Year 2024 remains a year to remember for operators and critical stakeholders in the nation’s manufacturing sector. The sector, which prides itself as capable of ‘delivering’ the nation’s economy from the different plagues that have been its lot, in the past few years, seemed to have ended up a victim of those plagues, in the year.
According to the National Bureau of Statistics (NBS) GDP Report for the Third Quarter of Year 2024, the sector could only muster 2.18 percent growth rate, in the third quarter of 2024; a development, many believed, poses significant danger to the federal government’s industrialization agenda, and its efforts at attaining a $1Trillion economy by 2030.
Of major concern, in the report, was the boom the services sector had continued to record at the expense of employment and production in the manufacturing, a development capable of thwarting the economy’s aspirations at reducing forex demand pressures, promoting value addition and generating mass employment.
Interestingly, the Manufacturers’ Association of Nigeria’s Manufacturers’ CEO Confidence Index (MCCI), released recently, and also corroborated this much.
For instance, the MCCI, which serves as a gauge for assessing quarterly shifts in manufacturing activities, revealed that the levels of confidence of operators in five of the sectoral groups in the sector, dipped below the 50-point benchmark, in the third quarter of 2024, due to the above –mentioned challenges confronting the sector.
The five sectoral groups, where operator’s confidence levels were negatively impacted, especially in the third quarter of 2024, the report stated, included: Food Beverage & Tobacco (47.5); Textile, Apparel & Footwear (44); Domestic/Industrial Plastic & Rubber (48); Motor Vehicle & Misc. Assembly (44); and Wood & Wood Products (48).
The report also identified Kaduna (48); Kano (45); Anambra/Enugu (42.2) and Bauchi/Benue/Plateau (40), as zones that also failed to meet the 50-point benchmark in Q3, 2024.
But, the association has also not failed to identify dip in forex inflow, rising inflation, high electricity tariff, high cost of raw materials, low government patronage and increase in imported products as some of the issues, responsible for the sub-par performance of the sector, in the year.
The CBN had hiked the benchmark interest rate six consecutive times from 22.75 percent to 27.5 percent. Interestingly, those efforts were never enough in the year to curb the headline inflation, ignited by further hike in petrol prices, which resumed its upward trajectory to 33.88 percent in October 2024, after easing to 32.7 percent in the third quarter, due to bumper farm harvest. It is generally believed that the high inflationary pressure and continuous interest rate hikes constituted major constraints to the GDP growth in the year.
Not a few stakeholders therefore believed that despite the tepid increases year-on-year and quarter–on–quarter, a single-digit GDP growth rate of 3.46 percent was highly non-inclusive to improve living condition and boost all sectors of the economy. For instance, MAN argued that the apex bank’s forex reforms in the year had proved inadequate to attract more FX inflow into the country in the year.
FX inflow had dropped by 60.7percent, over the last one year, from $40.46 billion to $24.55billion, while the consistent decline in the global oil price since Q3 of 2023 also portends a negative impact on FX earnings; since the economy remains heavily dependent on oil export.
The Electricity hike challenge
Another daunting challenge was the hike in electricity tariff and the ripple effects on the sector.
For instance, MAN has lamented in the first half of the year that the tariff hike in the power sector resulted in the closure of over 300 companies, and 380,000 job losses in April and May, 2024.
Besides, it was established that electricity-related expenses of the average manufacturing business constitute about 40 percent of its production overhead, a factor attributable to the high costs of products and services in the country.
MAN believed the sharp rise in electricity cost, about 230 percent increase had crippled many businesses, noting that the policy was counterproductive to manufacturers.
Effects of Reforms on the sector
The ‘bold’ economic reforms embarked upon by President Bola Tinubu in the year were not without their challenges. Many industry stakeholders identified the reforms as a major cause of macro-economic crises, with unemployment, inflation, poverty and hunger rising at alarming rates.
It is also generally believed that while the various reforms had become imperative, they are however bereft of proper planning and policy coordination, as seen in their negative effects on the populace, especially the vulnerable individuals, as well as Small and Medium Industries.
MAN, in its reaction to the reform, identified fuel subsidy removal and exchange rate liberalisation as being responsible for the high cost of borrowing, exorbitant exchange rate and escalated energy prices, which took their toll on households and businesses, especially manufacturers.
The gale of exits of multinationals
Nothing bore testimony to the crises in the nation’s business space than the gale of exits of multinationals, and the shutdown of many businesses, due to inclement business weather, witnessed in the year.
For instance, in 2024 alone, five multinationals: Kimberly-Clark (K-C), Pick n Pay, Diageo, Holcim, and Equinor Nigeria Energy Company (ENEC), decided to look beyond the shores of the country to ply their trade.
In 2023, about 767 manufacturing companies, according to MAN closed shop, while 365 companies experienced distress in the year, due to the nation’s challenging business space.
Way forward in 2025
But some are, however, still incurably optimistic about the prospects of the nation’s economy, and the sector getting a breath of fresh air in the New Year. They, however, cautioned that the apex bank would have to apply a brake on the interest rates hike, and review the impact of the policies it had so far rolled out to enable it to effectively control the consequences of such policies and make adjustments.
There is also the need to further increase market confidence and promote Foreign Direct Investment (FDI), for the sector, and the economy in general to grow. Many industry stakeholders are of the strong opinion that one of the ways to achieve this is for government to honour the unsettled $ 2.4 billion forex forward contract.
MAN, on its own, would want the contentious issue of electricity price hike to be revisited. Government, it counseled, must review the electricity tariff hike to only 100% increase of the previous price, and introduce outage compensation mechanism to improve electricity access.
There is also the need for government to heed the manufacturers’ cry that the exchange rate be frozen at N1000 to a dollar, in the calculation of import duties for production inputs, and also categorise manufacturers, as strategic users of gas, so as to remove the gap between what manufacturers and electricity generation companies pay per cubic foot of gas.
Also going forward, the Lagos Chamber of Commerce and Industry (LCCI) urged the federal government to improve on its tax-to- Gross Domestic Product (GDP) ratio to enable it to meet the ambitious N34.82 trillion revenue projection, in the 2025 Budget.
One of the ways, the chamber argued, this could be achieved is for the government to accelerate and simplify its tax reforms processes, and incorporate the informal sector in order to meet the revenue target.
Leveraging technology to expand the tax net, minimize leakages, and foster transparency will also be critical, in the New Year.
READ ALSO: Manufacturing: Poor growth may hinder govt’s industrialisation, $1trn by 2030 agenda — MAN
