New Telegraph

Policy headwinds unsettled manufacturing sector

The first quarter (Q1) of the year 2022 for Nigerian manufacturing sector was challenging in all ramifications following government’s policies and excise duty introduction, TAIWO HASSAN reports

Before the New Year, macroeconomic predictions from members of the organised private sector and economic analysts had shown that local manufacturers, business owners, small and medium enterprises (SMEs) and investors braced for ‘Mother of all headwinds’ after the previous lockdown of the country’s economy due to COVID-19 in 2020. The first surprise from government was the ntroduction of excise duty of N10/litre on all non-alcoholic, carbonated and sweetened beverages in the country. Some other challenges included worsening security situation in the country, escalating energy cost, exchange rate depreciation, liquidity crisis in the foreign exchange market, AfCFTA implementation and inflationary pressures.

Challenging year for the economy

Members of the organised private sector had expressed pessimism that the country’s economy would be very challenging in 2022, being a year preceeding the election year. As expected, greater attention would be paid to more of political issues than economic transformation by the Federal Government. OPS, the leading voice of the Nigerian business community, private sector operators and chambers of commerces, comprising of Nigerian Association of Chambers of Commerce Industry Mines and Agriculture (NACCIMA), Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry, pointed out that government’s drive for revenue would be intensified this year, with the cost of doing business further expected to increase amidst tariff introduction in a bid to shore up the country’s revenue earnings. Those who spoke with New Telegraph on economic expectations from the Federal Government this year stated that firms that do business with government needed to be wary and ensure prompt payment for jobs done and supplies made.

Excise duty controversy

Also, in the period under review, the Federal Government matched words with action when in the first week it suddenly announced the introduction of excise duty of N10/litre on all non-alcoholic, carbonated and sweetened beverages in the country. Zainab Ahmed, Minister of Finance, Budget and National Planning, while announcing it during a public presentation of the 2022 Appropriation Act in Abuja in January, said the excise duty was introduced in line with the Finance Act signed into law by President Muhammadu Buhari on December 31, 2021. However, the OPS members were disappointed with the Federal Government for going ahead to introduce the duty despite their repeated appeals to government to shelve it for more talks on the new tariff. With the take off of the duty, the private sector fumed that the country’s manufacturing sector was starting the year 2022 on an unstable note that could lead to redundancy and job loses, under capacity utilisation, stifling production of products amidst additional cost and other macroeconomic challenges in the country. Consequently, the new development triggered an increase in the retail price of the products with immediately effect.

Security challenges

The quarter saw the Manufacturers Association of Nigeria (MAN) sounding a note of warning again that for Nigeria’s economy to rebound optimally, the Federal Government must intensify the security of life, property and investment within the restive regions of the country, particularly in the North-East where manufacturing activities are gradually grinding to a halt. The Director-General of MAN, Mr. Segun Ajayi-Kadir, told New Telegraph that the security volatility in the North East region had eroded many firms’ production capacity result-ing in unsold inventory of products. He explained that the association was worried about the country’s supply and distribution chain in the North East. In addition, the MAN DG alluded to the fact that insecurity in the North East region had jerked up logistics and transport services with many operators now requesting higher transport services payments as well as insurance policy covers before heading to the region for supply. According to him, the inability to transport products to the North East is causing artificial scarcity of products in the region with many indigenes in the restive areas affected by insecurity groaning over high prices of manufactured goods. Ajayi-Kadir emphasised that the inability of the present administration under President Muhammadu Buhari to contend with intractable security challenges in the country is eroding business and investor confidence resulting in disruption of domestic supply chains and weakening of capital formation required to drive significant economic growth.

ABCON’s access to forex

At the beginning of the year, the Association of Bureaux De Change Operators of Nigeria (ABCON), an umbrella body for over 5,300 Central Bank of Nigeria (CBN)-licenced Bureaux De Change (BDCs), asked the apex bank to de-risk the operations of BDCs to allow operators access foreign exchange (forex) from autonomous market in 2022 and beyond. ABCON President, Dr Aminu Gwadabe, who made the call in an appeal to CBN, said the BDC sector was becoming comatose since the July 2021 Monetary Policy Committee (MPC) meeting where CBN suspended weekly dollar interventions to BDCs. Gwadabe said that while BDCs were licensed to offer retail forex sales across the counter foreign exchange transactions, they equally contribute to Nigeria’s economic development. The BDCs, he added, were ensuring order and confidence in the forex market, providing data for monetary policy, channels for CBN Intervention in retail forex market and creation of over 15,000 jobs, among others. According to Gwadabe, over N1 trillion annual transaction volume by the BDCs sector is under threat, while huge capital investment in the sector is becoming redundant, gradually being eroded and winding up. He, therefore, advised that just like the apex bank de-risked the agricultural sector, making it easier for agriculturalists to access cheaper loans at single digit from banks, the CBN can also de-risk the BDCs operations to be able to receive diaspora remittances through the International Money Supply Operators (IMTOs) and deepen foreign capital flows to the economy.

Steve Orasanye’s reports

Following Federal Government’s stance to review the size of government agencies and also to reduce the size of personnel, the Centre for the Promotion of Private Enterprise (CPPE) backed government in its bid to implement the report of the Steve Orasanye Committee on the Restructuring and Rationalisation of the Federal Government agencies, parastatals and commissions. CPPE, a key member of OPS, stated that it was time the present administration of President Muhammadu Buhari streamlined agencies of government in the country, mostly the key ones in the real sector, on the implementation of the harmonised taxes and levies, which should be monitored and enforced strictly by the Joint Tax Board (JTB). Renowned economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise and immediate past director-general of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, in a chat with New Telegraph, stated that government should streamline the functions of National Agency for Food and Drug Administration and Control (NAFDAC) to control only food related chemical materials, while Standards Organisation of Nigeria (SON) should oversee non-food related materials to end the unbridled double regulation of chemical materials by SON and NAFDAC. Yusuf, who was reacting to the country’s Minister of Finance, Budget and National Planning, Hajia Zainab Ahmed’s verdict that government was ready to consider the implementation of the Steve Orasanye report on harmonisation of government agencies this year, in order to review the size of government agencies and also to reduce the size of personnel.

Rewane on debt servicing

Also in Q1’22, Mr. Bismarck Rewane, the Chief Executive Officer, Financial Derivatives Limited, warned that high debt-servicing costs, a large public wage bill and security expenses would keep government spending elevated this year, thereby raising concerns over fiscal sustainability in the country’s economy. Rewane, a renowned economist, explained that that government’s plans to resort to more borrowing for capital projects development would spike high debt servicing costs in the country in 2022. In addition, the economic expert stated that higher external debt would expose the country to external sector risks if the current administration continues with its loan policy.

Ajaokuta Steel failure

In the quarter under review, the Federal Government made a policy volte face on the Ajaokuta Steel Rolling Mill, saying the administration could no longer complete the project in 2022 as earlier promised. Minister of Mines and Steel Development, Olamilekan Adegbite, disclosed this in Abuja. According to him, the Russia-Ukraine war and COVID-19 frustrated the project on several fronts despite the fact that President Muhammadu Buhari had approved $2 million for the project. The minister, who regretted that the company may not be fully revived under the current administration as earlier promised, said: “Where we are today, we may not be able to get Ajaokuta to work, but I pray that we can start something permanent. I’ve said it before when we came back from Russia.”

Targeting manufacturing to replace oil

There was an admission by the Federal Government that it was targeting the manufacturing sector to replace oil as the number one export revenue earner for the country. Similarly, government noted that it wanted to make sure that manufacturing sector overtake crude oil as the major foreign exchange (forex) earner in the wake of uncertainty surrounding global crude oil because of Russia Ukraine conflicts. The Minister of Industry, Trade and Investment, Otunba Richard Adeniyi Adebayo, made this known in an interview with New Telegraph in Lagos. Adebayo explained that government was working on a non-oil policy, whereby the real sector becomes the mainstay of the country’s GDP (Gross Domestic Product) in order to stop over reliance on oil in the country.

Effects of rising

AGO price The sudden rise in price of automotive gas oil (AGO), otherwise known as diesel, also put many businesses, including manufacturing, in a state of doubt. The adverse effect on the rising price of diesel is telling on business owners and manufacturing firms. Particularly, since the Ukraine war broke out, there has been volatility in the price of crude oil at the international market. It also led to scarcity of these products with the multiplier effects being felt by Nigerians. However, as Nigerians and businesses groan over these essential products, that of AGO (diesel) is becoming unbearable for business owners and local manufacturers.

Last line

This Q1, for manufacturing sector, witnessed low performance with lots of untold hardships facing many investors, manufacturers and business owners.

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