Growth in the manufacturing sector has been projected to remain weak owing to worsening foreign exchange scarcity amid shrinking consumer spending and high borrowing costs.
The worsening challenging macroeconomic issues have continued to impact the manufacturing sector as its growth rate slowed to 0.48 percent in the third quarter of 2023 from 2.2 percent in the preceding quarter of 2023.
Experts expect the sector to maintain weak growth in the first quarter of the year owing to the worsening existing challenges that have continued to negatively impact growth.
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“It is obvious that the outlook for the manufacturing sector in 2024 may not be a positive one, at least in the first half of the year. The period will be challenging, with a subtle possibility of recovery from the third quarter,” Segun Ajayi-Kadir, director general of the Manufacturers Association of Nigeria (MAN).
“Average capacity utilisation will still hover around the 50 percent threshold as the forex-related challenges and high inflation rate limiting manufacturing performance may linger until mid-year,” Ajayi-Kadir added.
He added that the envisaged recovery in the third quarter is highly dependent on the deployment of policy stimulus supported by a synthesis of domestic growth-driven, export-focused, and offensive trade strategies.
“This will promote resilience, and steady growth and ensure that the sector gains meaningful traction in the later part of the year,” he noted.
The naira has lost 49 percent of its value against the dollar since January 2023 at the Nigeria Autonomous Foreign Exchange Market (NAFEM), data compiled by BusinessDay from the FMDQ indicated.
The worsening FX volatility is inflicting more pain on businesses as the cost of production doubled amid low demand from cash-strapped consumers dealing with inflationary pressures.
The availability of adequate infrastructure is also a major determinant of the success of every country’s industrial sector; however, Nigeria does not have adequate infrastructure to grow businesses, especially developed transport systems such as roads and railways connected to the nation’s seaports.
Energy is a key element of the production process. Nigeria’s inability to supply and distribute sufficient electricity has left businesses at the mercy of generators powered by diesel and petrol, whose prices have surged in recent months.
Manufacturers spend 40 percent of their total production cost on generating energy for their businesses, according to MAN.
In a June 2023 statement, the association put the annual economic loss caused by the inadequate power supply at N10 trillion, accounting for almost two percent of the country’s Gross Domestic Product.
All these challenges, according to the Lagos Chamber of Commerce and Industry (LCCI) will weigh on the growth prospect in the first quarter of 2024.
“These macroeconomic factors are expected to further weigh on the growth prospects of the sector. In the short term, growth in manufacturing is expected to remain weak due to the squeezed consumer spending,” Gabriel Idahosa, president of LCCI said in the chamber’s economic outlook for the sector.
Idahosa projected the outlook for the sector in the midterm to improve owing to the subsidy removal which he notes may attract investment in oil refining and other opportunities in the sector as well as ease price pressures which is expected to boost real wages and increase disposable income.
