BusinessDay
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Poor credit access, supply cut hamper manufacturers’ productivity

…as PMI drops to 51 points in May

Manufacturing activities have been dampened due to persistent challenges like poor credit accessibility and cut in supply of raw materials which have significantly affected the sector’s productivity.

The impact of this was evident in the Purchasing Managers’ Index (PMI) for May which declined 51 points from 53 points in April according to data by FBN Quest and NOI.

The PMI, which is a gauge for manufacturing sentiments, was measured using five variables which are output, workforce, new orders, delivery times from suppliers and stocks of purchases.

Respondents of the survey affirmed that sourcing input has become increasingly difficult and scarce on the back of rising insecurity and restriction of movement in some states which imposed curfews to curtail insecurity.

“Lack of capital/funds to purchase raw materials for production as well as limited access to those materials caused a decrease in output, on the supply-side, apart from existing structural issues, heightened insecurity in some areas of the country has further disrupted the flow of movement of goods,” it revealed.

Furthermore, power outage which is an inherent challenge continues to constrain productivity and profitability of the sector. Nigeria ranked 169 in the getting electricity metric, scoring 47.4 points on the World Bank’s ease of doing business 2020 report and a zero in the reliability of power supply.

“The manufacturing sector as a whole operates on more than 60 percent of energy from generators, and operating these generators greatly increases the cost of manufacturing goods. The shortages increase business uncertainty and lower returns on investment” it reported.

Manufacturers spent N81.91 billion providing alternative energy in 2020, according to data from the Manufacturers Association of Nigeria (MAN).

Business experts say that the high energy cost of these companies threatens the existence and continuity of businesses as they are forced to produce at a higher cost and are unable to transfer the cost to cash-strapped consumers causing them to incur debts.

Also the persistence of unfavourable macroeconomic conditions continues to impede the profitability of the sector as consumer preference continues to change, furthermore the seasonal boost to demand experienced during the Easter season was short-lived.

“Similar to the trend that was obtainable pre-pandemic, consumer demand is fragile. The underlying issue is that pockets remain squeezed, hence, the current inflationary conditions in Nigeria adversely affect the profitability of the manufacturing sector,” it stated.

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