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Energy, Forex Crises: More Factories To Shut Down As Real Sector Faces Stern Test- Stakeholders

…More Jobs To Go

Nigerians are groaning under exorbitant prices of goods and pharmaceuticals, whose prices skyrocketed by over 200 to 500 per cent. That is after the recent exit of some manufacturers due to a harsh operating environment. Stakeholders in the real sector are apprehensive that more factories would shut down as the energy, forex crises and high cost of logistics, low capacity utilization due to unsold inventories persist. PAUL OGBUOKIRI reports

Cost of pharmaceuticals, other consumable skyrocket

Recently, an asthmatic Nigerian, who depends in Ventolin inhaler to remain alive, came to the social media to raise the alarm over the high cost of the pharmaceutical product, which has risen by over 800 per cent from N1, 700 per canister about two months ago to N18, 000 per canister depending on where you are buying your own. Also, it was disclosed that Augmentin, which is a very effective medicine for treating infections caused by many different types of bacteria; now sells at N24, 000 up from N3, 500 which it was sold about two months ago.

Aside from the general situation of astronomical rise of price of goods and services in Nigeria consequent upon the removal fuel subsidy and unification of the exchange rates of the Naira by the President Bola Tinubu administration, one thing that is common among the two sampled pharmaceutical products is that they are products of GlaxoSmithKline Pharmaceuticals, which exited Nigeria recently due to the persisting forex and energy crises and other subsisting operating challenges posed by poor infrastructure, high cost of logistics, among others.

Stakeholders in the real sector say the challenges has not abated and would force more manufacturers and service providers to close down their operations in Nigeria, saying the price of diesel, which many manufactures and service providers depend on, due to poor power supply by the electricity companies, now sells at over N1, 100 per litre. This dire situation, they said, is worsened by the foreign exchange crisis, occurring amid dwindling purchasing power as there are signs that the prices of Liquefied Petroleum Gas and Compressed Natural Gas, which are being adopted as alternative energy sources, have risen and would spike further.

The Nigerian Association of Liquefied Petroleum Gas Marketers Gas said last month that the price of a 12.5kg cooking gas may hit N18, 000 from the current N10, 000. Already, the number of factories shutting down yearly due to power shortages and harsh economic conditions remains worrisome as stakeholders have expressed deep concerns that without urgent actions, includ- ing halting taxes on petroleum products, job losses and revenue declines from the sector could severely impact the nation’s economic growth and its expected contributions to Gross Domestic Product (GDP).

The Manufacturers Association of Nigeria’s Confidence Index for the second quarter of the year identified high cost of energy as the foremost challenge facing manufacturing in the country. This challenge is compounded by high credit costs and lack of loanable funds, multiple taxes, charges, levies, inconsistent tax policies for local producers and importers, raw material unavailability and delays in receiving imported raw materials, high raw material costs and forex scarcity.

While the nation’s electricity grid remains unreliable for manufacturing activities with over 134 system collapses in the last 10 years, manufacturers have spent nearly N1 trillion to source alternative energy in the last seven years. With an average of 95 manufacturing companies shutting down yearly, with Glaxosmith being the latest, over 4,451 job losses are being recorded yearly in manufacturing sector alone as factory output value dropped to N2.68 trillion in first quarter of 2022 from N3.73 trillion in the first quarter of the year. With the price of crude oil inching towards the $100 per barrel mark, stakeholders have predicted tougher times ahead for businesses in the country as the actual electricity output remains around 3,500 megawatts in the last 10 years.

Director for the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said the implications of the increase in the pump price of diesel would result in increased production costs for industries. “Most small-scale producers are dependent on diesel generators as alternative sources of energy and this means that the production costs for them will go up. When you combine this with the forex crisis and all the other problems manufacturers are battling with, you can only imagine what will happen in the next few months.

“Also, it will affect the transportation of goods and services. The trucks and trailers we see on our roads are the ones delivering everything from raw materials to finished goods and they all use diesel. Almost 100 per cent of haulage in Nigeria is by road as our rail and water systems are underdeveloped. This will mean an increase in the cost of mov- ing goods from one place to another, since they’re powered by diesel engines.” Yusuf worries that these challenges would further cause inflation to skyrocket. Concerned over the nation’s economic outlook, former Manufacturers Association of Nigeria (MAN) chairperson for Apapa, Frank Onyebu, said the implications were dire both for the economy and for consumers.

He pleaded with the government to take deliberate steps to halt the shocking increase and mitigate the suffering of local manufacturers, who are dying out rapidly. “We must reduce the cost of governance and cut down on government spending. Government must stop all these unnecessary appointments, reduce wastages, create policies that encourage production, rehabilitate public infrastructure, improve power supply, eliminate corruption and create an enabling environment for industries to thrive. These and many more need to be in place before the government can talk about deregulation to us.”

He further pointed out that higher diesel costs will also mean higher transport costs as the cost of moving goods will also go up significantly. “Labour costs have also risen because we understand that workers’ transport fare has gone up. We should also increase prices but how much can we really increase knowing that Nigerians are poor and struggling? “Remember, we are competing with imported goods from foreign countries that don’t have these many barriers we are dealing with here.

Manufacturers here are having it tough, truth be told and no matter how much we can endure, if the present situation doesn’t improve, many companies will relocate to saner climes while others will shut down. We know what this means-even more job losses and the economy will be worse off for it. I am calling on the government to save the real and industrial sector from total collapse,” he said.

Energy crisis threatening survival of manufacturing in Nigeria – MAN

The Manufacturers Association of Nigeria (MAN) has warned against possible collapse of the industry in Nigeria, if the high cost of fuel and current energy crisis were not addressed by the Federal Government. This is coming as it has been disclosed that over 50 companies shut down in Nigeria in five years over a poor enabling environment. The lingering foreign exchange and power sector crises have contributed to the shut- down of over 50 companies. Segun Ajayi-Kadiri, Director-General, MAN, made this known in a statement obtained by Sunday Telegraph.

According to him, the challenges of high fuel prices, scarcity and inadequate power supply in the country (as well as excessive regulations and taxation, and inadequate supply of foreign exchange for importation of raw materials) have reduced the number of industries in Nigeria and converted industrial hubs in most parts of the country to mere warehouses of imported goods and event centres. He noted that the situation has lowered the country’s GDP, even as many Nigerians have become jobless, indulging in crimes due to daily shutdown of operation by many manufacturers, who could no longer bear the high cost of energy, particularly diesel, which is mostly needed to power their facilities.

He said: “More worrisome is the deafening silence from the public sector as regards the plight of manufacturers. “Four obvious questions that readily come to mind that are seriously begging for answers are; what can we do as a nation to strengthen our economic absorbers from external shocks? “Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange and now over 200 per cent increase in price of diesel be advised to shut down operations? “Should we fold our arms and allow the economy to slip into the valley of recession again? Is the nation well equipped to manage the resulting explosive inflation and unemployment rates?” He questioned.

The manufacturers called for a policy that would urgently allow companies and airlines to import diesel and aviation fuel respectively from the Republic of Niger and Chad, to ease the current hardship. MAN also requested for the development of a National Response and Sustainability Strategy to address challenges emanating from the ongoing invasion of Ukraine by Russia in order to remain in business. Some of the manufacturing companies that have exited the industry in the last five years include: Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries, and Stone Industries.

Others are: Solo Industries, Quick Born Industries, Supercor Industries, Arabi Industries, and Rola Industries. Sunday Telegraph found out that Peak Aluminium, Phonenix, Wise Machine Industries, Louis Carter Limited, Sky Aluminium, Grief, Errand Products, Technoflex, Gorgeous Met- al, Mother’s Pride, including the Industrial and Foam Equipment, Deli Foods, Universal Rubber Errand Products, Technoflex and Universal Rubber have all closed down. These industries are located in Lagos, Ota (Ogun State), Agbara(Ogun State), Jos (Plateau), Bauchi, Kano, Nnewi (Anambra State) and other parts of Nigeria.

In the last five years, two of the biggest manufacturing companies that closed down their manufacturing plants are Procter & Gamble and GlaxoSmithKline. In 2014, Procter & Gamble, also known as P&G, set up a $300 million diaper plant at Agbara, Ogun State. But three years later, the plant was shut down due to what the company described as “restructuring”. Similarly, GSK Nigeria closed down its drug manufacturing plant at Agbara, Ogun State, in the third quarter of 2021, and moved into a contract manufacturing alliance with Fidson Healthcare. It recently exited the country completely. Some of the manufacturers whose firms were shut down blamed the demise of their firms on the foreign exchange policies of the Nigerian government and the poor operating environment.

The Chief Executive Officer of Kenfrancis Frams, one of the moribund firms, Mr. Ifeanyi Okereke, said his agro-based company was shut down due to the foreign exchange crisis bedeviling the industrial sector. He said: “We started in 2016, believing in Nigeria and hoping that we could process agro products and export. But getting raw materials to carry out this objective became a problem. Our cost of production skyrocketed and, at a point, it became clearly impossible to continue operations.” He noted that many more industries had shut down because of the foreign exchange crisis and poor industrial plan. He said: “Your cost of production as a manufacturer or agro processor can only continue to rise because you pay heavily for energy, water, logistics, port demurrages and have severe difficulty sourcing your foreign exchange.

How then would you survive?” The General Manager of Louis Carter Industries, one of the moribund companies that was producing plastics in Nnewi, Mr. Ndubuisi Okoli, said that the energy crisis led to the death of the company. “The Enugu Electricity Distribution Company was not providing us with adequate power. That was our major reason for going under”, Okoli said. The Chief Executive Officer of Moak Enterprises, a bottled water company that shut down in 2021, Olatunde Akintunde, revealed that the high cost of raw materials killed off his company. He disclosed: “It was difficult for us because the cost of our raw materials increased four- fold, leading to the high cost of production. The business was no more sustainable. So, we had to go.”

Way forward

In a recent CEO Confidence Index con- ducted by the Manufacturers Association of Nigeria, more than 50 heads of corporate organisations suggested ways of preventing factory shutdowns and galvanising the manufacturing sector. They said: “Government must incentivise investment in the development of raw materials locally through backward integration and resource-based industrialisation initiatives.” They urged the government to ensure effective allocation of available forex to productive sectors, particularly the manufacturing sector while sustaining the eligible customer initiative to ensure that more electricity was supplied to the manufacturing sector.

They further said: “It is important to strengthen the Bank of Industry and Bank of Agriculture to adequately provide liberal finance for the manufacturing sector. “It is also important to monitor the implementation of Executive Order 003 to ensure compliance by MDAs so as to boost activities in the manufacturing sector.”

Alternatives: Embracing the CNG fuel

Director-General of NECA, Adewale- Smatt Oyerinde, has urged the Federal Government to hasten its CNG and LPG adoption for public transportation in the country. He made the submission follow- ing the hike in prices of fuels, especially diesel cost that is almost N1, 100. He lamented that the challenge of the increase in diesel prices was even more precarious for local industries and auxiliary businesses that mostly depend on diesel to generate power as the electricity supply from the national grid remained epileptic and costly.

According to him, local manufacturers and businesses are really not finding it easy to stay in business, as industries would suffer most severely as the majority of their products are price elastic. He said this limits their ability to transfer the element of diesel price increase to the prices of the commodities. “LPG has been the last resort of households since the price of diesel and DPK escalated to about N800/litre, but unfortunately, it has been drifting beyond the reach of households.

“It is a very precarious situation for transporters, industries and households as the prices of PMS, diesel and LPG are going beyond reach,” he said. In the short to medium term, he said there was the need for the government to denominate the price of gas in Naira and in the long term, incentivise private investment in gas aggregation as well as resuscitate the four national refineries. This was as Associate Professor at Keele Business School, United Kingdom, Emmanuel Mogaji, said the higher diesel prices translate directly into increased transportation costs for households.

Whether it’s commuting to work, school, or accessing essential goods and services, these rising costs affect the disposable income of families. This, in turn, can lead to adjustments in household budgets, potentially resulting in cutbacks on non-essential expenditures. Mogaji said the increased financial burden from higher transportation costs can create stress and limit access to vital services, especially for lower-income households. It can also impede mobility and restrict opportunities for employment, education, and healthcare.

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