Nigeria’s manufacturing sector growth has slowed to the lowest in three years on account of challenging macroeconomic activities, BusinessDay’s analysis has shown.
Data gleaned from the National Bureau of Statistics (NBS) showed the real GDP growth of Nigeria’s manufacturing sector stood at 2.2 percent in the second quarter of 2023, the lowest since Q2 2020.
“Amid 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,” Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise said.
Yusuf also noted that the manufacturing sector is heavily dependent on imports, and it is therefore very sensitive to FX issues.
According to the NBS report, the manufacturing sector contributed 8.62 per cent to GDP in the second quarter of 2023, lower than the 8.65 percent recorded in the second quarter of 2022.
The major performance indicators of the manufacturing sector all recorded unfavourable changes in 2023, a new report by the Manufacturers Association of Nigeria (MAN) said.
It said the economic turmoil significantly crushed consumer patronage and disrupted the manufacturing value chain in most periods of the quarter.
Amaechi Egbo, a financial analyst said firms under the sector have been severely impacted by low-capacity utilisation due to poor purchasing power as most households were affected by the February cash scarcity.
He explained how huge import levies, exchange rate volatility, haulage cost of imported materials and heavy dependence on alternative sources of power have increased the cost of production in the sector by almost 30 percent.
Moses Igbrude, president of the Independent Shareholders Association of Nigeria said manufacturing firms have witnessed an unexpectedly high operating cost with the attendant reduction in profitability as operating costs are expenses associated with the maintenance and administration of a business on a day-to-day basis.
He noted that due to headwinds such as weak demand on the back of household wallets, most consumer goods companies in Nigeria have continued to find it difficult to weather the storm.
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BusinessDay’s findings showed sales at some of Nigeria’s biggest consumer goods firms are holding up despite rising inflation and weak purchasing power, the only problem is their customers are taking more time to pay for what they buy.
This is after the combined trade receivables of nine publicly-listed consumer goods firms, analysed by BusinessDay, increased by 94 percent in the first half (H1) of 2023 despite aggregate revenue increasing by 26 percent.
The trade receivables of the following firms were analysed: Champion Breweries, Cadbury Nigeria Plc, Nascon Allied Industries, International Breweries, Unilever Nigeria Plc, Nigerian Breweries, Dangote Sugar Refinery, Nestle Nigeria Plc, and BUA Foods.
Further findings showed these firms’ aggregate trade receivables, or services on credit, totalled N555.86 billion in the first half of 2023, a 94 percent increase from N286.15 billion in 2022.
Trade receivable is the amount a company has billed to its customer for selling its goods or supplying the services for which the amount has not been paid yet by the customer.
“What inflation clearly points out is that the customer’s capacity to pay is lower than before; This among other factors is reducing the level of economic activities in Nigeria’s manufacturing sector,” Uchenna Uzo, a consumer expert and faculty director at the Lagos Business School (LBS), said.