The rise of crude oil price in the international market since the start of 2017 is a big signal that Nigerian manufacturers could heave a sigh of relief this year.
Brent crude price has averaged $53-$56 per barrel in 2017 as against half of that in the corresponding period of 2016. Oil price rise is a signal that there will be more dollar inflows into Nigeria, whose 85 to 90 percent foreign exchange earnings come from oil.
There were few greenbacks available in the foreign exchange market in 2016, owing to low dollar inflows. Consequently, manufacturers were hard hit as they struggled to get dollars to import raw materials, spare parts and machinery.
“The improvement we are seeing in the crude oil price shows the manufacturing sector and trade may perform better this year,” Frank Udemba Jacobs, president of the Manufacturers Association of Nigeria (MAN), told BusinessDay in an e-mail response to questions.
Jacobs cautioned that the expected improvement would also depend on the effective implementation of the proposals highlighted in the 2017 budget as well as the quantum of dollars allocated to the manufacturing sector.
A report released by NOI Polls in association with Centre for the Studies of Economies of Africa showed that dollar crunch forced 272 firms to shut down 12 months before August 2016. Fifty of these firms were manufacturers, especially small and medium scale players.
Babatunde Odunayo, chairman, MAN, Apapa Branch, said in November 2016 that manufacturers lost N500 billion to foreign exchange woes.
However, Bassey Edem, national president of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), said there could be light at the end of the tunnel for manufacturers this year, owing to oil price rise.
“Most of the challenges we had in 2016 emanated from foreign exchange scarcity. But I believe that a rise in oil price is good news for manufacturers because it is likely to increase dollars available in the market, “Edem said at a new year press briefing in Lagos.
He cautioned that this must be accompanied by sound economic management, investment in infrastructure and religious implementation of the 2017 budget.
Against the widely-held belief that Nigerian manufacturers sourced more local raw materials in 2016, latest data obtained exclusively by BusinessDay show that this is not the case.
Data obtained from the Manufacturers Association of Nigeria (MAN) show that local input preference, which determines the percentage of raw materials sourced locally, declined to 46.3 percent in the first six months of 2016 (H1 2016), as against 48.77 percent obtained in the corresponding period of 2015. Local input figure of the first six months of 2016 represents a 5.58 percent drop from 51.88 percent recorded in the second half of 2015.
Explaining the reason for this, Jacobs said, it wasn’t possible for many manufacturers to source local raw materials because it takes a while to do so.
“You have to modify some machines; you may have to refine some raw materials further, which was the process that was started,” Jacobs said.
But Ifeanyi Okeleke, CEO of Kenfrancis Farms Limited, said in spite of the imminent dollar inflows into the economy, efforts should be made to encourage manufacturers to invest in backward integration.
“The immediate past administration encouraged backward integration to increase local raw materials sourcing. But I am yet to see that in the current regime. Even though we are expecting more dollar inflows this year, what happens if the Niger Delta hostilities resume? And what happens if the price of oil begins to drop again mid-year? We need to provide funds for backward integration projects and seize this opportunity to raise the quality of raw materials here,” said Okeleke.
