Nigeria’s manufacturing sector seen entering recession

The Manufacturers Association of Nigeria (MAN) has predicted the manufacturing sector to record another negative growth in the fourth quarter of 2022, causing it to enter a recession for the first time in two years.

This comes before the National Bureau of Statistics (NBS) is expected to release the country’s Gross Domestic Product (GDP) report for Q4 and the full year 2022 later this month.

“The report is not going to be different from what we have. And even if we enter a recession, it is clear that we are going to bounce out of it. But you can imagine the gains that we would have made if we didn’t enter recession,” Segun Ajayi-Kadir, director general of MAN, said at the 2023 edition of the MAN reporter of the year award and presidential media luncheon on Tuesday.

He said the downturn in the sector’s performance is connected to insufficient power supply, high cost of diesel and foreign exchange, and brain drain that is shrinking the labour force.

“We are also having a situation where many multinationals are having their monies tied down; they cannot export because it is within their right to repatriate profits. And we are having an environment where the communities where people operate are also putting a lot of pressure on them.

“Furthermore, we are in a transition period where many of the politicians have not focused on those critical infrastructures and issues that need to facilitate an enduring sustainable manufacturing process,” Ajayi-Kadir added.

Since the beginning of last year, the Russia-Ukraine war surged the cost of inputs largely used by manufacturers such as diesel and foreign exchange in Africa’s biggest economy.

According to the NBS, the average retail price diesel rose by 182.6 percent in December 2022 to N817.9 per litre from N289.4 per litre in the same period of the previous year.

In November, MAN revealed that manufacturers spent N67.7 billion in the first half of 2022, a 51 percent increase from N45.0 billion in the same period of 2021.

At the official market, the naira-dollar exchange rate closed at N461/$1 last week from N414/$1 in December 2021. At the parallel market, it rose to as high as N752/$1 from N580/$1 in December 2021.

Ajayi-Kadir said their engagement with the government has been to the fact that you cannot have an improved foreign exchange situation if the country does not produce what they import. “That is the simplest way to explain how you can have relief for the naira.”

He said if the naira continues to pursue products that come outside the country, we will need dollars to pay for them. “But if you reverse the trend and those products are made here, then we would not need dollars to produce them.”

The rising cost of these inputs led to high inflationary pressures which surged to its highest levels in 17 years to 21.34 percent in December. The pressures also contributed to the sector’s negative growth in Q3, for the first time since Q4 2020.

It shrank by 1.91 percent in Q3 (year-on-year), lower than the same quarter of 2021 and lower than the preceding quarter by 6.20 percentage points and 4.91 percentage points respectively, according to the NBS.

The affected growth in the sector also dragged the overall Gross Domestic Product (GDP) growth, which slowed to 2.25 percent in Q3, the lowest since Q2 2021.

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