The face-off between the United States and Iran may have caused panic across the world, but it comes with a positive impact on oil prices, which eventually favours Nigerian manufacturers.
The price of Brent crude hovered around $70 per barrel last week after the United States sanctioned the killing of Qasem Soleimani, an Iranian general.
Oil price rise is always good news for Nigerian manufacturers who need foreign exchange to import raw materials and machineries.
Nigeria depends on oil for over 90 percent of its foreign exchange, which manufacturers need for the importation of inputs.
A drop in oil prices, as experienced in late 2015 and 2016, shrinks the foreign exchange available for the economy and puts manufacturers importing inputs, machinery and packaging materials in jeopardy.
According to Frank Jacobs, president of the Manufacturers Association of Nigeria (MAN) during the oil market crisis of 2016, about 54 manufacturing firms shut down for being unable to access dollars for their inputs.
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A report released by NOI Polls in association with Centre for the Studies of Economies of Africa in 2017 showed that dollar crunch forced 272 firms to shut in one year.
Should oil price fall, manufacturers will, again, increase local input sourcing or scale down operations.
But rising oil prices makes dollars available for manufacturers and other businesses in the economy.
However, many manufacturers are already expanding their backward integration programmes to source more inputs locally.
Utilisation of local raw-materials by manufacturers stood at 56.6 percent in the first half of 2018, according to the Manufacturers Association of Nigeria (MAN).
It, however, represented a drop by 4.12 and 9.1 percentage points from 60.72 percent in the corresponding period of 2017 and 65.7 percent in the preceding half respectively.
“Local sourcing of raw-materials in the manufacturing sector slowed in the first half of 2018. This may be adduced to the general sluggishness of the economy and a renewed ability for importation of raw materials considering the tranquillity in the foreign exchange market,” MAN said in its first half of 2018 economic review.
