• Friday, March 29, 2024
businessday logo

BusinessDay

Post-pandemic, manufacturer’s problems intensify with new hurdles to solve

Post-pandemic, manufacturer’s problems intensify with new hurdles to solve

Nigeria’s manufacturing sector has been besieged with a series of troubles which has continually affected its productivity and profitability adversely.

This is further worsened by unfriendly macroeconomic conditions, which affects business owners and consumers alike but the resilience of manufacturers in Nigeria has seen them managing these problems while they hope for better days.

Unfortunately, the outbreak of the COVID-19 pandemic which was a global problem hit them hard as they were already vulnerable due to pressured challenges.

While still trying to ply the recovery route, these challenges have become multidimensional and even more intense than previous years according to the Manufacturers Association of Nigeria (MAN).

According to the MAN’s CEOs Confidence Index (MCCI) for the fourth quarter of 2021 released on Friday, these problems have increased with new things to worry about while the inherent challenges have intensified and are almost defying corrective measures.

In the last three months of 2021, high cost of local and imported raw materials, rising insecurity, skilled manpower deficit, foreign exchange challenges, high cost of adopting advanced technology, government policies, overregulation were major problems troubling stakeholders.

Spike in raw materials cost

The use of raw materials is an important element in the production process however since the outbreak of the pandemic, manufacturers have experienced a cut in supply causing scarcity of raw materials and consequently a surge in the price of available raw materials.

The Index for Production level for the next three months however decelerated to 61.5 points from 64.3 points obtained in the third quarter of the year, the decline can be attributed to the poor access to forex for the importation of vital raw materials and machines that are not available locally,” it read.

The supply cut caused a shortfall in the availability of raw materials and inputs which drove an increase in production cost to 21 percent in the second quarter of 2021, according to MAN.

Hamma Kwajaffa, director-general, Nigerian Textile Employers Association (NTEA) told BusinessDay that the situation is further aggravated by the scarcity and increased price of raw materials due to the extended lockdown of principal partner countries like southern China which has clogged ports critical to global trade.

“There are fears that this may intensify in future as China plans to retain its pandemic border restrictions for at least one more year due to the emergence of new variants and a schedule of major events and exhibitions,” he added.

Insecurity

The high rate of insecurity in the country poses a serious challenge and concern to manufacturing companies in Nigeria, this has also affected their operations particularly in sourcing raw materials locally.

Dealing with issues like terrorism, kidnapping, robbery attacks, herdsmen attack on farmers and other cases of insurgency forced some of them to either shut down completely, transfer their operations within the country or leave for other neighboring countries that provides a more secure business environment.

Seleem Adegunwa Chairman, MAN, Ogun State said this at the 36th annual general meeting of the branch that insecurity was one of the issues that drive poor competitiveness among local manufacturers.

“The government should provide tools and equipment needed by the various security agencies to aid their operations geared towards tackling insecurity in the state,” he said.

Read also: With AfCTFA, every Nigerian company, state should see itself in Africa – Anatogu

Advanced technology adoption

Despite the willingness to incorporate the use of advanced technology and digitalization, manufacturers are unable to, which reflects on their performance and output.

According to the National Agency for Science and Engineering Infrastructure (NNASENI) report on Advanced Manufacturing Technology (AMT), manufacturing processes, equipment and systems around the world are changing rapidly in response to new customer needs, competitive challenges and emerging technologies.

“This enables companies to produce new and better products more quickly and at a much lower cost than ever before however the situation in Nigeria is that all of our manufacturing processes are still based on conventional methods of operation,” it stated.

Segun Ajayi Kadir, Director General, MAN said at a roundtable discussion in 2021 that industrialization is a catalyst for economic growth and development with precedence showing that most developed economies today enjoyed achieved enduring growth and development through advanced manufacturing capabilities

“Unfortunately, the rate of industrialization in Nigeria has been slow and unimpressive due to a number of factors including financial constraints, knowledge, among other issues,” he said.

Overregulation

According to MAN, manufacturing companies are continually overwhelmed with multiple regulations from different regulatory agencies and excessive drive for revenue by government agencies.

Overregulation is another major issue affecting the sector’s performance. In Nigeria, there are over 25 regulatory agencies that supervise business activities some of which have synonymous duties under different bodies.

While each agency tries to carry out its responsibilities, their activities clash and create confusion and problems for manufacturers particularly when it has to do with levies or documentation.

“Oftentimes agencies of the Federal, State and Local Authorities regulate the same manufacturing process resulting in operating losses, supervisory duplication using similar checklists and multiple regulatory charges which often culminates in increased overheads for manufacturers. “ MAN stated.

Foreign exchange issues

According to the survey, 75.1 percent of manufacturers claimed that FX sourcing by the sector did not improve in the quarter under review.

Foreign exchange shortages have been an ongoing challenge in Nigeria and led to the death of 54 manufacturing firms in 2016 alone. Many more have followed since then with manufacturers saying they get two to 10 percent of their dollar needs from the market even after waiting for 30-90 days.

This is worsened by the continuous devaluation of the Naira, currently it costs N414 to get one dollar from the Central Bank of Nigeria (CBN), while it costs no less than N550 in the parallel market.

Experts are of the opinion that if issues around FX availability and accessibility are not addressed promptly, many of these companies will fold up which will consequently collapse the sector and affect job creation.

In addition to the highlighted issues, the country’s macroeconomic conditions also hurt business operations.

“The effect of the macroeconomic environment that prevailed in the quarter under review was overwhelming in differing magnitudes on key manufacturing indicators such as production and distribution costs; Capacity utilization; Volume of production; Investment; Employment; Sales volume; and Cost of shipment,” MAN stated.

The report added that these conditions further strengthened the perception of a mixed grilled performance, visibly exposed the hotspots and served as a pointer to the fact that the sector is still challenged and requires comprehensive policy support.

Other than limiting its domestic impact and ability, sector players add that these challenges have hindered their ability to participate in the Africa Continental Free Trade Area (AfCFTA) and therefore called for the government’s prompt response in tackling these issues.

“Manufacturing performance is still below the mark as the sector is still plagued by numerous familiar constraints, consequently, in order to improve the performance of the sector, the Government needs to intentionally put in place mechanisms that will address these challenges permanently,” MAN advised.

Hence in giving recommendations, MAN stated that “specific attention be given to the security of life and investment in industrial areas and see that security infrastructure improves in the various industrial areas in the country, particularly in the northern part of the country for priority attention.”

It is believed that this will further incentivize investment in the development of raw-materials locally through the backward integration and resource based industrialization initiates.

Furthermore, there is a need for effective allocation of available forex to the manufacturing sector for importation of raw materials and vital machines and equipment that are not available locally.