materials into Apapa ports and those exporting commodities abroad have seen their costs swell on rising dwell time, which results in high demurrage charges.

Tola Faseru, president of the National Cashew Association of Nigeria, told BusinessDay that exporters shipping out 1,700 tons of cashew per day in 2014 now manage to ship between 100 and 250 tons. A reduction in export and sales increases cost per unit of product and raises inventory.

The combined administrative and distribution expenses of 24 largest manufacturers quoted on the floor of the Nigerian Stock Exchange (NSE) increased by 7.59 percent to N196.61 billion in the third quarter of 2018, according to data compiled by BusinesssDay.

Manufacturers were unable to sell goods worth N149.23 billion in the first half of 2018 after producing goods worth N4.6 trillion, according to MAN.
Incidentally, manufacturers are selling to a population whose disposable incomes and spending are shrinking.

Real household consumption and government consumption expenditures declined in 2017 (at –0.99 percent) while national disposable income fell by 1.52 percent, according to the National Bureau of Statistics (NBS).

“Inventory of unsold finished goods in the manufacturing sector rose in H1 of 2018, induced by low real consumption due to inflationary pressure, smuggling, counterfeiting and cloning of Nigerian manufactured products as well as high cost operating environment,” MAN said in its latest data.

According to a recent World Bank data, 92.10 percent of Nigerians live at below $5.50 a day. Nigeria, with a population of 180 million people, has 87 million people, nearly half its population, in extreme poverty as high inflation environment continues to erode discretionary income.
Job layoffs due to mounting wage bills and deteriorating macroeconomic conditions are a double whammy for consumers.

Unemployment rate in Nigeria increased to 23.10 percent in the third quarter of 2018 from 22.70 percent in the second quarter of 2018, according to the latest figure from the NBS.
In 2016, hundreds of jobs were lost in the manufacturing sector as 54 firms shut down owing to foreign exchange crunch that year, according to Frank Jacobs, former MAN president. Manufacturers have been struggling since then, with inventory of unsold products remaining almost the same.

“The point is that people are more concerned with the basic things of life now. You have to first of all eat, then pay house rent and your children’s school fees before talking about buying new pairs of shoes or wines,” Ike Ibeabuchi, CEO of MD Services Limited, with interests in manufacturing and services, said.

BALA AUGIE & ODINAKA ANUDU