Manufacturing sector retrogressing speedily

As Nigeria celebrates her 62nd Independence Anniversary, culminating in President Muhammadu Buhari-led government’s exit from office, Taiwo Hassan evaluates his administration’s impact on the real sector of the economy in the last seven years

On assumption of office in May 2015, President Muhammadu Buhari’s led administration was greeted with wide jubilation across the country as the messiah to recalibrate the economy, including the manufacturing sector. Sadly, the Buhari’s administration came at a period of uncertainty in the global oil market, with oil prices plunging into the lowest ebbs. In addition, the administration was also faced with low revenue drive from the oil and gas sector. Since then, the country’s GDP and mostly, manufacturing sector, has never been the same.

Manufacturing sector

In facts, there is no gainsaying that the country’s manufacturing sector has been bedeviled with negative containments amidst harsh policies and harsh opersting environment that have prevented local manufacturers from attaining growth and meeting targets. Indeed, the over two decades of uninterrupted democracy, since 1999, reflects relative political stability, which is good for the confidence of investors. But sadly, the Nigerian manufacturing industry has recorded an average growth performance over the past seven years of Buhari’s administration. The challenge of creating an inclusive growth trajectory remains a major concern for the government. In short, under the Buhari’s administration, the country’s manufacturing sector has been experiencing negative growth over the past seven years, prompting poverty, inequality, low standard of living, massive unemployment and many others. In facts, it is a case of growth with minimal development.

Concerns for the economy

There is no doubt that the country’s macroeconomic management framework continues to pose serious challenges to investors in the economy. This situation has been further compounded by the shocks and disruptions inflicted by the Russian invasion of Ukraine and the lingering effects of COVID-19. The fragile macroeconomic conditions remain a major cause for concern.

The troubling macroeconomic situation has manifested in the following ways in recent years: weak and depreciating currency, high inflationary pressure, high and rising debt profile, exchange rate volatility, liquidity crisis in the foreign exchange market, increasing fiscal deficit, growing debt service burden, and the acceleration of money supply growth following the rising CBN financing of deficit. Persistent importation of petroleum products has continued to put pressure on foreign reserves, thereby weakening the capacity of the CBN to support the forex market. Petroleum refineries have remained non-performing over the years.

The fiscal position of the Federal Government and the states are very weak, characterised by high fiscal deficit, high and increasing debt profile and the associated debt service burden. The state of insecurity continues to take its toll on the economy, especially on agricultural output and fueling food inflation. It is also impacting the confidence of investors. The spate of oil theft and the associated leakages of government revenue is very troubling. Billions of dollars have been lost to this apparent failure of security.

Textile industry

In fact, the state of the country’s textile industry is worrisome with many garment factories struggling to cope with the numerous challenges and shocks in the economy.

Besides, the country’s textile sector is a victim of the current harsh business climate, especially for the real sector. Especially, the key element is the high energy cost, forex illiquidity, currency depreciation and weak domestic patronage. Unfortunately, government has not helped matters in the country’s textile industry since it has failed to promulgate and enforce laws that would ensure that all uniforms of security agencies and other government institutions are produced from local fabrics.

Auto industry

Indeed, policy summersaults in the last seven years of Buhari’s administration have yielded no positive outcome in the country’s quest to assemble automobiles with frustration upon frustration among the local manufacturers who have invested huge amounts of money to ensure the dream comes to reality. But lack of political will on the part of this administration has degenerated the dream in the country’s automobile industry. Ideally, investors in the auto assembly plants have been facing peculiar challenges in the country’s auto industry.

Power

Speaking on the state of electricity supply under President Muhammadu Buhari, especially its spiral effects on many businesses in the last seven years of his administration, there is no doubt, that the number one challenge facing business owners and local manufacturers in this country is that of epileptic power supply. During his campaign to Nigerians, President Buhari had assured that there would be uninterrupted power supply in the country during his regime. Ironically, just few months to his tenure’s expiration, nothing has improved in the country’s power sector as investors are even complaining that the current power supply has worsened more than they met it. The most annoying part on the side of the local manufacturers is the fact that Buhari’s administration failed woefully in electricity sector reforms by not improving efficiency and productivity. According to them, the challenges in the electricity supply chain need to be urgently addressed – gas to power, transmission, distribution, energy pricing,metering, and the capacity of the distribution companies. To them, all of these are needed to improve performance and attract more investment into the sector. In addition, they suggested that there should also be a deliberate policy to attract private investment in the electricity grid if the administration is concerned in turning around the country’s power sector.

Alternative energy costs

They also raised the alarm that huge energy costs spending in the course of production of goods on electricity in the country is fast eating up their profitability. In particular, Eat’N’Go Africa, a leading quick-service restaurant and the parent franchisee to Domino’s Pizza, Cold Stone Creamery, and Pinkberry Gourmet Frozen Yoghurt, revealed that diesel spending in the course of running its outlets across the country this year (2022) alone was already about N2 billion. In addition, Mouka, the leading bedding and mattress makers company, also disclosed that arbitrary price and constant changes in the prices of diesel in the country since the beginning of the year, has massively impacted negatively on its mattresses production in all ramifications. In fact, New Telegraph investigations showed that energy costs spending on power supply this year alone by manufacturing firms, especially on diesel, is expected to hugely take a toll on many local firms’ revenue and bottom lines by year ending (2022).

Hike in interest rates

The last seven years of Buhari’s administration on the country’s manufacturing sector has been profoundly harsh, especially on the issue of Monetary Policy Rate (MPR) and Cash Reserve Requirement (CRR) in the country. Harshly, just in 2022 alone, the Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) had hiked interest rate three times to 15.5 per cent, in response to the continuous increase in inflation rate.

According to the Manufacturers Association of Nigeria (MAN), the implications for the economy and manufacturing sector portends worrisome negative consequences for the manufacturing sector, some of which include: increased cost of borrowing by manufacturers, further beyond the extant double-digit rate, which disincentivise new investments in the sector, increased factor costs, which feed into high product prices, making the sector uncompetitive, high product prices, which makes patronage to plummet and lead to huge inventory of unsold manufactured products in the sector, among others.

MAN posited that in consideration of the prevailing scenario around increase in interest rate and access to funds, tougher times were ahead for the productive sector. Clearly, the increase in MPR from 14 per cent to 15.5 per cent will rub-off negatively on other rates and dash the hope for a single digit lending rate for the productive sector in the economy. Moreover, the productive sector body noted the observed continuous contractionary monetary policy posture without complementary fiscal support.

Inflation rate

Following the National Bureau of Statistics (NBS) report that Nigeria’s inflation rate had increased to 20.52 per cent from 19.64 per cent, MAN said that Nigeria’s economy was currently suffering stagflation, rather than inflation amidst unemployment and volatile food prices in the country.

Specifically, MAN pointed out that with the current 20.52 per cent inflation rate, dubbed the highest figure recorded in the country since September 2005, Nigerian economy had shifted significantly into a walking inflation. MAN Director-General, Segun Ajayi- Kadir told New Telegraph in an interview that it was now germane government develop and implement policies targeted at increasing food supply and decreasing enterprises’ production costs in order to navigate out of the spiraling inflation puncturing the economy.

Ajayi-Kadir noted that the contributing factors to inflation could be linked to high cost of raw materials, the devaluation of the naira, and the disruption of the supply chain caused by insecurity, among others. The persistent insecurity in the nation has continued to impede agricultural activities and deter investments in agriculture in the nation’s food-producing regions, resulting in a decline in agricultural output. One of the key main failures of this administration is the inability to end insecurity in the country.

In fact, the worsening security challenges have affected all facets of the economy with the manufacturing sector not left out. Recently, local manufacturers under the umbrella of MAN were fuming that ongoing insecurity in the country had forced them to adjust their working days in some parts of the country, mostly the eastern and northern parts of the country. This, according to them, is not only affecting their revenue projections for the year 2022, but also their bottom lines, since they have to adjust to the security situations around their business environments for the safety of their goods.

Last line

In conclusion, there is no doubt that the over seven years of President Muhammadu Buhari’s-led government have left disruptive impacts on the country’s manufacturing sector, with tales of lamentations among manufacturers and other investors.