Government’s tightened monetary measures and insecurity shrank consumer demand, resulting in rise in manufacturers’ inventory of unsold finished products to N60.62 billion by end of 2014, the Manufacturers Association of Nigeria (MAN) has said.
Inventory rose from N17.34 billion in the second half of 2013 to N60.62 billion in the corresponding period of 2014, representing 250 percent rise. There was a 168 percent spike in inventory in the second half of 2014 when compared with N22.55 billion obtained in the first half of the year.
Inventory of finished goods refers to stock of manufactured products that are ready for sale. Rising inventory of unsold finished products signifies declining sales.
“The second half of 2014 witnessed a downturn in household consumption demand due largely to dearth of liquidity as the government tightened the monetary system in a bid to safeguard the naira value following the crashing crude oil prices in the international market,” says MAN, in its latest July to December 2014 Economic Review.
“Again, the prevailing insecurity in the country especially in the North-Eastern Nigeria limited manufactured products spread with resultant effect on domestic demand over the period,” MAN adds.
In late 2014, the Central Bank of Nigeria devalued the naira to save the economy and the declining foreign reserves.
It adjusted the exchange rate from N155 to N168 to a dollar, hiked the cash reserve ratio (CRR) on private sector deposits from 15 to 20 per cent while also raising the monetary policy rate, which is the benchmark interest rate, from 12 to 13 percent.
Insecurity in the North-East reached a crescendo in 2014, resulting in manufacturers’ closure of plants and withdrawal of sales representatives from the region.
“Everything is grounded in Gujba and Gulani (in Yobe State). Access road to Damaturu, Taraba and Adamawa is still blocked,” Shettima Bukar Jallaba, director-general, Yobe Chamber of Commerce and Industry, told Real Sector Watch in October 2014.
A break-down shows that inventory of unsold finished goods in the food, beverage and tobacco group rose to N2.95 billion by end of 2014, from N389.5 million in 2013. Inventory in this sector was N3.21 billion in the first half of 2014.
Pulp, paper and publishing group had the highest inventory of N19.95 billion within the period under review, from N40 million in 2013 and N751.45 million in the first half of 2014.
“The huge stock of inventory in the sector may not be unconnected with the activities in the Export Processing Zones (EPZ), where paper products are being produced by companies in the zones and sold 100 percent in the custom territory,” says MAN.
“Also, influx of paper products from least-cost producing nations may also have contributed to the huge inventory position,” adds MAN.
There was also high inventory of N15.56 billion in the electrical and electronics sector within the period, as against N2.36 billion by second half of 2013 and N47.7 million in the first half of 2014.
MAN attributes high inventory in the sector to low patronage, as electricity distribution companies (DISCOs) prefer imports to locally made products.
The non-metallic products sector had a high inventory of N12.9 billion within the period under review, as against N890.23 million in 2013 and N5.07 billion in the first half of 2014.
“High proportion of inventory in the sector came from the cement industry, where sales were stalled following the cement grade arguments of 2014,” MAN explains.
Also, textile, apparel and footwear sector has an inventory of N180.79 million, from N401.33 million in 2013 and N4.07 billion in the first half of 2014. This implies that textile and footwear makers’ made more sales within the period.