According to Segun Ajayi-Kadir, the director-general of the Manufacturers Association of Nigeria (MAN), manufacturers are set to face a difficult year in 2024, as the sector’s prospects might not be optimistic, particularly in the first six months. This assessment is based on an examination of troublesome macroeconomic trends and the repercussions of global dynamics on the domestic economy. The diminishing expansion of manufacturing is a subject of concern for MAN, as it reflects a substantial drop from 2.4% in 2021 to a mere 0.48% in Q3 of 2023. Such a downward trend mirrors the challenges faced by prominent manufacturing giants such as China and the US, hinting that Nigeria is not impervious to the global factors that hinder the industry’s progress.
Local circumstances are influenced by various factors, such as instability in foreign exchange rates, exorbitant interest rates, and consistently low average capacity utilisation at approximately 50%. Moreover, there has been a significant departure of six multinational corporations from the nation in the past half-year – among them, the renowned consumer goods company Procter & Gamble, Unilever, Sanofi, Bolt Food, GlaxoSmithKline Consumer Nigeria Plc and Jubilee Syringe Manufacturing. According to their perspective, the policies implemented by the Central Bank in recent years have been ineffective in generating the necessary economic growth and enabling entrepreneurs to thrive.
Foreign currency and interest rates hinder numerous companies.
The true worth of Nigeria’s currency, the Naira, is still hidden behind manipulated exchange rates, leaving exporters in a state of bewilderment due to their limited access to foreign currency. Moreover, exorbitant benchmark interest rates have made it almost impossible for numerous companies to secure loans, hindering their growth prospects. Regrettably, inflation management policies have adversely impacted the productivity of both small and large businesses, further eroding their confidence in the future. This scepticism is clearly evident in the consistently below-par manufacturers’ CEO confidence index maintained by MAN.
Also, the association anticipates a persistent and difficult situation during the initial six months, followed by faint hopes of recovery. Their estimates reveal that the sector’s growth will face obstacles in achieving a mere 3.2% this year, with the manufacturing sector failing to surpass a contribution of 10% to the GDP. To alter this storyline, the fiscal and monetary authorities must embrace a complete overhaul centred on enhancing the productivity of businesses. The CBN is being urged to relinquish control over the Nairas exchange rate and let market forces influence its value. Instead of allotting forex resources arbitrarily, policies should be altered to prioritise manufacturers and exporters, granting them consistent access to ensure their operations run smoothly.
Necessary assistance should be provided for local industries.
Reducing benchmark rates is crucial in facilitating equitable credit accessibility for businesses, ensuring that interest rates do not hamper their capital investments. Additionally, it is imperative to address the limitations on electricity supply in the power sector through comprehensive reforms. The resolution of these challenges is paramount for Nigerian enterprises to flourish and fully harness their significant potential in fostering widespread economic growth. In its 2024 budget plans, the Tinubu administration should place utmost importance on providing assistance to domestic industries. When distributing capital funds for ongoing and upcoming infrastructure ventures, priority must be given to utilising locally produced materials.
Encouraging the widespread adoption of Nigerian-made products for public procurement is highly recommended. In parallel, the private sector must continue actively collaborating with policymakers, offering valuable insights to foster a more favourable economic landscape. With a strong commitment to its enforcement, the recently enacted Electricity Act has the potential to revolutionise energy investment and enhance access to power. Transparent and effective execution of ongoing measures to unify exchange rates and increase domestic refining capacity offers potential for economic progress. As global oil prices rebound, boosting foreign reserves through increased exports will offer much-needed support. Nigeria can only overcome its foreign exchange challenges by transforming into a manufacturing powerhouse akin to China.
Related Article: Over 3m businesses lost to fraud, others
Nigeria has the potential to replicate China’s industrialisation if it adopts a cautious approach in the next ten years. By focusing on manufacturing, Nigeria can generate massive export earnings, address foreign exchange shortages, and establish sustainable employment opportunities. Moreover, Nigeria can enhance its manufacturing capabilities by shifting from basic processing to advanced production processes. Whether it concludes the year on an optimistic note hinges on the government’s dedication to promoting domestic production and effectively implementing suggested reforms. Active participation from all stakeholders is crucial. Businesses need to persist in identifying obstacles and recommending policy remedies, remaining resilient even when faced with challenging circumstances.