The tough and unpredictable macroeconomic environment has pushed the Nigerian manufacturing sector to brinks of a recession and there is little to stop it from falling over the edge.
The manufacturing sector contracted by 0.10 percent in the second quarter of the year, that compares with an expansion of 2.40 percent recorded in the last quarter of 2018, according to a recent report by the National Bureau of Statistics (NBS).
Analysts attribute the protracted slow growth in factory activities to a weak consumer purchasing power, decrepit infrastructure, slowdown in construction and real estate activities, and huge levies by government.
A high inflationary environment, hike in the price of fuel and incessant devaluation of the currency have subdued consumer spending as unemployment rate is at an all-time high of 23 percent. Nigerians are getting poorer and over 80 percent of a population of 200 million live on $1.98 a day as the country has overtaken India to become the poverty capital of the world.
“Consumption has been slow and that has manifested in the performance of trade”, said Johnson Chukwu, managing director and CEO of Cowry Asset Management Limited.
Omotola Abimbola, consumer goods analysts CSL Stock Brokering Limited said that the lethargy reflects the monumental challenges of infrastructure as evidenced in the menacing gridlock at Apapa Ports.
The restriction being imposed by the Federal Government and the Central Bank of Nigeria (CBN) to protect manufacturing is hurting the industry, according to Abimbola.
The Nigerian economy is losing over N20 million daily as a result of the Apapa Gridlock, Seaport Terminal Operators Association of Nigeria (STOAN).
If the N20 billion is multiplied by 12 months in a year, it then means that the country will lose N240 billion annually, which is more the combined internally generated revenue of eight states ( Kaduna, Edo, Oyo, Enugu, Akwa-Ibom, Kwara, Ondo, Imo, Abia, Bayelsa, Plateau, Sokoto, and Benue).
The trade sector’s year on year growth contracted by 0.25 percent, as consumer goods firms continue to suffer deteriorating margin. The listed firms are not able to deliver a higher return to shareholders in form of share appreciation and bumper dividend.
The cumulative sales of the ten largest manufacturers quoted on the floor of the bourse dipped by 1.13 percent to N839.91 billion in June 2019, the first slump in 3 years.
Similarly, cumulative net income or profit after tax (PAT) fell by 42.87 percent to N51.44 billion in June 2019 from N90.05 billion the previous year.
The industry average net margin, a measure of efficiency, fell tom 4.59 percent in the period under review from 8.77 percent the previous year as they are unable to turn each Naira invested into higher profit.
Ayodele Akinwunmi, analyst at FSDH Limited said that the contraction in manufacturing GDP is due to slow down in construction and real estate activities. He added that delay in the selection of cabinet members by President Muhammadu Buhari also spooked may have contributed to the economic lethargy.
“There were no ministers in the three months after the president was sworn in for a second term in office, therefore, there were little activities to support growth,” said “If household do not consume, firms will not produce,”
The GDP of Africa’s largest economy expanded by 1.94 percent in the second quarter of the year, that compares with 2.10 percent in the corresponding period of 2018.
Akinwunmi said the government needs to come up with a stimulus to spur the economy and attract foreign direct investment.
Analysts at United Capital expect the momentum in the Nigerian economy to remain tepid in third quarter, with below population growth of 2.6 percent.
“This is predicated on the continued operating challenges in the economy and absence of the implementation of major policy reforms thus far during the quarter,” said analysts at United Capital Limited.
“Notably, growth in the Manufacturing, and Construction sector that largely depends on government spending should receive some boost in H2-19 as the newly formed cabinet set out to implement the 2019 budget. FG’s revenue challenges remain a huge downside risk growth in the trade activities amid rising debt servicing,” added analysts at United Capital.
