Manufacturers slash output, jobs over forex crisis

The scarcity of foreign exchange is hitting hard on manufacturers in the country, according to findings by The PUNCH.

As a result, manufacturers have been faced with the burden of cutting production, jobs and raw material imports.

The value of items imported under the category of industrial supplies declined by N480bn as manufacturers struggled with forex scarcity.

Data obtained from the foreign trade statistics reports of the National Bureau of Statistics for the first six months of 2022 and 2023 showed that the forex crisis is affecting manufacturers’ ability to import the necessary items they need for industrial production.

The PUNCH observed that in H1 2022, the value of imported industrial supplies was N2.66tn.

By H1 2023, the total value has dropped to N2.18tn, showing a decrease of N480bn despite the fact that it now cost more to import following the exchange rates unification policy of the Central Bank of Nigeria.

Operators lament

Speaking with The PUNCH, the National Vice Chairman of the Nigerian Association of Small-Scale Industrialists, Segun Kuti-George blamed the scarcity of foreign exchange for the significant drop in the importation of industrial supplies.

According to him, the scarcity of forex which prevents industrialists from importing the needed raw materials for production forces them to scale down on capacity utilisation.

He said, “It is a combined factor of forex scarcity and drop in capacity utilisation. When ma manufacturers do not have the forex they need to import raw materials, it means they have to scale down production. The environment is really hard, and they are getting harder and harder by the day.

On his part, the Deputy-President of the Lagos Chamber of Commerce and Industry, Gabriel Idahosa cited the prevailing economic realities as a big factor that has forced manufacturers to scale down production.

Idahosa said, “If manufacturers do not have foreign exchange to bring in whatever they need to bring in like raw materials and industrial supplies, then, of course, it will reflect in the figures we are seeing.

“Since the economy is organic, anything that affects one part will affect the others. If the is low consumer spending power, especially with the kind of inflation we have now, no manufacturer will have reasons to bring in plenty of industrial supplies because he just doesn’t have the money to do it.

“Because capacity utilisation has come down, it doesn’t make sense to keep producing and piling it up at the warehouse when the ones there have not been sold. It is just an expression of the organic nature of the economy. Anything that affects one part, affects all the other parts.”

The Director-General of the Manufacturers Association of Nigeria, Segun Ajayi-Kadir, recently said addressing the forex volatility was vital to manufacturing production.

According to him, the forex shortage being faced by manufacturers translates to a high cost of imported inputs and by extension high cost of production.

This, he said, would result in higher prices of goods.

He said, “But the reality is that the government lacks the needed forex to cover the demand in the economy, including that of the sector. Crude oil proceeds are the major source of forex inflow into the country, and Nigeria has not even been able to meet the OPEC export quota for the country.

“The situation is that the government has limited forex available for the economy and the recent floating of the rate of exchange has complicated the supply side constraints.

In his recommendation, Ajayi-Kadir urged the government to prescribe a definite rate for calculating the import duty for production inputs, such as raw materials, machines and spares that are not available locally.

A former president of MAN, Mansur Ahmed, while speaking at the Annual General Meeting of the Cross River/Akwa Ibom State branch of the association this year, had said that manufacturers could only source 5 per cent of their forex needs from the banks.

Output declines

Also, the contribution of the manufacturing sector to Nigeria’s Gross Domestic Product in real terms declined to N1.5tn in the second quarter of 2023.

This represents a 17.24 per cent Quarter-on-Quarter decline compared to N1.8tn contribution recorded in Q1 2023.

The manufacturing sector’s contribution to real GDP in percentage terms also fell to 8.40 per cent IN Q2 2023 from 10.13 per cent in Q1 2023.

The manufacturing sector comprises 13 activities: oil refining; cement; food, beverages and tobacco; textile, apparel, and footwear; wood and wood products; pulp paper and paper products; chemical and pharmaceutical products.

Others include non-metallic products, plastic and rubber products; electrical and electronic; basic metal and iron and steel; motor vehicles and assembly; and other manufacturing.

The drop in the sector’s contribution to the economy has been linked to an array of bottlenecks, which be-devilled the real sector of the economy in the second quarter of the year.

Meanwhile, in its Manufacturers CEOs Confidence Index report, the Manufacturers Association of Nigeria said that the Aggregate Index Score of MCCI declined to 52.7 points in the second quarter of 2023 from 54.1 points recorded in the first quarter of 2023.

According to the report, manufacturing activities in the second quarter of the year suffered due to factors such as multiple taxation, high energy costs, forex illiquidity, and high cost of borrowing, among others.

Those factors, the manufacturers said, had led to low capacity utilisation, job cuts and adoption of other survival tactics to keep production activities afloat.

Job, production cuts

A report by the Manufacturers Association of Nigeria showed that manufacturers are cutting down jobs and production to adjust to economic challenges in the country.

According to the report, the number of jobs was slashed by 2,818 between Q2 2022 and Q1 2022.

The report read. “Based on MAN survey since 2013, cumulative manufacturing employment was estimated at 1,686,725 at the end of 2022. However, in the second half of 2022, manufacturing employment dipped to 6741 down from 8508 and 9559 recorded in the corresponding half of 2021 and the first half of 2022 respectively.”

On the reason for the decline, it added, “The decline in the number of jobs created in the sector during the period corroborates the poor operating business environment that was perverse with high energy cost, exorbitant cost of borrowing, high inflation, low sales due to limited cash and many more.”

The report also showed that manufacturing output declined by N1.31tn or 32 per cent between Q2 2023 and Q1 2023.

It read, “Manufacturing sector factory output value declined to N2.68tn in the second half of 2022 from N3.73tn recorded in the corresponding half of 2021; thus, indicating N1.05tn or 28 per cent declined over the period. It also declined N1.31tn or 32 per cent when compared with N3.99tn recorded in the preceding half.

“The value of manufacturing production totalled N6.67tn in 2022 as against N7.39tn recorded in 2021. Manufacturing production was severely affected in the second half of 2022 by absence of implementation of new capital project by the government as they focused on the election.”

On the factors that affected production in the country, the report noted, “Production in the sector was also negatively affected by limited purchases by households due to the naira redesign policy, the high inflationary pressure in the country, high cost of energy, particularly diesel and gas, acute shortage of forex for importation of raw materials and machinery needs of the sector that are not locally manufactured in the time being and many more.