Following a 56.5 per cent dip in capacity utilisation and an increase of N84.88 billion in the value of its unsold inventory, Nigeria’s manufacturing sector’s employment generation capacity dropped to 6428 in the first half of 2023.
This indicates a 32.8 per cent or 3,131 reduction in employment generation capacity when compared with 9559 jobs generated in the first half of 2022.
Although the sector announced N14.5 billion in investments in the period, the cost of funds from commercial banks to manufacturers in Nigeria still remained high at 24 per cent, thereby denying the sector the ability to attract more funds to deepen production.
The above summarises the survey by the Manufacturers Association of Nigeria (MAN) to monitor changes in the performance indicators of the sector viz-a-viz the behaviours of macroeconomic and policy environments in the first half of the year.
The MAN survey showed that the ability of the sector to generate employment and align with the job creation vision of the current administration of President Bola Tinubu is being hampered by the current economic realities.
Also, the data which showed a loss of 313 jobs when compared with 6741 jobs created in the second half of 2022, highlighted the unfriendly business environment resulting from the hasty policies and residual effect of the currency redesign policy that led to the naira crunch. In the same vein, a total of 3567 jobs were lost in the first half of 2023, indicating 1855 more jobs lost when compared with 1709 jobs lost in the corresponding half of 2022 and 850 more jobs lost when compared with 2708 jobs lost in the last half of 2022.
“Capacity Utilization in the manufacturing sector in the first half of 2023, year-on-year, declined to 56.5 per cent from 57.9 per cent recorded in the corresponding half of 2022” noted the survey, indicating a reduction of 1.4 percentage points in the last year.
However, compared with the second half of 2022, manufacturing capacity utilization rose by 1.6 percentage points when compared with 54.9 per cent recorded in the preceding half.
MAN noted that the Nigerian economic environment was clouded by election activities in the second half of 2022 resulting in uncertainties in the economy. This, the body notes, coupled with the immediate impact of the Naira redesign policy which was announced in October of 2022 and required that economic agents including manufacturers thread with caution.
The association stated that this dampened manufacturers’ confidence and affected the capacity utilization in the period. It however stated that the re-infusion of the old currency into circulation temporarily restored confidence, especially in the informal sector of the economy, where more than 98 per cent of transactions are carried out in cash.
In the period also, MAN noted that the factory output value increased to N4.10 trillion from N3.99 trillion recorded in the first half of 2022, indicating N110 billion or 2.8 per cent increase over the period. It also increased by 1.42 trillion or 52.8 per cent when compared with N2.68 trillion recorded in the preceding half.
“The 2.8 per cent increase in the monetary value (not real output) of manufacturing sector production over the period of one year when inflation is at 24.08 per cent at the same period indicates a struggling sector” stated the association which states that the sector faced a myriad of challenges in the first half of 2023 including the residual effect of naira redesign and the removal of fuel subsidy towards the end of the period which triggers inflationary pressure, cost of transportation, cost of production and other macroeconomics imbalances, that worsened the purchasing power of households.
The MAN’s survey also noted that the sector’s local raw materials sourcing increased to 55.3 per cent in the first half of 2023 from 48.0 per cent recorded in the corresponding half of 2022; thus, indicating 7.3 percentage points increase over the period. It also increased by 1.8 percentage points when compared with 53.5 per cent recorded in the second half of 2022. The observed increase in the utilization of local raw materials within the sector can be attributed to the growing challenges associated with sourcing foreign exchange. This situation has compelled manufacturers to shift their focus towards obtaining raw materials domestically, despite the substantial cost implications involved.
However, the weakened purchasing power of consumers resulting from the harsh economy is reflected in the significant increase to N271.96 billion in the value of the unsold finished products in the first half of 2023, as compared to N187.08 billion recorded in the corresponding period of 2022. This survey indicates a substantial rise of N84.88 billion or 45.4 per cent over this timeframe.
However, the survey noted a N11.64 billion or 4.1 per cent decline when compared with the inventory value of N283.6 billion recorded in the second half of 2022. This increase in inventory can be attributed to a weakened purchasing power of consumers, brought about by diminishing real household income resulting from the ongoing escalation of inflationary pressures, compounded by the scarcity of naira in the first quarter of the year and the aftermath of subsidy removal.
Manufacturing sector investment in naira value, according to the survey, increased to N192.89 billion in the first half of 2023 from N178.39 billion recorded in the corresponding half of 2022, indicating a N14.50 billion or 8.1 per cent increase over the period. It further increased by N47.3 billion or 32.50 per cent when compared with N145.59 billion recorded in the second half of the year.
“The increase in investment in naira value was driven by the currency devaluation which saw the naira depreciate to N901/$ or 65 per cent depreciation at the Investor and Export Window from N462/$ before the devaluation policy of the CBN was announced. Hence, the increase recorded does not indicate physical investment by manufacturers but rather nominal which resulted from the devaluation of currency that has made the manufacturers pay more for plants and machinery importations.