June 10, 2024

FX, power, inflation top manufacturers’ concerns in Q1’24


•As production, distribution costs surge 20.7%

By Yinka Kolawole

Chief Executive Officers in Nigeria’s manufacturing sector have listed foreign exchange (FX) volatility, inadequate power supply and high inflation as some of the topmost challenges they encountered in their operations in the first quarter of 2024 (Q1’24).

This, according to them, led to a further surge in production and distribution costs by 20.7 percent in the period.

The list was based on the Q1’24 Manufacturers CEO Confidence Index (MCCI) survey conducted by the Manufacturers Association of Nigeria (MAN) which ranked the challenges facing their operations in order of severity.

The report stated: “Top ten on the list of manufacturers’ challenges include unstable and high exchange rate/scarcity of FX; inadequate power supply/frequent power outages; high inflation/high operating cost (of raw materials, labour, equipment and maintenance); high cost of energy (petrol, diesel, gas); high and multiple taxes, charges and levies.

“Others include insecurity; over-regulation and policy inconsistency; high interest rate/inadequate access to credit; poor infrastructure and distribution channels/multiple checkpoints/gridlock at the national ports; and high cost of transportation/logistics costs.”

The other binding constraints identified by the survey are high inventory of unsold manufactured goods/low patronage/poor sales; high and unstable import duty; unavailability of raw materials/delay in receiving imported raw materials; frequent change in customer demand/inaccurate demand forecasting; influx of sub-standard goods/smuggling; shortage of skilled labour; scarcity of genuine machine parts; corruption/lack of moral value; and poor business plan/inventory & supply chain management.

“The challenges led to a further surge in production and distribution costs by 20.7 percent in Q1’24 from the 21.73 percent increase witnessed in the preceding quarter.

“Capacity utilisation also declined further by 9.76 percent from 3.81 percent, while the volume of production slid further by 10.14 percent in Q1’24 from a contraction of 4.6 percent recorded in the previous quarter,” the survey report added.

Commenting on the outcome of the survey, Director General of MAN, Segun Ajayi-Kadir, said the development of the manufacturing sector should be at the front burner for economic policymakers as the sector is the most essential for sustained economic growth and shared prosperity.

“The subdued performance of the sector is attributed to some ongoing harsh economic reforms that have compounded the long-standing challenges confronting the sector. This is confirmed by the finding of this report which reveals that forex scarcity, inadequate power supply, high inflation, rising energy cost, multiple taxation, policy inconsistency, exorbitant interest rate, poor infrastructure and high
logistics costs are the top ten challenges depressing productivity in the sector.

“MAN expects the government to frontally address insecurity, improve electricity supply, promote fiscal sustainability, and ensure policy consistency,” Ajayi-Kadir stated.