The outbreak of the coronavirus has significantly impacted manufacturing activities within the country and only a huge stimulus package can prevent the fragile sector from its worst year since oil price crash of mid-2014.
The spread of the virus, which has caused several commercial states across the country to be placed under lockdown in order to curtail it, is expected to add to the woes of manufacturers as demand continues to wane.
The lockdown has also disrupted the supply chain as key distributors in the value chain have opted to stay away from business due to increasing health risk associated with production.
Analysts say several firms have seen demand plummet, and there has been a change in consumer behavior since households now spend their income on essentials.
Before the coronavirus pandemic, operators in the industry had been facing gridlock at the Apapa Port that caused delay in the delivery of products to site, unreliable power supply from the grid, a weak consumer purchasing power, and border closure by government.
Even after the pandemic, poverty-stricken consumers won’t be able to purchase most of the products, say analysts. Nigeria is world’s poverty capital, according to the Brookings Institution, with 87 million potential consumers earning less than $1.90 per day.
Nigeria’s listed manufacturers are operationally inefficient as they aren’t turning each naira invested in sales into higher profit as industry average combined net margin fell to 7.071 percent in December 2019 from 10.30 percent as at December 2018, according to data gathered by BusinessDay.
Their combined net income reduced by 17.85 percent to N385.55 billion in the period under review from N469.33 billion the previous year, while industry operating profit dipped by 12.97 percent to N468.44 as at December 2019.
A breakdown of the figures by sectors shows net income of the largest industrial goods firms dipped by 17.72 percent to N315.62 billion in the period under review while operating profit margin fell to 25.011 percent in December 2019 from N27.63 percent the previous year.
The largest consumer goods firms saw combined net income slump by 23.05 percent to N59.68 billion as at December 2019, while net income hit a negative territory of -2.98 percent in the period under review from 5.64 percent the previous year.
Drilling down the figures also shows pharmaceutical companies or drug makers saw their net income flat at N9.98 billion in the period under review.
Capacity utilisation in the sector was 53 percent in the first half of 2019 as against over 60 percent in the same period in 2014.
“It’s a challenging time for everyone. The lockdown affecting demand may likely impact on cost of production, coupled with the devaluation of the currency,” said Abiola Gbemisola, consumer goods analyst at Chapel Hill Denham Limited. “I do not know whether the Federal Government has the fiscal tool to do any major intervention to manufacturers.”
Gbemisola said the only solution is to give tax rebate to companies that do not lay off staff due to the economic crisis.
A few weeks ago, the Central Bank of Nigeria (CBN) announced a stimulus package of N1 trillion to boost local manufacturing that is more vulnerably susceptible to the global macroeconomic uncertainties. The bank has also earmarked an additional N500 billion initial intervention fund specifically targeted at manufacturing sector so that operators can procure raw materials and equipment necessary to add impetus to production.
However, analysts at CSL Stockbrokers Limited said their concerns remain around poor implementation that continues to undermine Nigeria’s economic growth.
“In our view, huge amount of stimulus would be required to ease the pain of the manufacturing sector. Without a successful stimulus implementation, the manufacturing sector may be facing its worst year since the oil price crash,” said analysts at CSL Stockbrokers Ltd.
A number of manufacturers have shut down in the last three years, including Procter&Gamble in Agbara, Ogun State, Evans Medical, Grif, among many others. Between 2016 and 2017, foreign exchange scarcity caused by low crude oil earnings resulted in the closure of 54 manufacturing firms, according to Frank Jacobs, the then president of the Manufacturers Association of Nigeria (MAN).
Business activities are hobbling, raising concerns that the country could slip into a second recession in five years.
The Manufacturing Purchasing Managers’ Index fell to 51.1 in March from 58.3 in February, while the full impact of the pandemic is expected to be felt more this month.
The International Monetary Fund (IMF) has predicted a negative GDP growth of 3.4 percent for the country.
Capitulating to pressure, the CBN devalued the official naira rate to N360 to the dollar from N306.
The price of Brent crude fell below $20 per barrel for the first time in 18 years, sliding by more than a quarter on Tuesday as fears over demand caused by the coronavirus pandemic rattle oil markets for a second day. Brent was recently changing hands at $18.10, down $7.50, or 29 percent, its lowest level since late 2001.
The hardest hit by the economic downturn are the consumer goods firms, a subsector beset by consistent decline in real per- capita income while disposable income continues to pressure sales.
While importation of raw materials from the United States and China has not been banned, getting them from these countries is practically difficult amid the coronavirus crisis.
