Manufactures suffer decline in sales despite increase in production costs

In 2020, manufacturers suffered huge declines in sales volumes, despite significant increase in their production cost owing to the economic disruption occasioned by the outbreak of the Coronavirus pandemic.

The magnitude of this was revealed in the Manufacturers CEOS Confidence Index (MCCI) conducted by the Manufacturers Association of Nigeria (MAN) in the first quarter of 2020, where 84 percent of the respondents complained of poor sales volume. 43 percent further said the level of unsold manufactured products has not reduced in the last three months, consequently, these companies are left to incur debts especially those that have products with short shelf lives.

In 2020, production cost of local manufacturers significantly increased due to issues around FX scarcity and naira devaluation, raw material scarcity, increased electricity tariff and other issues. On the average, manufacturers recorded 21.5 percent increase in production cost, 14.2 percent decrease in sales volume and a 22 percent decrease in capacity utilization in Q1 2020.

Read Also: Allianz Risk Barometer shows Covid-19, business interruption, cyber risks major concerns of businesses in 2021

The imbalance between the increase in cost of production and the decline in sales may lead to the folding up of some of these companies, as many of them are already neckdeep in debt. The cause of these challenges is majorly due to the scarcity of raw materials and production equipment especially as China, which is the major hub where these things are sourced, closed down its economy to arrest the pandemic. In addition, the lockdown and movement restriction, which was enforced by the government hindered the availability of workers and forced some companies to execute a temporary shutdown.

This simply aggravates the problems of these manufacturers who are functioning in an unfriendly business environment laced with infrastructure deficit, epileptic power supply, overregulation, among other business challenges.

In proffering solutions, MAN recommended that the government needs to prioritize the needs of the sector and addressing its challenges in order of necessity and resource availability, furthermore, the government should ensure strict compliance with Executive Orders 003 and 005 to improve the Government patronage of products manufactured in Nigeria.

“The Central Bank of Nigeria (CBN) to extend its COVID-19 Stimulus packages to manufacturers not covered by existing CBN initiatives. The CBN should also grant manufacturers increased access to Foreign Exchange at pre COVID-19 rate to support the importation of raw materials, machines, and other resources that are not available locally,” MAN says.

MAN adds that provision of basic infrastructure should be paramount, power supply to the sector should improve and that FX allocation to the sector should be prioritized to ease the importation of machines and raw materials that are not locally available.