But operators lament worsening environment
By Emeka Anaeto, Economy Editor
LATEST report of manufacturing Purchasing Managers’ Index, PMI, has indicated a slight upbeat in business activities in the manufacturing sector with the February 2016 index rising to 50.6, showing a recovery from 44.6 recorded for January though still significantly below December record of 54.2.
But manufacturing sector leaders who spoke to Vanguard, yesterday, at the Nigerian Manufacturing Sector Outlook 2016 said the sector operating environment, rather than improving, is still very adverse. PMI is an indicator of the economic health of the manufacturing sector based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. All developed and significantly developing economies run PMI.
The latest Nigerian PMI being reported was developed by FBNQuest, an arm of First Bank of Nigeria Plc, in conjunction with NOI Polls, Nigeria’s leading public opinion polling agency. According to the Index report, however, two of the five sub-indices were negative in February, while three were positive and the strongest reading was 56 for delivery times, thus leading to gross improvement in the Index.
FBNQuest linked the marked recovery in the output sub-index from 38 in January to 53 to the simultaneous improvement for stocks of purchases from 43 to 52. It, however, noted that “access to foreign exchange did not improve in the month under survey: far from it.” According to the report “it happened that companies of all sizes had been able to rebuild their inventories, which had been run down at the end of the holiday season.
“In these circumstances, we would expect companies to turn to local inputs, where available. Small firms would normally take the lead in this process, given their greater flexibility in production and their greater challenge in accessing foreign exchange. The fact that the employment sub-index was below water for the third successive month tells us that companies do not see a bright near term”.
Manufacturers list difficulties
At the Manufacturing Outlook 2016 organised by B. Adedipe Associates, sector leaders listed threats to continued growth in the sector. Managing Director of Berger Paints Nig Plc, Mr. Peter Folikwe, said corruption and unofficial ‘taxation’, especially on major border highways, has de-legitimized formal channels and encouraged the use of smuggling routes undermining local manufacturers’ market share.
Manufacturers’ market share
He also noted that delay in budget implementation had spiral economic effects while shortage of imported raw materials and equipment have led to factories shutdown. Other adversities visiting the sector, according to him, are high cost of obtaining funds, increasing inflation rate, incessant demand by Nigerians for imported products and raw materials, insecurity in the Northern part of the country, poor infrastructural development, power and road network crises.
Managing Director, Greif Nig. Plc, Kunle Obadina, identified key issues in manufacturing in Nigeria to include infrastructure deficit where he said only 18 per cent of the nation’s 197,000 kilometers of federal roads which take about 90 per cent of traffic, are paved, tarred or properly maintained, adding that most capital projects were stalled since first quarter of 2015 as most governments lost economic focus in favour of politics.
He also included as factors militating against manufacturers growth to include erratic and poor energy supply where, according to him, 86 per cent of firms in the country still depend on diesel power electricity generating sets to power 61 per cent of their power needs.
He added that the cost of doing business remains a major challenge, primarily because of poor power supply and deficient infrastructure which he said, has made Nigerian goods uncompetitive.
Acting director general of Nigerian Textile Manufacturers’ Association, Mr Hamma Kwajaffa, lamented the closure of over 90 per cent of textile firms in the country due to the challenges outlined.
According to him both the government and the financial sector operators have frustrated the efforts of his sector in contributing to the economic growth of the nation and threatened the survival of the sector.
Managing Director of Skye Bank Plc, Mr Timothy Oguntade advised manufacturers to be more creative and cooperative in addressing their challenges in the face of obvious shortages in government services.
He explained that the challenge of foreign exchange scarcity which the manufacturers had also recognized as the latest challenge they were facing, was primarily the consequence of Nigeria’s reliance on oil proceeds to finance its imports, noting that now that the proceeds have decreased resulting in difficulties in obtaining foreign exchange for manufacturing inputs.