2020 already a tough year for struggling manufacturing sector
This will be a very tough year for Nigerian manufacturers who are already hard hit by a number of factors beyond their control.
Coronavirus, also known as Covid-19, has rattled everything from financial markets to logistics, causing a slump in economic activities across the world.
More than one million people have been infected, with well over 50,000 deaths reported.
Africa’s largest economy is not exempted from these exogenous events as local cases rise above 190 with lockdowns in Lagos, Abuja and Ogun State.
Lagos and Ogun are two manufacturing hubs where over 80 percent of production activities in the country take place. In the first half of 2019, almost 95 percent of manufacturing activities took place in the two states, according to data supplied by the Manufacturers Association of Nigeria (MAN).
With lockdown of Lagos and Ogun, many manufacturers believe the second quarter has be lost, with severe impact on projected margins for the year.
“We cannot produce or sell now, and I do not know how our balance sheet will look like in the first half of this year,” an Agbara, Ogun State-based manufacturer, said over the weekend.
Pharmaceuticals, food and beverage firms are allowed to operate within the season. But many pharmaceutical firms have been unable to maximise the opportunity due to their inability to produce medical face masks. Food and beverage firms are making what another manufacturer described as ‘mild sales’.
“The people are at home, yes. They need food, yes. They need water, yes. But buyers are cautious as they do not know how long the ‘holiday’ will last. So, they do not spend as much as you would expect. It is common sense,” another senior staff member of a food company said.
Nigerian manufacturers’ post-coronavirus balance sheets may not look very good as they face poverty-stricken consumers whose incomes have been eroded by high inflation, high expenditure due to lockdown and economic slump.
Nigeria is world poverty capital, with over 87 million people living on less than $1.90 a day, according to World Poverty Clock and Brookings Institute.
More than 98 million Nigerians are living in multidimensional poverty, said a 2019 report by the United Nations Development Programme (UNDP) and the Oxford Poverty and Human Development Initiative (OPHI).
Nigerian manufacturers will sell to these consumers who struggle to buy food and basic needs.
Pre-Coronavirus, many manufacturers had been in deep struggle to overcome an ailing economy growing less than its population.
Unilever’s revenue had slumped by 58 percent to N9.13 billion in the fourth quarter of 2019, from N21.7 billion reported in the corresponding period of 2018.
The revenue of McNichols Plc dropped 17 percent to N679.13 billion from N818.56 billion in the full year of 2019. Profit of the sugar maker followed similar trajectory, crashing 55 percent to N18.58 billion from N40.89 billion, the firm’s financials showed.
Analysis of Nigerian Breweries 2019 full-year results shows that revenue declined by a marginal 0.4 percent to N323 billion, from the 324 billion realised in the previous year.
“The results of the company were adversely impacted by the increased excise duty rates which came into effect during the year coupled with a challenging operating environment,” Nigeria’s biggest brewer said in a financial report.
But the company’s profit before tax fell to N23 billion from N29 billion. Also, profit for the year fell by 16 percent to N16 billion, from N19 billion.
The 2019 full-year revenues of palm oil makers Okomu and Presco had also dropped 3 percent and 7 percent respectively while profits crashed 33 percent and 8 percent.
“This is largely a reflection of the weak demand conditions,” Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI), said.
“Sluggish economic growth impacts negatively on demand for goods and services,” he further said.
The United States President Donald Trump plans to support businesses affected by coronavirus with over $2 trillion war chest. Many countries are also devising ways of supporting these players. But cash-strapped Nigeria has not signalled intention to support small businesses and manufacturers.
Ike Ibeabuchi, chief executive of a manufacturing outfit, MD Services, said the impact of coronavirus would be with manufacturers throughout the year.
“Except there is a big, big stimulus, companies will record huge, huge losses,” he said.
“You are selling to majorly poor consumers. Even if you are exporting, you won’t be able to sell as much as you used in the global market because many countries and even the global economy might be in recession,” he said.
In 2016, Africa’s largest economy went into recession after slump in oil prices. As of Friday, April 3, Brent crude price was about $32 per barrel. In 2016, more than 200 businesses went under, including over 50 manufacturing companies, according to various research done by MAN and NOI Polls.
With the current situation worse than 2016, analysts are expecting business closures and job losses except there is a stimulus to bail out firms.