Low demand and other challenges, including rising energy costs, are forcing manufacturers in Nigeria to reduce their production while some are shutting down operations temporarily, BusinessDay has learnt.
Top officials of the Manufacturers Association of Nigeria (MAN) confirmed the decline in manufacturing in Lagos and Ogun states, both of which have over the years attracted many investors owing to their strategic location, available market, port availability, and accessibility, among others.
Frank Onyebu, chairman of MAN, Apapa branch, told BusinessDay that the manufacturing sector “is on the brink of collapse as many manufacturers are struggling with rising energy costs, widening supply gap, increased tax burden, etc.”
“Within the past two years, 10 percent of manufacturing firms have shut down operations, more have reduced their production significantly while some others have relocated to neighbouring countries,” he said.
According to him, the struggles of manufacturers have reflected in the sector’s contribution to economic activities which has declined, especially in the area of job creation.
“In my factory, due to low product demand and our inability to compete with imported products, we only utilised 20 percent of our capacity but now we will further reduce it and reduce our production quota because we rely heavily on diesel,” Kwajaffa Hamma, director-general of the Nigerian Textile Manufacturers Association, said.
Hamma said his company could not increase the prices of its products because it was already suffering losses and dealing with low product demand.
As production activities decline, experts say the problems in the sector will take a huge toll on many firms.
“Energy is very vital in the manufacturing process, and currently some manufacturers cannot keep up with the rise in the prices of gas and diesel which they use to self-generate power,” Motunrayo Elegberun, executive secretary of MAN, Ogun State, said.
According to Elegberun, the availability of raw materials is also a problem as supply gaps widen and logistics charges surge; hence some manufacturing firms in Ogun state have stopped operations while some have reduced their production schedule to cut costs.
“Manufacturers are also not encouraged to produce as the demand for their products has been very low, leaving them with more unsold goods and this affects their revenue and profitability,” she said.
Francis Meshioye, immediate past chairman of MAN, Ikeja branch, said manufacturers had found it increasingly difficult to thrive as macroeconomic conditions and local and global challenges posed a problem.
According to him, manufacturers cannot easily access inputs abroad due to forex shortage, congested ports and rising insecurity, which slow down their production process and affect their ability to be competitive.
The manufacturing sector recorded a GDP growth of 2.28 percent in the fourth quarter of 2021, according to the National Bureau of Statistics.
“If the numbers pass the 2.0 percent benchmark, then it is not reflecting the realities of the sector because activities have reduced and jobs have been lost,” Jide Babatope, Lagos-based analyst, said.
He said Micro, Small, and Medium Enterprises would be majorly affected and many of them would temporarily shut down because of lack of capital and resources to mitigate the impact of the disruptions and rising costs.
“This rising pressure could lead to the sector’s collapse, which will have a ripple effect on the economy in terms of trade, exports, job creation, revenue generation, employment opportunities, availability of indigenous products, among others,” he said.
MAN recently released its Manufacturers CEOs Confidence Index (MCCI), which measures changes in the pulse of operators and trends. The index declined to 53.9 points in the first quarter of 2022 from 55.4 points in the fourth quarter of 2021.
Read also: FG reassures manufacturers of measures to cushion effect of high production costs
Although the MCCI decline was marginal and above the 50 points benchmark, MAN said the manufacturing sector was suffering severe pressure with its health very well in the fringes and below the desired performance threshold.
“Feedbacks from manufacturers identified limited supply of electricity; high cost of local and imported raw materials; persisting acute shortage of forex for importation of machines, raw materials not available locally, and persisting insecurity in the country as major challenges limiting the performance of the manufacturing sector in the period under review,” it added.
MAN revealed that out of the 13 industrial zones in Nigeria, Bauchi, Benue, Plateau, Abuja, and Rivers struggled in the first quarter of 2022, falling below the 50 points benchmark due to high-level insecurity, rising operating costs, low support for the manufacturing sector and the general manufacturing unfriendly environment.
Michael Olawale-Cole, president, Lagos Chamber of Commerce and Industry, said at a recent briefing that in the second quarter, the manufacturing sector would likely suffer some shocks as sector players battle unsustainable costs with rising energy costs, widening supply gap, and additional tax burdens in the second quarter of the year.
