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Business News of Thursday, 30 December 2021

Source: sunnewsonline.com

2021: Forex, policy instability, others keep real sector edgy

One of the biggest fallouts of 2021 was the low supply of forex by banks One of the biggest fallouts of 2021 was the low supply of forex by banks

One of the biggest fallouts of 2021 was the low supply of forex by banks, which burdened real sector growth.

The unavailability of forex negatively impacted manufacturing performance, as manufacturers could not access forex required to import essential raw materials, machines and spares locally unavailable available.

At some point, most manufacturers sourced forex only at the parallel market at unfavourable exchange rate, making manufacturers import bills for raw-materials and machinery not locally available unnecessarily high.

Policy inconsistency, poor implementation, instability, poor infrastructure and insecurity had among other factors combined to hamper the growth of the sector.

Many local manufacturers are still feeling the monumental effects of the pandemic on the country’s fragile sector and the economy at large.

As the pandemic persisted, most manufacturers stopped raw materials inputs importation from China and other affected countries and began to look inward for raw materials supplies.

Due to the imperative of raw materials inputs development to Nigeria’s industrialisation bid, there was need for manufacturers to look inwards and seek other alternative market outside China. It gave rise to increased backward integration.

Consequently, the effects of the pandemic put the sector at risk, worsened the already unfriendly business environment for manufacturers.

There was serious demand-supply crisis, domestic scarcity and losses.

This led to job losses; the disruption also caused travel restrictions, exchange rate depreciation, breach of contractual agreements, macroeconomic shocks, loss of revenue, suspension of business activities, erosion of investors’ confidence and many more.

With the variants invading the world, the business environment was more hostile, coupled with all forms of levies and multiplicity of taxes, escalating exchange rates, forex scarcity, inflation and recession.

MAN had said the manufacturing sector was struggling as operators strived with low confidence level. All these denied the sector the capacity to achieve significant growth craved for.

The pandemic met the sector already with underlining issues of lack of infrastructure, poor electricity supply to industrial firms, over-regulation, multiple taxes and levies, poor accessibility to ports/high demurrage, poor economic infrastructure and difficulty in sourcing foreign exchange, low patronage and counterfeiting/influx of substandard goods. It worsened the condition of the sector, pushing it to near death or collapse.

However, the pandemic only amplified the fragile achievements recorded in the country’s real sector and the economy in general with induced disruptions as the economy grappled with stiff challenges since it lacked adequate buffers to suppress the shock.

Chairman, Non-Metalic Mining, MAN, Mallinson Ukatu, said the sector did not achieve much in 2021 as a result of decayed infrastructure.

He noted that Forex for raw materials was not easy to access and the promises by government to give attention to manufacturers were not implemented.

Ukatu also lamented that devaluation of the currency, double taxation and no incentives for manufacturers to create employment hampered the sectors growth.

Forex scarcity

Following the massive drop in global oil prices and the pandemic which translated to reduction in foreign exchange (forex) inflow into the country, the Chief Executive Officers (CEOs) and manufacturers confirmed that it was pretty difficult to source forex from all the available windows with the country’s manufacturing lopsided currently over forex scarcity hit.

High manufacturing cost

Cost of financing is still ‘very high’ in the country, MAN President, Mansur Ahmed said, adding that government and the CBN should urgently intervene in the monetary policy to ensure the bringing down of cost in the country’s manufacturing sector as a way to rescue the sector.”

AfCFTA takes off

Friday, January 1, 2021 the much publicised African Continental Free Trade Area (AfCFTA) Agreement in the continent, took off. The government did a lot of preparations this year to ensure the manufacturing firms participate, which included the ratification of the agreement by the Federal Government in November.

The Federal Government intensified efforts to start actual trading,but as at today, no state party to the AfCFTA agreement has officially accepted the offers of another on tariff liberalisation as harmonisation process of different regional custom unions remain complex, contributing to delay in actual trading under the single market.

Minister of Trade and Investment, Niyi Adebayo, had said infrastructure deficit may hamper implementation of AfCFTA.

Multiple taxation

New taxes were added to the myriad of taxes on the already over-burdened private sector. The Minister of Finance, Zainab Ahmed had hinted that there might be introduction of new taxes and levies in 2022, reacting, MAN Director General, Segun Ajayi-Kadir said the sector was already groaning under multiple taxation from the three tiers of government and more tax burden will worsen the sector’s plight.

Chairman, LCCI SMEs Group, Daniel Dickson-Okezie said most of the sectors did not do well just like the real sector is not exempted.

He noted that the challenges that bedevilled the the real sector last year did not improve, “they are still the same” like the power issue, unconducive business environment. Dickson -Okezie said the highest challenge of the manufacturing was the issue of forex. Which the operators couldn’t access.

“Manufacturers depend on imported raw materials and you cannot get those materials without forex.

Policy somersault of government and the CBN worsened the situation.

The power issues is getting worse by the day, it’s not improving at all.

Due to insecurity situation in the country, a lot of industries and companies are closing shop in the North and in the east investors are afraid of investing except indigenes who believe their businesses must must thrive no mater the situation.

The economy is not conducive for investment. The real sector is suffering so much. Factories are closing and some relocating to other West African countries.

No improvement in the regulatory system , as corruption has pervaded the system. Manufacturers and importers pay so much to get their products standardised or upgraded by the SON, NAFDAC and some other agencies .

Meanwhile operators continued to lament the prevalence of corruption in the system especially among government’s regulatory agencies, with multiple taxes pushing many companies on solid ice.

Chairman, MAN Apapa branch, Frank Onyebu, lamented that the outgoing year was a difficult and challenging one.

Onyebu said most people had expected that there would be a major rebound in the year under review after a very depressing, coronavirus disrupted 2020.

“The expectation was that with the progress made in the development of the vaccines on the global level and the absence of the anticipated catastrophic spread in Nigeria as well as most African countries, the disruptions were bound to end sometime in 2021.”

He noted that expectations were, however, not realised due to a number of factors such as the oft-repeated problems of infrastructural deficiency, high inflation, foreign exchange shortages, deteriorating security situation and the general economic downturn which has had a negative impact on the purchasing power of most Nigerians.

According to him, the real sector of the economy has borne the brunt of this harsh economic reality to the extent that majority of businesses are currently struggling; several businesses are actually distressed, some at the brink of bankruptcy.

Achievements are few and far between. “The fact that businesses are still surviving is based on the resilience of Nigerian entrepreneurs. The government, unfortunately, has done very little to change this narrative. Unlike other countries, where governments have taken proactive measures to reflate the economy, our governments (at all levels) are busy introducing new taxes.”