Manufacturers’ confidence rises despite growing economic headwinds

The confidence of manufacturers in the Nigerian economy improved in the second quarter of this year despite a mounting number of challenges that have resulted in high production costs and demand crunch, among others, a new report by the Manufacturers Association of Nigeria (MAN) has shown.

MAN released on Monday its CEOs Confidence Index (MCCI) for the second quarter of 2022 which measures changes in the pulse of operators and trends. The index moved to 54.6 points from 53.9 points in the previous quarter.

The association revealed that although the business condition in the second quarter of 2022 was more challenging than the previous quarter, some adjustments made by government, manufacturers, and households in response to the prevailing challenges caused the improvement in MCCI.

The report highlighted numerous challenges faced by manufacturers during the review period such as FX shortage, rising global inflation, unreliable power supply and surging cost of alternative energy, scarcity of inputs, and supply cuts.

“Manufacturers responded to the economic challenges that prevailed in the quarter with appropriate survival strategies and adjustments including remodelling of production operations, after the marginal slowdown experienced in the first quarter,” MAN said.

As the war between Russia and Ukraine continues, manufacturers have been forced to raise the prices of their products, increase local sourcing of raw materials, reduce their reliance on diesel, and cut operating hours, among other measures.

According to a report by Cordros Securities on the Nigerian consumer goods sector, some companies have implemented substantial price increases to cushion the impact of currency depreciation on margins, especially food staples producers who implemented more robust price increases due to their products’ essential nature, which makes demand price inelastic.

“Industry players will continue to grapple with the high costs of operations, consequently we expect the price hikes to spur revenue growth and support earnings in 2022, although we remain cautious about the weak demand as consumers down trade or opt for cheaper substitutes,” the report said.

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Kwajaffa Hamma, director-general of the Nigerian Textile Manufacturers Association, told BusinessDay in the second quarter that his firm had to reduce production time and quantity to manage the disruptions.

“In my factory, 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,” he said.

Despite the improvement recorded, MAN revealed that manufacturing firms in some industrial zones were more affected than their peers in other zones. For example, places like Bauchi, Benue, and Plateau suffer high insecurity. Consequently, some of the companies in the zone operated at suboptimal levels, shut down operations or relocated to a safer environment.

“Manufacturing and other business activities in the Rivers/Bayelsa zone appear to be struggling with the impact of aggressive drive for internally generated revenue by the government to bridge revenue gaps occasioned by the divesting activities of International Oil Companies from hydrocarbons to renewable energy sources,” it said.

According to the association, manufacturers still have minimal confidence in the economy, with the expectation that the operating environment will improve going forward.

MAN, therefore, recommended that the government should address the inherent operating challenges limiting the performance of the sector.

“The government also needs to intentionally create an anticipatory policy framework that will facilitate automatic stabilisation of the economy in the event of domestic or global shocks,” it added.

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