Nigeria’s manufacturing sector recorded its highest growth in six years in the second quarter of 2021, however this performance received a half-hearted reception from manufacturing experts and business owners in the sector as they insist that that growth did not reflect the harsh realities of the sector.
This is evident as manufacturers bemoan the inherent challenges which seem to have gotten worse overtime ranging from the shortage of foreign exchange, cut in supply, increase in production cost and low product demand which have adversely affected their activities.
Frank Onyebu, chairman, Manufacturers Association of Nigeria (MAN), Apapa branch, described the growth as an illusion, adding that it is simply a push from the contraction experienced in the same period of 2020 when business activities were shut down due to the lockdown.
He also mentioned that many manufacturing firms are grappling with low demand and are left with unsold stock. This is challenging for them as their cost of production has increased significantly over time in the face of inflation and rising prices of raw materials.
“In addition to this, manufacturers still battle with problems like the unfriendly business environment characterized by overregulation, FX shortage, infrastructure deficit, insecurity just to mention a few, beyond the poor performance of the sector. These issues limit Nigeria’s chances of competitive participation in the ongoing African Continental Free Trade Area,” he said.
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The manufacturing sector expanded by 3.49 percent in the second quarter of 2021 from the -8.78 percent it recorded in the corresponding period of 2020, during the heat of the COVID-19 pandemic which induced a general lockdown and forced businesses to cease operations.
This kind of positive growth was last recorded in 2014 when the sector expanded 14.01 percent. Between 2015 and 2020, the sector contracted four times and recorded 0.68 percent as its best in 2018, according to data garnered from the National Bureau of Statistics (NBS).
Manufacturers are finding it difficult to access FX for transactions, while this has always been a challenge, constant naira devaluation, fall in oil prices, and the CBN’s FX management policy such as the recent restriction of BDCs; restriction of Form M among others has simply aggravated the problem and intensified the shortage.
Furthermore, the pandemic emanated from China, the world’s manufacturing powerhouse and Nigeria’s largest trading partner especially for manufacturing inputs. This caused an abrupt stop in the supply of raw materials, goods, tools, and machinery for manufacturing companies. The cut in global supply forced manufacturers to source inputs locally however this also posed a struggle on the back of rising insecurity which caused scarcity of raw materials.
This also contributed to increasing the cost of production thus discouraging production activities. As cost pressure is intensified, manufacturers are unable to pass the entire cost increase to already battered consumers especially as they already suffer low product demand.
Chinyere Almona, director general, Lagos Chamber of Commerce and Industry in a public statement said that the sustained recovery partly stems from the reduction in supply chain disruptions especially as there was no serious lockdown on economic activities in the second quarter of 2021
She however added that to sustain the recovery, proactive action is required as major threats like the third wave of COVID-19, rising insecurity, restricted movement may constrain growth going forward.
An industry analyst who pleaded anonymity said that the recorded growth comes as an effect of a low denominator adding that challenges of manufacturers have gotten worse overtime, he added that the best performers are producers of essential items like food and beverages, pharmaceuticals however they could not record double-digit growth.
“It is too early to celebrate because we are not sure of its sustainability, given that the inherent challenges are still lingering, hence we expect that some form of improvement in the third quarter, it is likely to grow at a decreasing rate,” he said.
Analysts believe that for Nigeria to fully enjoy the benefits of the trade agreement, it has to concentrate on its non-oil products and its ability to manufacture locally, hence the sector needs to perform effectively and efficiently.
According to the report, the sector’s contribution of 8.82 percent to total GDP reduced by 1.47 points as from the 8.82 percent in the corresponding period of 2020 and further reduced by 12 percent when compared to the 9.93 percent recorded in the first quarter of 2021.
The NBS report however revealed that the sector’s performance was driven majorly by four sub-sectors out of its 13 subsectors, the remainder although expanded, recorded marginal increase.
The chemical and pharmaceuticals subsector achieved the most with 9.42 percent, the food, beverage, and tobacco followed with 4.87 percent, the motor vehicles & assembly subsector reached 4.84 percent while other manufacturing grew to 4.36 percent.
The cement subsector recorded 3.89 percent while the non-metallic products, plastic, and rubber products subsectors recorded 3.10 percent and 2.06 percent respectively.
The textile, apparel, and footwear sub-sector hit 1.75 percent, as electrical and electronics was 1.63 percent. The basic metal, iron, and steel subsector recorded 1.44 percent whereas the pulp, paper, and paper products hit 1.23 percent.
The wood and wood product subsector was 0.09 percent, however, oil refining plunged to -46.78 percent.
