The Manufacturers Association of Nigeria (MAN) has said that the forex crisis and high inflation in the country will limit its performance in Nigeria till mid-2024.
The Association said this in its ‘Manufacturing Sector Outlook for 2024’, noting that average capacity utilization is expected to linger around the 50% mark due to forex-related challenges and the prevailing high inflation rate, with a potential uptick only anticipated in the third quarter as these challenges subside.
It said:
- “Average capacity utilization will still hover around the 50% threshold as the forex-related challenges and high inflation rate limiting manufacturing performance may linger until mid-year.
- “The sector may experience a meagre improvement in manufacturing output as forex and interest rates-related challenges are expected to subside from the third quarter.”
MAN’s Plea for Government Intervention
The manufacturers also urged the federal government to take decisive action to address key issues affecting the manufacturing landscape.
Topping the list is a call for an overhaul of the power sector and prioritization of forex and credit allocation to manufacturers, essential steps to drive growth in Nigeria’s industrial sector.
The association stressed the need for the government to incentivize investment in renewables to enhance electricity generation and promote energy-cost efficiency.
Additionally, MAN recommended prioritizing forex and credit allocation to manufacturers while streamlining the number of Bureau De Change operators to curb excesses through effective management and supervision.
Utilising Savings from Fuel Subsidy Removal
MAN proposed that the government deploy cost savings from the removal of fuel subsidies to implement a range of production-focused policies.
The policies, coupled with structural measures, should combat inflationary pressures arising from insecurity, energy costs, and transportation.
To revitalise the sector, MAN also emphasised the importance of mandatorily increasing the patronage of made-in-Nigeria products. The association called on the government to lead by example, prioritising the purchase of domestically produced goods for all government contracts and projects, in line with Executive Order 003.
More Insights
- The manufacturing sector has grappled with various challenges in recent years, including rising foreign exchange rates, high energy costs due to unreliable power supply, multiple taxation, and inflation. The removal of fuel subsidies and the unification of the foreign exchange market in 2023 exacerbated these issues, leading to notable exits from the sector.
- However, President Bola Ahmed Tinubu recently promised upgrades in the power sector by fast-tracking the delivery of the Siemens Energy power project for a reliable electricity supply. The Central Bank of Nigeria (CBN) has also taken steps to address the forex crisis, including clearing the backlog of foreign exchange forward obligations through tranche payments to 31 banks.
- If the federal government fulfils its promises to address the forex and power crises, there is optimism that the manufacturing sector can experience a much-needed boost and strengthen its output.