Improvement in the foreign exchange market has helped to shore up Nigeria’s manufacturing Purchasing Managers’ Index (PMI), but critical challenges bedevilling the sector are yet to deflate.
Manufacturing PMI, released by the Central Bank of Nigeria (CBN), is computed based on survey responses from sector leaders, indicating changes in the level of business activities in a month.
Key assessment indicators are production level, new orders, supplier delivery time, employment level and inventories.
A composite PMI above 50 points indicates that the manufacturing sector is expanding; 50 points indicates no change and below 50 points indicates contraction.
The index has remained above 50 since January 2018, reaching a high of 61.1 points in December 2018.
The Manufacturers Association of Nigeria (MAN) attributed the rise of the PMI in December to improved economic spending that characterised the festive period as well as high patronage of locally-produced goods within that month.
Though the PMI in January of 2019 declined to 58.5 index points, it still represented an expansion for the 22nd consecutive month.
Analysts believe that the rising PMI is due to improved FX market, which has improved productivity of factories, new orders, employment level and inventories.
Frank Jacobs, president, Manufacturers Association of Nigeria (MAN), explained that improvement in access to dollars by the CBN raised production in firms and boosted employment levels.
At the peak of foreign exchange scarcity in 2016, PMI trended below 50 points. In March and April 2016, manufacturing PMI was 45.9 and 43.7 points, respectively. It further declined to 41.9 points in June. This was a period when manufacturers scrambled for greenback to import inputs and machinery. Within this period, 54 manufacturing firms, mostly small and medium players, shut down, according to MAN.
The manufacturing PMI, however, rose to 52 points in December 2016, but this was after the CBN had introduced a 60 percent preferential dollar access, meaning that genuine manufacturers were allowed access to 60 percent of available dollars in the market.
“Once you improve access to FX, you improve PMI,” Jacobs told BusinessDay in 2017.
Manufacturers say policies that support local input sourcing, such as backward integration, can raise the levels of PMI. Manufacturers source 57 percent of inputs locally and import 43 percent, according to latest data from MAN.
Analysts say though PMI tells a story about the current state of manufacturing, it does not indicate the overall health of the sector. Hence, Nigeria’s manufacturing sector indices are not necessarily rising as fast as PMI.
Manufacturing sector’s contribution to real GDP in the fourth quarter of 2018 was 8.86 percent, still less than double-digit. Contribution of South Africa’s manufacturing to GDP is 13 percent; and Egypt is 17 percent. Manufacturers say any contribution below 10 percent indicates that the sector is not performing optimally.
“We can do more. We want to substantially improve the manufacturing sector’s contribution to GDP to 15 percent within the next two to three years to enable us create enough jobs,” Mansur Ahmed, president, MAN, said at a media luncheon in Lagos.
Capacity utilisation in Nigeria’s manufacturing sector stood at 54.6 percent, which is relatively high, but South Africa’s is over 80 percent. This means that Nigerian firms are unable to utilise or reach their full capacity due to issues around business environment and patronage.
Manufacturers are also not finding borrowing easy as interest rate by banks in the first half of 2018 stood at 22.9 percent, 0.25 percentage point higher than 22.65 percent recorded in the same half of 2017. This has remained the same for ages.
Also, 10 to 11 years after high energy cost partly sent Michelin and Dunlop packing, the issue has remained a die-hard problem that seems to defy solution.
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. 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 a good transport system.
Poor road network and multiplicity of taxes are two age-old problems that are hurting manufacturers. In Ogun State today, roads along Agbara/Igbesa axis are bad and the government has refused to build them, despite collecting billions in taxes from manufacturers.
This is responsible for the closure of P&G’s $300 million Agbara plant, sources say.
Tax experts told BusinessDay that the number of taxes payable by businesses across the country is now 54 as against 37 in 2014.
Vivian Chigozie-Nmonwu, tax expert and lead partner at Vi-M Professional Solution, said these taxes need to be amalgamated into one or a few, since the whole tax cycle is a multiple chain of taxes on the same income stream.
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.
Only 10 percent of cargoes are cleared within the set timeline of 48 hours now, while the majority of cargoes take between five and 14 days to clear, according to a maritime report conducted by the Lagos Chamber of Commerce and Industry (LCCI). The report notes that some cargoes take as long as 20 days to be cleared at the ports.
Like in the 1990s, smuggling is still on. About 85 percent of the $1.4 billion worth of textiles that flood the country’s market is smuggled, mainly from neighbouring countries, according to the Textile Manufacturers Association.
“We cannot compete with the level of smuggling and counterfeiting going on now. We used to have about 127 textile firms in Nigeria, but that has come down to two or three now,” said Grace Adereti, president, Nigerian Textile Manufacturers Association (NTMA), at a Made-in-Nigeria stakeholders’ meeting in Lagos in 2017.
ODINAKA ANUDU & GBEMI FAMINU
