The operations of Nigeria’s manufacturing sector have comeunder severe pressure over the persistent unavailability of gas supply for continued day to day operations. At the heart ofthis imminent crisis are companies along the Lagos-Ogun axis which hosts over 2,000 industries and accounts for over 70% of manufacturing employment.
In the last few months, this cluster and by extension the entire manufacturing sector has come under a very potent threat- the lack of access to gas to power operations and maintainingproduction output. It is common knowledge that this industrial cluster powers the growth of the manufacturing sector and its contribution to economic growth is enormous.
According to Nigerian Bureau of Statistics (NBS), Nigeria’s manufacturing sector’s contribution to the overall GDP in 2022 first quarter was 10.20% and higher than other sectors such as Oil & Gas which contributed 6.63%. At the end of the first half of 2019, the Manufacturers Association of Nigeria (MAN), estimated that cumulatively, an estimated 1.64 million jobs had been created by the sector over time.
The Nigerian manufacturing sector is at the centre of its diversification and economic growth agenda, and the focus on this sector is not unfounded. It has a track record and even greater potential to generate mass employment, and power the growth of small and medium enterprises (SMEs)
Gas supply in Nigeria is primarily routed to three sectors. The commercial sector (which the manufacturing sector is a constituent), the power sector, and gas-based industries.
In recent times, the attacks on oil & gas pipeline infrastructure and crude oil theft have impacted gas production and supply. Associated gas production which is linked to oil production is no longer available anytime our critical oil evacuation pipelines are tampered with. This gas production becomes constrained and as a result, there have been gas supply shortages accompanied by rationing of available gas supply.
According to sources in the sector, there is also identified insufficient gas production by the gas producers and then more importantly, a de-prioritization of gas supply to the commercial sector in favour of the power and gas-basedindustry sector as well the non-transparent application of the provisions of the Network Code across board by the Nigerian Gas Company (NGC), the operator of the gas transmission pipeline system.
Prior to the current gas supply issues, gas supply to commercial sector averages around 400 MMSC/D, however with the current challenges, the supply is lower than 50% of the previous figure which is now at less than 200MMSCF/D.
The commercial and manufacturing sectors are therefore bearing a disproportionate burden of these gas supply cuts,meaning that industries that depend primarily on natural gas to run their business are left stranded.
Findings from sources in the Manufacturing Association of Nigeria (MAN), and some customers of the gas distribution companies, is that industries that were operating at 60-70% capacity utilisation are now operating at 15%, and if the situation persists, most if not all of them will be forced to shut down operations. It will be unprofitable to keep running factories at such low-capacity utilisation, and the alternative of using diesel at almost N900/I is not a viable option.
For manufacturers who are unable to procure alternative fuel sources, they come to a painful but inevitable conclusion – to shut down. If this is not quickly checked, this might result in massive unemployment, inflation, and a likely spike in crime.
According to Nairametrics, “Nigeria’s inflation rate in the month of June 2022, surged further to 18.6% compared to 17.71% recorded in the previous month. The highest level in 65 months (over 5 years), and the fifth consecutive monthly rise. The last time the inflation rate in Nigeria touched the 18.6% ceiling was January 2017, when it stood at 18.72%”.
This means that every month, Nigerians have watched their income lose its purchasing power as they are unable to afford the same quantity of commodities as they used to. Withmanufacturers forced to switch to more expensive alternative sources of energy, rising energy costs are inevitable and the inflationary pressure is expected to keep building, foreshadowing even higher inflation figures.
Similarly, Nigeria has risen to the unenviable position of second on the global list of countries with the highest unemployment rates. This accelerated decline was captured in a widely reported Nigerian Bureau of Statistics publication which put Nigeria’s unemployment at 33 percent in the first quarter of 2021 rising from 27.1 percent in the second quarter of 2020.
Even more worrying is the report’s important note that “more than 60 percent of Nigeria’s working-age population is younger than 34” This means that 2 in 3 unemployed people are younger than 34. These figures represent the core of what should be an active youth population driving economic growth. Instead, they are out of jobs, and the industries they should look to for jobs and career growth are now closing down or considering so because there is no gas to power their operations.
Unemployment and sky-high inflation provide an incendiary foundation for insecurity. SBM Intelligence, a Nigerian geopolitical intelligence platform reported that an average of 13 persons were abducted daily in the first half of 2021. The report goes on to state that a total of 2,371 persons were kidnapped and N10 billion was demanded in ransoms in the first half of 2021.
Ignoring a significant and strategic cluster of industries that collectively drive a significant portion of the national GDP holds real consequences, The ability of Nigerians to purchase commodities, their jobs, and indeed the country’s national security is tied to improving access to gas for the industrial cluster that powers our economy.
Nigeria’s economy stands at a tipping point. Pushed to the edge by soaring inflation, skyrocketing unemployment rates, and record-level insecurity. It cannot take any more pressure, particularly on its thriving manufacturing sector that ensures it is still treading the waters of economic stability, barely afloat.
The groans of the manufacturers are a warning of the long-term consequences that these actions portend. The relevant agencies and government must act now to ensure that our manufacturing sector has access to the gas they need to keep industries open, jobs available and commodities affordable.