Following the dwindling economy and the drop in sectoral growth at the twilight of 2023, the Manufacturers Association of Nigeria (MAN) has predicted a difficult first half of 2024 for the real sector which it said will end the year with 3.2 percent growth.
The association in its ‘Manufacturing Sector Outlook for 2024’, signed by its Director-General, Segun Ajayi-Kadir however, projected a subtle recovery from the third quarter.
MAN projection is based on the global trajectory of manufacturing which portrays it as a struggling sector that is now more than ever challenged by key macroeconomic variables and externalities, leading to dwindling growth.
The association which is the umbrella body of manufacturers in Nigeria drew evidence from the World Bank report that shows that the manufacturing sector in China declined from 8.7 percent in 2021 to 4.8 percent in Q3 2023; in the USA, the sector performance dwindled to -0.9 per cent in Q3 2023 from the 6.8 percent recorded in 2021 while South Africa also recorded a decline to -0.17 in Q3 2023 from 6.7percent of 2021. The trend, it noted, is similar to what we have all over Africa.
In Nigeria, the manufacturing sector nosedived to 0.48 percent in Q3 2023 from 2.4 percent recorded in the period in 2021. The association envisaged that the recovery will be highly dependent on the deployment of policy stimulus supported with a synthesis of domestic growth-driven, export-focused, and offensive trade strategies to promote resilience, and steady growth and ensure that the sector gains meaningful traction in the later part of the year.
It however expects the government to accord the manufacturing sector the priority it deserves being the key driver of sustained economic growth while the association urged that its members should be prioritised and the number of BDCs be reduced into large and well-established operators to curb their excesses.
It advised the federal government to pool strategies to urgently revive the economy by supporting manufacturers and other key players in the commerce space to deepen industrialisation.
The body further projects that average capacity utilization will still hover around the 50 percent threshold as the forex-related challenges and high inflation rate limiting manufacturing performance may linger until mid-year, adding that 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.
“Higher manufacturing output is envisaged from the beginning of the third quarter of the year as the government disburses capital provisions of the budget to abandoned, ongoing and new capital projects with expected special preference for locally made products.
“The results of the emerging upward surge in global oil prices, domestic oil and gas production, local refining of petroleum products and projected gains of exchange rate unification will promote stability in the forex market and impact manufacturing positively from the second half of the year.
“This will lead to a reduction in the pressure on demand for forex and improve the inflow of export proceeds from oil and gas. MAN added that the ongoing tax reforms and the envisaged bank recapitalisation will frontally address the challenges of multiple taxations and poor access to credit that have continued to limit the manufacturing sector’s performance if successfully implemented.
According to the outlook, the implementation of the Electricity Act of 2023 will increase private investment in renewable energy, enhance energy efficiency and improve electricity supply to the production sector.
Offering recipes for improvement, the sector, MAN urged the government to adopt several measures to amplify the projected upswing in the year 2024 by “expending cost saving from fuel subsidy to deploy a bouquet of production-focused policies”, backed with more structural measures to combat the peculiar inflationary pressures from insecurity, energy, and transport costs.
“Government should lead by example and give priority to the patronage of made-in-Nigeria products in all its purchases and for all government contracts and projects,” the association noted, stating the government should encourage local sourcing of raw materials through comprehensive and integrated incentives to address the challenges of low productivity and imported inflation.
“Utilise the 2024 budget to sustain efforts at improving infrastructural developments, especially in strategic industrial hubs to reduce operation and logistics costs and promote competitiveness.
The body further advises the government to maintain all measures to boost the level of liquidity and degree of transparency in the official forex window even as the backlog of $7 billion forex obligations is being cleared and to manage the floating exchange rate system within an acceptable lower and upper bound, pending the actualization of a net-exporting economy aspiration.
“Encourage inflow of foreign direct investment into pre-determined and domestic production-enhancing businesses. Should intentionally guide diaspora remittances into non-oil sectors, especially manufacturing to aid forex inflows and curb rising inflation”, the body stated..