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Economic crunch hits factories as output, capacity utilisation fall

…Ikeja now Nigeria’s industrial hub

Members of the Manufacturers Association of Nigeria (MAN) were hit by economic crunch in the first half of 2019 as the value of their output and capacity utilisation fell within the period.

Despite a stable foreign exchange market, value of output from over 2,000 factories of members of MAN fell to N4.61 trillion, from N4.76 trillion obtained in the first half of 2018, representing a 3.2 percent decline.

When compared with the value of output in the second half of 2018 (N5.2 trillion), the N4.61 trillion in the first half of 2019 represents a 11.35 percent slump.

“Manufacturing production in the first half of 2019 was affected by poor macroeconomic ambience, infrastructure issues and poor regulation by government agencies,” MAN said in its latest economic review.

Analysis of sectoral group performance shows that production value in almost all the groups slowed in the first half of 2019.

 In the foods, beverage and tobacco sub-sector, output stood at N1.43 trillion in the first half of 2019 as against N1.55 trillion in in the first half of 2018, representing a 7.7 percent slip, MAN said.

Similarly, output in the chemical & pharmaceutical sectoral group declined to N313.16 billion in the first half of 2019, from N336.61 billion recorded in the first half of 2018, indicating a 6.96 percent fall.

Further analysis on industrial zones shows that production fell in almost all the industrial zones.

MAN, however, said Ikeja industrial zone is the hub of industrialisation in Nigeria with an  output of N2.05 trillion in the first half 2019. This, though, was a decline when compared with N2.65 trillion recorded in the second half of 2018.

More so, capacity utilisation, which means the rate at which factories make use of their capacities, slowed to 54.1 percent in the first half of 2019, from 54.50 percent recorded in same half of 2018, indicating 0.4 percentage point decline over the period.  The 54.1 percent represents a 6.9 percent fall when compared with 61 percent capacity utilisation recorded in the second half of 2018.

“The fall in capacity utilisation of the sector in the period is as a result of poor macroeconomic, regulatory and infrastructure conditions in the economy,” MAN said.

Analysis on sub-sectors presents a mixed result. Capacity utilisation declined in food, beverage and tobacco group (55.3 percent), wood & wood products (49.4 percent), chemical & pharmaceutical (47.4 percent), non-metallic (52.7 percent) and domestic/industrial plastic and rubber group (52.2 percent).  However, it increased in textile apparel & footwear group (56.5 percent), pulp, paper, printing & publishing (67.0 percent), and electrical electronics (48.2 percent) and Motor Vehicle & Miscellaneous Assembly group (56.3 percent).

Industrial zones analysis also presents a mixed-bag of performance. It rose in Ikeja zone to 68.14 percent; Ogun  to 69.19 percent, Apapa  to 69.46 percent, and Kano Sharada/Challawa  to 55.11 percent.

But it fell in Kwara/Kogi zone to 44.13 percent.

Recent reports from MAN show that major problems of manufacturers include: the congested Apapa and Tin Can ports in Lagos, poor power supply, issues around multiple and excessive taxation, and infrastructure deficit, among others.

Nigerian economy is hard hit by infrastructure challenges which are hurting manufacturers.

 “Manufacturing companies situated on the Amuwo-Odofin and Kirikiri axes lose over N20 billion annually, and most of the factories are on the brink of shutting down because we produce but do not sell as customers avoid coming to this area,” said Frank Onyebu, chairman Manufacturers Association of Nigeria (MAN) Apapa branch in Lagos recently. This is not limited to manufacturers in Amuwo-Odofin, Lagos, but is extended to almost all firms in Lagos, Aba (Abia State) and many parts of the country.

Nigeria requires $15 billion (N4. 59tn at N306 to a dollar) worth of investments annually for 15 years in order to adequately develop its infrastructure, according to a report from the Financial Derivatives Company, an economic and financial research firm.

Oluwafunmilayo Bakare Okeowo, chief executive officer of FAE Limited, said that tariffs were a major problem for manufacturers.

“The issue of tariffs should be properly addressed. We also need protective policies to create an enabling and competitive environment,” she said.

In a recent CEO Confidence Index prepared by MAN in the third quarter of 2019, CEOs of manufacturing companies said that congestion at the ports significantly affected productivity negatively with the prevalence of poor access and road network, heavy traffic and undue congestion at the ports.

“There is an issue, particularly delay in clearance of imported raw-materials and machinery that are not locally available by manufacturers, including the associated high and unwarranted demurrage which oftentimes slows down manufacturing operations and increases cost of production in the sector,” the report said.

High energy cost and policy flip-flops have also continued to hurt the manufacturing sector, with government restriction of 43 items from the FX market hitting many firms.

 

ODINAKA ANUDU

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