Border re-opening, AfCFTA to provide relief for manufacturers in 2021—LCCI

The Lagos Chamber of Commerce and Industry (LCCI) has said that the re-opening of the land borders and the imminent African Continental Free Trade Area (AfCFTA) could provide relief for Nigerian manufacturers in 2021.

In a 2020 economic review and 2021 outlook signed by Muda Yusuf, director-general, the chamber noted that while the reopening of the land borders should provide succour to the manufacturing sector, the kick-off of AfCFTA could serve as an avenue for Nigerian manufacturers to penetrate new African markets.

It, however, warned that critical challenges such as foreign (FX) exchange scarcity, inconsistent FX policies, inefficient transport infrastructure, high production cost, weak consumer demand and the new competitiveness pressure to be foisted by the AfCFTA may dampen the recovery prospects of the sector in year 2021.

“We expect the Central Bank of Nigeria (CBN) to sustain its intervention efforts in the manufacturing sector as part of measures to boost economic recovery,” the chamber said.

“We see the CBN maintaining policies that support credit extension to the real economy. The low interest environment in the money market favours big manufacturing players in terms of raising cheap capital but the business environment will remain challenging for manufacturing SMEs,” it further noted.

The LCCI said that credit flows to the manufacturing sector will fail to achieve desired outcomes without putting in place measures to address structural, bottlenecks at the seaports and customs processes and other policy challenges to productivity. “Thus, we see growth of the manufacturing sector being subdued in the near to medium term.”

The Nigerian manufacturing sector was hard hit by a string of local and global vicissitudes. The COVID-19 pandemic led to low crude oil prices and sales, hurting FX inflows into a mono-and import-dependent economy. The ill-advised 15-month border closure hurt manufacturers and exporters, leading further to acute dollar shortages in the economy.
The manufacturing sector contracted by 8.8 percent at the peak of the pandemic in the second quarter (Q2) of 2020 and 1.51 percent in the third quarter (Q3) of 2020 following lifting of lockdown measures.

“The sector has been struggling with growth in recent years due to tough operating conditions in the local business environment and has made most industry players less competitive in the domestic and regional markets,” the LCCI said.

The chamber said increased pressure on consumer purchasing power threatened the earnings’ performance of manufacturers in the FMCG space in 2020, forcing them to ‘sachetise’ their product portfolio in a bid to boost patronage.

On trade, the chamber noted that structural, policy and currency challenges stifling trade activities may subsist.

“We expect weak disposable income, inadequate transport infrastructure, port inefficiencies, FX illiquidity, rising inflation and credit constraints (faced by informal SMEs) to dampen the recovery prospects of trade,” the LCCI predicted.

“Performance of the trade sector in year 2021 will be shaped by the direction of government policies regarding the AfCFTA, while the border reopening is expected to provide reprieve to trade sector.”

On business environment, the chamber said the outlook in 2021 is not very bright as there are no quick fixes for the structural issues and the desired regulatory and institutional reforms, pointing out that the security situation requires new strategies and approaches.

“It is not clear what new strategies are in the works. Without bold policy pronouncements in this regard, constraints to the ease of doing business, including FX shortage, escalating production costs, high regulatory costs, infrastructure inadequacies, and delayed cargo clearance, will persist into year 2021.”

It noted that these constraints will be more profound on businesses in the real economy, stressing that the sluggish pace of recovery will continue to subdue consumer demand. It further said that while most MSMEs will struggle to survive in year 2021 amid unfavourable economic conditions, most large corporates will demonstrate resilience in the coming year.

“We expect the economy to return to the path of positive growth in the second quarter of 2021 and this would expectedly impact on the macroeconomic environment which may ease some of the critical economic conditions currently impeding economic growth.”