The coronavirus pandemic, poor infrastructure, and foreign exchange crisis have deepened manufacturing challenges, forcing the sector to slide into recession in the third quarter of 2020.
In the third quarter of 2020, Nigeria’s manufacturing sector contracted by 1.51 percent. This, however, was an improvement from the -8.78 achieved in the previous quarter, but growth is yet to match the 1.1 percent achieved in the corresponding period of 2019.
Analysts say apart from the pandemic, many manufacturers are hit by the high cost of alternative power sources and cannot get inputs for their factories due to dollar scarcity.
They say, however, that recovery is expected as economic activities resume and pick up gradually, The two consecutive contractions experienced by the sector means recession, but this could worsen unless the age-long issues are tackled, analysts say.
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Ambrose Oruche, acting director-general, Manufacturers Association of Nigeria (MAN), told BusinessDay that the sector is hit by challenges that affect its productivity, output, and economic impact. He further said that the challenges aggravated due to the pandemic and the unrest which occurred across the country.
“Despite the resumption of activities, manufacturers are still suffering from a lot of things like FOREX scarcity. These have hindered transactions and if nothing is done, many companies will shut down,” he said
Vincent Nwani, a Lagos-based economist and investment consultant, told BusinessDay that although the sector is showing signs of recovery, the government still needs to take prompt action in order to prevent the sector from relapsing. “The sector is in dire need of policy and project reforms across its sub-sectors,” Nwani said.
“Vulnerable sub-sectors in the manufacturing space should be provided funds at low cost to sustain operations and encourage CAPEX spending. In addition, solving the FX challenges faced by these manufacturers would be an important factor to kick-start growth,” he said.
Mobola Adu, Analyst at GDL Nigeria said, “the manufacturing sector improved in the third quarter because economic activities have resumed almost in full swing. Even the improvement in PMI figures already hinted at progress. Going forward, it should get better especially as the yuletide season nears.
“The sector is still struggling due to underlining challenges like FOREX scarcity and unfavorable rates, the closed border, among other challenges which, if not addressed, will cause the sector to collapse,” he said.
Despite the contraction, according to the GDP report released by the NBS, the sector contributed 8.93 percent to the total GDP which recorded an improvement from the -6.10 in Q2.
“Growth rate of the sector on a quarter-on-quarter basis stood at 13.52 percent, higher than the quarter on quarter growth rate recorded in the preceding quarter of 2020. The real sector contribution to GDP in 2020 in the third quarter was 8.93 percent, higher than the 8.74 percent recorded in the third quarter of 2019 and higher than the 8.82 recorded in second-quarter 2020,” the report states.
The improvement in the manufacturing sector was driven majorly by four sub-sectors out of the 13 subsectors, three of which emerged winners amid the pandemic. These are the cement with 11.96 percent from -5.54 percent in Q2; chemical and pharmaceuticals with 6.60 percent from 3.79 percent in Q2; FMCGs with 5.57 percent from -3.01 percent, and the motor vehicles and assembly with7.03 percent from 6.95 in the previous quarter.
The other nine out of the thirteen subsectors noted in the report experienced the heaviest shrinkage as oil refining plunged to -68.29 percent, electrical and electronics fell to -20.12 percent, pulp, paper, and paper products shrunk to -7.15 percent, non-metallic products declined to 12.23 percent. Also, the textile, apparel, and footwear sub-sector dropped to 12.12 percent while other manufacturing sub-sectors contracted by 13.03 percent.
