BusinessDay

Nigerian manufacturers adjust operations to survival mode

Manufacturers in Nigeria have been forced to revise their mode of operation as they struggle to survive in the face of worsening production challenges and macroeconomic indices.

Many manufacturers resorted to reviewing their operating models to avoid shutting down operations or incurring more debts.

Frank Onyebu, chairman of the Manufacturers Association of Nigeria (MAN), Apapa branch, told BusinessDay that the first half of the year was turbulent and many manufacturers struggled to continue operations.

“Manufacturers are more prepared to weather the storm in the second half of the year. Some have started sourcing for inputs locally; many of them are eyeing gas-powered generators now; some factories are no longer producing at full capacity, and some have had to lay off workers even if they do not want to,” he said.

According to Onyebu, the production process has a lot of inputs and factors, one of which is power supply, whose cost has surged significantly, forcing manufacturers to rotate operations so as to reduce energy costs.

He added that some of them were exploring gas-powered generators as an alternative either by renting them or making plans to buy them.

He said amid rising costs and macroeconomic challenges, manufacturers have to deal with low product demand, even as the government is pressuring them to fulfill their financial obligations.

“Now is the time manufacturers need tax holidays; many of them are at the brink of collapse but their resilience is still nudging them,” he added.

Anthony Ajulo, executive director of Colton Group of Companies, in a telephone interview with BusinessDay, said that his company had had to increase the prices of its products twice, with another hike on the horizon.

“Currently, the overhead cost has risen by over 600 percent, raw material sourcing has increased by over 100 percent, employees are clamouring for an increase in salary as inflation erodes the value of their earnings, and we have numerous other financial obligations, yet we have to continue operating,” he said.

Ajulo said the company may relocate its production operations to another country “where the business environment is friendlier and enabling”.

“Currently, no textile factory is operating at full capacity and many of them just wait to get orders before they produce anything to avoid incurring debts through unsold inventory because effecting a price increase is not an option,” Kwajaffa Hamma, director-general of the Nigerian Textile Manufacturers Association, said.

He added that although profits are being eroded, manufacturers still need to remain in business while they hope that things improve going forward.
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Usman Imanah, chief executive officer of Friska Farms Limited, said some manufacturers had had to transfer rising costs to consumers, some others sought alternative means of production while some had looked for ways to make affordable sizes of products to increase production amid surging costs without compromising the quality.

“We have had to absorb the rising energy cost, which is eating into our margin; however, we tried to expand our market and sell larger volumes to boost chances of profitability. The government has so far encouraged Nigerian brands to export; so we are expanding our international market and looking at export options to also boost FX availability,” he said.

Since February when the Russia-Ukraine crisis started, manufacturers have had to deal with a surge in the price of diesel by over 90 percent, and the intensified cut in the supply of raw materials, among other issues, with an adverse effect on their production and operational activities.

The Manufacturers CEOs Confidence Index (MCCI), which measures changes in the pulse of operators and trends in the first quarter of 2022, dropped to 53.9 points from 55.4 points in the fourth quarter of 2021, according to the MAN.

Although the MCCI decline was marginal and above the 50 points benchmark, MAN said the manufacturing sector was suffering severe pressure with its health on 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.

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