Nigerian manufacturers would be among the biggest beneficiaries of an early budget implementation as this would enable them to plan ahead and position for growth.
That’s after President Muhammadu Buhari, during his 77th birthday, signed the N10.59 trillion budget for 2020 into law.
The signing halts 12 years of budget delays by Nigerian politicians, ushering in a January-to- December budget cycle for the third time since 1999.
Within the last 12 years, it has taken Africa’s most populous country an average of six months into a new fiscal year to get its budget signed into law— a situation that has left investors guessing.
Following the Federal Government’s return to January –December budget calendar with the 2020 version, economic and financial analysts have said that the early passage will add value to the economy and also lead to some measure of stability which manufacturers will benefit greatly.
The impact could be widespread if the budget is implemented. For instance, early release of funds for roads and bridges could boost cement and iron/steel industries as long as local manufacturers are patronised. Part of the challenge facing local manufacturers is indebtedness, and key players are already excited that they could be paid for supply contracts they have made in 2019, BusinessDay gathered.
Pharmaceutical firms could benefit with possible order for drug supplies in public hospitals and an assurance that they could be paid on time.
Like many other sectors of the economy, manufacturing companies also operate a four-quarter financial year, opening their books from January of a new year and closing them in December.
Implementing the budget at the start of a fiscal year provides companies with appropriate information to make informed decisions, since, to a large extent, they know the direction the government is moving.
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“Returning the budget to the January-December fiscal year will, to a large extent, remove some of the uncertainties associated with the delayed budget, as the delay has been known to make business leaders and operators apply brake in order to know the budget direction before taking their investment decision,” said Johnson Chukwu, CEO of Lagos-based investment house, Cowry Asset Limited.
As usual, the budget shows a breakdown of various sectors, ministries, agencies and departments of the government, including the amount the government hopes to disburse with the period.
This will provide manufacturers with in-depth information on the particular sector the government will be paying more attention— to so as to prompt them into deciding whether to channel their investments to these sectors or not.
According to financial analysts, returning the budget to the January-December fiscal year would provide the opportunity to forecast properly the direction of demand so as to take advantage of market opportunities.
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To a large extent, the ability a budget has to impact on an economy is dependent on the amount earmarked for capital spending.
Expenditure on infrastructure such as roads will help in fixing the bottlenecks which manufacturers face when carrying raw materials from the farm to the warehouse, and from the warehouse to the market.
According to the Manufacturers Association of Nigeria (MAN), over N20 billion is being lost annually by manufacturers operating within the Amuwo Odofin and Kirikiri industrial zones as a result of dilapidated infrastructure.
This is worrying when the losses incurred by other manufacturers who do not operate within Lagos or within the country’s busiest port city are factored in.
According to Chukwu, with the budget being signed into law, ahead of the commencement of the fiscal year, manufacturers as well as companies can hope that the government will be able to disburse the cash back capital expenditure budget early enough to implement capital projects in the first quarter of the year.
For power, its expenditure from the budget could help in reducing the enormous amount spent yearly by manufactures in fuelling their plants while creating alternative sources of energy for production.
In 2017 alone, manufacturing companies in Nigeria spent as much as N117.38 billion on fuelling their plants to run their daily operations, MAN said. This affected their ability to expand operations and acquire new machinery to produce more in order to give juicy returns to shareholders.
“The biggest challenge facing manufacturing companies as well as small and medium scale enterprises is power. This has led the death of many businesses in the country,” Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry, said recently.
This is so not good for a nation that eyes the African Continental Free Trade Area (AfCFTA) opportunities.
Although the allocations to capital expenditure in the 2020 budget were N2.6 trillion, about N721.33 billion or 23 per cent lower than the N3.18 trillion earmarked in the 2019 budget, its early implementation would go a long way.
After all, the major problem with the capital expenditure is not just its size but ability to use it fully for the purpose for which it was allocated.
The early passage of the budget, to a large extent, sends positive signals to both domestic and foreign investors on the seriousness of the government to boost economic growth.
This would, in turn, help in boosting their confidence in carrying large investments whether as a direct or portfolio investors.
Manufacturing companies that are listed on the stock exchange will probably see their share price appreciation in the event of such investment deals.
However, much of the analysis is based on the bet that government, ministries, departments and agencies (MDAs) will patronise local manufacturers, and manufacturers on their part will produce quality and useful products.
The Nigerian manufacturing sector is made up of 77 industries, dominated by food, beverages and tobacco, with sugar and bread products generating the greatest value of output, based on data from the National Bureau of Statistics.
As a critical sector, it has a lot of opportunities that, if harnessed effectively, and could attract the needed investments while creating jobs for the country’s teeming youths.
The sector in the third quarter was the biggest beneficiary from the Central Bank’s monetary policy directives which mandate deposit money banks to loan out a minimum of 65 per cent of their deposits to the real sector of the economy.
Data from the NBs show that the sector grew 1.10 per cent, its fastest expansion since the start of the year, against a negative growth of 0.13 per cent in the previous quarter.
BusinessDay reported recently that the sector has the potential to hit an average growth of 7 percent growth, according to an estimate by the global consulting firm, PricewaterhouseCoopers, if such policies from the monetary authorities are complemented side by side with policies from the fiscal side.
Such fiscal reforms would help in fixing the several bottlenecks that manufacturers have outlined to be their biggest threat to productivities, which include dilapidated road network, epileptic power supply and supply variability of rain-dependent agricultural inputs, among others.
A country’s budget is a financial plan for a defined period, often one year, showing the government’s planned expenditure in various sectors of the economy as well as revenue projections for the period.
