Ailing manufacturing sector camouflaged with 49.6 PMI growth
… as firms cease operations due to lingering challenges
Nigeria’s manufacturing Purchasing Managers’ Index (PMI), a gauge for manufacturing sentiments is gradually advancing towards the 50 points benchmark, after achieving 49.6 points in August according to data by FBN Quest and NOI.
The index had dropped continuously from 51 points in May to 48 points in July; hence the expansion may signify a silver lining. However, concerns are raised as to whether the growth recorded reflects the realities of the struggling sector.
Respondents of the survey recorded an improvement in product demand which was fuelled by the investments made in sales and marketing activities, but analysts at FBN Quest believe that the shutdown of other businesses who are competitors in the sector contributed to the demand increase.
Frank Onyebu, chairman, MAN, Apapa branch affirmed this as he told BusinessDay that some manufacturing firms have been forced to shut down operations as they cannot access foreign exchange to purchase raw materials, and machinery remains a fantasy, this has caused the production process to drag.
“Some businesses have shut down permanently while some others have suspended operations for now and are waiting on the government to come to their aid,” he said
He revealed that on the average 20 manufacturing businesses in just the Apapa branch have either shut down or ceased operations indefinitely.
“To make this worse, their cost of production has increased significantly in the face of inflation and scarcity of raw materials,” he said.
He added that insecurity, inaccessibility to credit and other issues continue to adversely affect activities in the sector which diminishes its chances of competitive participation in the ongoing African Continental Free Trade Area (AfCFTA).
Business experts say that no less than 50 producers ceased operations between 2020 and the first half of 2021, while much more suspended operations indefinitely due to the challenges.
The reported increase in demand may not fully reflect on the manufacturer’s profit due to various reasons like inflation which stands at 17.38 percent, consistent naira devaluation, high production cost, increase in tariffs without corresponding increase in services, etc.
Analysts at FBN notes that the sub-optimal increase was driven primarily by activities in the food, beverages, and tobacco sub-sector which are classified as essential products, and the cement subsector whose main inputs are available locally.
It is important to note that both subsectors emerged winners amid the pandemic and have sustained its winning streak since then. The cement subsector is also projected to continue growing as funds are pumped into capital projects in the course of the year.
The report projects that the struggling state and performance of the sector may have implications for employment as manufacturers remain hesitant to increase manpower.
According to the GDP report for the second quarter of 2021, Nigeria’s manufacturing sector recorded 3.49 percent growth, which was also the highest Q2 figure across six years. However, this according to manufacturers did not reflect the reality in the sector.