Nigerian manufacturers say weakness of the naira against the dollar is hitting hard on them as costs of imported raw materials rise amid the spread of the deadly COVID-19.
Naira exchanges for dollar at between N440/$ and N450/$ today as against N360/$ in February—before the pandemic became disastrous. The spread of COVID-19 has impacted oil prices negatively with major buyers like China cutting purchases.
The situation is hitting hard on Nigeria, which relies majorly on crude oil for the majority of foreign inflows and revenue. Consequently, local manufacturers who need dollars to import inputs are spending 25 percent more money to buy their raw and packaging materials as well as machineries.
Anthony Ajulo, executive director, Colton Group of companies, a manufacturing outfit, in a telephone conversation with BusinessDay, said that in the course of resuming business operations, activities had been slow and cumbersome, especially in terms of access to raw materials.
“Getting raw materials has become more difficult than before due to the pandemic,” Ajulo said. “There has been an upward review of prices by almost 30 percent and some of these suppliers have not fully resumed, making the process slower,” he further said.
“In addition, the naira devaluation has caused a form of imbalance. Now, one dollar goes for N388 officially and it is not even available. In the black market, it goes for N450 to a dollar, which is on the high side,” Ajulo said.
He affirmed that due to the scarcity of dollars and the increase in the price of raw materials, cost of production was rising, affecting the company’s revenue negatively.
Johnson Obasi, CEO, Johnsfrank Global Resources Nigeria Limited, an Aba-based PPE producer, in a telephone interview, also confirmed the increase in prices of raw materials, which was hurting revenue and profits. Obasi said buyers were not ready to succumb to paying higher prices for the goods.
“Aba flourishes on the importation of fabrics. However, since the pandemic started, there has been a supply shortage, and this has resulted in artificial scarcity of raw materials, causing a hike in the price of these materials,” he said.
“Initially, the raw materials were readily available but when supply was cut, the prices increased as the sellers claimed that import restriction, high exchange rate and high demand affected the prices. We as producers have no choice, ” Obasi added.
After weeks of lockdown and supply cuts, local manufacturers are experiencing higher production cost, which is further affecting their businesses negatively. Prior to the outbreak of the pandemic, the manufacturers had been able to import raw materials without hitches despite an unstable foreign exchange rate regime. They had managed to run on self-provided electricity while cutting costs.
However, in the past two to three months, international supply of raw materials and machines has been on the decline, leaving many manufacturers stranded. Some have managed the situation by sourcing for raw materials locally, but not all inputs can be found locally, manufacturers say.
In a recent report entitled, ‘Economic Impact of COVID-19 and Policy Responses in Sub-Saharan Africa,’ Africa’s Pulse said, “The COVID-19 pandemic has taken a toll on human life and brought major disruption to economic activity across the world.”
The report said the global economy was falling into recession as industrial production, investment, retail sales, and services production contracted sharply in China in the first quarter of 2020.
“Contractions of a similar magnitude are expected to follow in other countries,” the report further said.
