Inflation, raw material costs drag down manufacturer confidence in Q3’24
Onome Amuge
Nigeria’s manufacturing sector is facing a host of challenges, from rampant inflation and high raw material costs to government indifference and increased imports, which are starting to take a heavy toll on the industry.
According to the recently released Q3 2024 edition of the Manufacturers’ CEO Confidence Index by the Manufacturers Association of Nigeria (MAN), the confidence levels of operators in five of the key industry sectors have dipped below the 50-point threshold due to these challenges, reflecting growing unease within the sector.
The impact of these challenges on Nigeria’s manufacturing sector was particularly acute in five Sectoral groups, with confidence levels among operators falling below the 50-point benchmark during the review period.
The five affected sectors include; Food, Beverage & Tobacco (47.5), Textile, Apparel & Footwear (44), Domestic/Industrial Plastic & Rubber (48), Motor Vehicle & Misc. Assembly (44), and Wood & Wood Products (48).
The report also revealed that four regions- Kaduna, Kano, Anambra/Enugu, and Bauchi/Benue/Plateau, failed to reach the 50-point benchmark during the reviewed period.
Despite the CBN’s efforts to raise interest rates on six consecutive occasions in 2024, from 22.75 percent to 27.5 percent, in a bid to tame inflation and strengthen FX inflows, the report found that inflation continued to surge and FX inflows declined 60.7 percent over the past year.
Recognising the ineffectiveness of the CBN’s repeated interest rate hikes, the association urged the apex bank to halt its current trajectory and re-evaluate the effectiveness of its monetary policy measures.
MAN further suggested that the Nigerian government could boost market confidence and attract more foreign direct investment (FDI) by settling its outstanding $2.4 billion forex forward contract.
The manufacturers’ group also identified the need for the government to revise the recent electricity tariff increase, capping it at a 100 percent rise from the previous price, and to implement an outage compensation mechanism to ensure reliable power supply.
In a bid to make the Nigerian manufacturing sector more competitive, the association called for the freezing of the exchange rate at N1000 to a dollar when calculating import duties for production inputs, thus safeguarding manufacturers from currency fluctuations and making the calculation process more predictable.
Moreover, the association urged the government to categorise manufacturers as strategic users of gas, allowing them to benefit from the same favourable gas pricing currently enjoyed by electricity generation companies
Although the association commended the CBN for its efforts to combat inflation and stabilise the naira, it acknowledged that the persisting macroeconomic challenges, such as high energy prices and inadequate infrastructure, reflected a broader systemic issue that could not be fully addressed through monetary policy alone.
In a separate position paper, the association raised concerns about the manufacturing sector’s 2.18 percent growth rate recorded in Q3 2024.
According to the association, the underwhelming growth rate represents a significant threat to the federal government’s industrialisation agenda, which aims to transform Nigeria into a $1 trillion economy by 2030.
The association voiced its concern over the increasingly skewed growth pattern in Nigeria’s economy, as the services sector continued to thrive at the expense of employment and production in the manufacturing sector, as indicated in the NBS report.
This lopsided development, the association warned, might hinder the economy’s ability to reduce its reliance on foreign exchange, to enhance value addition, and to generate large-scale employment, thus jeopardising the government’s quest to increase export earnings, foster industrial-led growth, and achieve sustainable development.