Manufacturers’ confidence in Nigerian economy hits 12-month low

Manufacturers’ confidence in Africa’s biggest economy dropped to the lowest in 12 months in the first quarter of this year, a new data has shown.

The aggregate Manufacturers CEO’s Confidence Index (MCCI) of the Manufacturers Association of Nigeria (MAN) declined to 54.1 points in Q1 from 55.0 points in the previous quarter.

According to the latest report by MAN, major performance indicators of the manufacturing sector all recorded unfavorable changes.

“Amidst the harsh business-operating environment evidenced by poor macroeconomic indices, the underperformance was largely driven by the nationwide cash crunch in the first quarter of the year,” it said.

It said the economic turmoil significantly crushed consumer patronage and disrupted the manufacturing value chain in most periods of the quarter.

“Although the quarter recorded marginal contraction in the index score, the untoward hardship meted on the manufacturers is growing overwhelming and diminishing the resilience of the sector,” it added.

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The MCCI is a quarterly research and advocacy publication of MAN, which measures changes in the pulse of operators and trends in the manufacturing sector quarterly, in response to movements in the macro-economy and government policies, using primary data mined through direct survey over 400 CEOs of MAN member-companies.

It is computed using data generated on standard diffusion factors of current business condition, business condition for the next three months, current employment condition, employment condition for the next three months and production level for the next three months.

It has a baseline score of 50 points and scores above the baseline indicate improvement in manufacturers’ confidence in the economy, while an index score of less than the baseline suggests deterioration in the operating environment.

MAN said: “Among the standard diffusion factors, current business condition and business condition for the next three months stood at 50.4 and 59.6 points respectively.

“These are above the 50-point benchmark but signal declines from the record obtained in the last quarter of 2022. Current employment conditions (rate of employment) also declined from 51.3 points to 50.7 points.

It added that employment conditions for the next three months is projected to further plunge below the benchmark points to 47.8 points against the 48.8 points obtained in the preceding quarter.

“Employment decisions by manufacturers have been so difficult due to the unpredictability and difficulty in the macroeconomic environment.”

However, production level for the next three months remains strongly above the 50-point benchmark but is projected to decline to 61.8 points from 62.2 points recorded in the last quarter of 2022.

Across sectorial groups, operators in Electrical & Electronics and Motor Vehicle & Miscellaneous Assembly with respective index scores of 49.7 and 48.6 exhibited gross loss of confidence as they fell below the 50-point benchmark.

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“These sectoral groups were adversely affected by erratic electricity supply and instability of macroeconomic indicators which have significantly worsened sales performance in these sectoral groups,” the report said.

Similarly, among industrial zones, activities in Kaduna (49.5), Abuja (48.6), Rivers/Bayelsa (46.2) and Cross-Rivers/Akwa-Ibom (43.9) were depressed by the high-cost of operating environment in Q1.

According to the National Bureau of Statistics, the country’s manufacturing sector growth slowed to the lowest in three years for Q1. The sector grew by 1.61 percent (year-on-year) in real terms in Q1, down from 2.83 percent in Q4 2022 and 5.89 percent in the same period last year.

“Manufacturers are extremely groaning in pain due to issues that are frustrating their contribution to the economy,” the association said.

The issues identified are high inflation, continuous erosion in naira value and difficulty in accessing forex, high cost of energy, naira crunch, exorbitant taxes, high lending rates, persisting insecurity and the consequences of lingering Russian-Ukrainian war.

Manufacturers also revealed that production and distribution costs escalated by 24 percent in the quarter much higher than the 19 percent increase witnessed in the preceding quarter.

“Volume of production contracted by 13 percent in the quarter under review against the one percent growth recorded in the previous quarter. Manufacturing investment dropped by three percent from two percent increase,” they said.

The added that sales volume plummeted by 13 percent against the stable record witnessed in the preceding quarter and cost of shipment rose by 20 percent though witnessed a slowdown from the 22 percent increase recorded in q4.

MAN recommends tackling the challenges of the manufacturing sector must be at the front burner of the new administration.

“The President must exhibit his articulate reasoning and compassion to act differently by hitting the ground running with a value system that can rescue manufacturers from these inflictions,” it said.