Raw material scarcity remains huge impediment to manufacturing activities
Players in Nigeria’s manufacturing sector have flagged the scarcity of raw materials as an impediment to the productivity and success of the sector, which could limit chances in actively participating in the African Continental Free Trade Area (AfCFTA) and contributing to economic growth.
Following the outbreak of the coronavirus pandemic in 2020, availability of raw materials for production has become increasingly scarce especially since China, a major manufacturing hub and one of Nigeria’s largest import partners restricted its economy to curb the spread the of the virus.
After weeks of lockdown and supply cuts, local manufacturers suffered higher production cost, which affected 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 and had managed to run on self-provided electricity while cutting costs.
However, after the pandemic, international supply of raw materials and machines declined significantly, 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.
The average raw material inventories in the PMI report for full year 2020 was 47.3 points, which is lower than the 50 points benchmark, revealing the situation manufacturers are suffering in accessing raw materials.
The Lagos Chamber of Commerce and Industry (LCCI), in a COVID-19 impact report affirmed that the pandemic disrupted the global supply chain and caused an acute shortage of raw materials and intermediate inputs leading to a setback in the operations of many manufacturing companies. Consequently, this had adverse implications for the sector’s productivity, capacity utilization, employment generation and retention, and adequate supply of products to the domestic market.
Segun Kuti-George, Chairman of Nigerian Association of Small Scale Industrialists (NASSI), Lagos State, said raw materials for production are usually imported however the pandemic caused a supply cut leading to acute scarcity of raw materials, he added that the scarcity led to a price increase of over 50 percent on the available inputs, which surged production cost.
“The cut in supply led to the rising cost of raw materials, as a result manufacturers cost of production increased, this has put manufactures in a tight position because despite the higher cost of production, increasing the cost of finished goods may lead to a drop in sales volume,” Kuti-George said. “In addition, it is also limiting their chances in the market with other competitors across the continent.”