Sign of harsh economic reality

THE shutdown of nearly 1,000 manufacturing industries between January 2023 and now is an uncomfortable reality of the parlous state of the Nigerian economy, which is tottering on the verge of collapse. The industrial sector is highly impacted by the crisis in the economy with the Manufacturers Association of Nigeria reporting that 767 manufacturers shut down operations, while 335 became distressed in 2023.

According to MAN, exchange rate volatility, extreme inflation, epileptic power supply, and depleting purchasing power, among other economic challenges, are some of the impertinent factors that have worsened the investment climate.

Thus, capacity utilisation in the sector has declined to 56 per cent amid rising interest rates and scarcity of forex needed to import raw materials and machinery. The inventory of unsold products increased to N350 billion, and real growth dropped to 2.4 per cent in the same period.

The exchange rate volatility has hit the country badly with the naira losing over 25 per cent of its value by June 2023, just two weeks after President Bola Tinubu took over, falling to N632 per $1 from N463 per $1 the previous month after the Central Bank of Nigeria abolished the multiple exchange rate window and temporarily halted interventions in FX markets. The currency reached an all-time low of N1,680.50 in February 2024 and traded at N1,382 per $1 as of March 21.

On the back of the steep rise in food prices, the headline inflation rate rose to 31.70 per cent in February, up from 29.90 per cent in January.

The woes of the manufacturers are compounded by a high level of insecurity in most regions of the country manifested in mass abductions, banditry, and killings, which made a lot of regions in the country ‘no-go’ areas for distributors of manufactured goods. According to the International Centre for Investigative Reporting, between January and October 2023, 7,046 people were killed in violent attacks across Nigeria.

Another major impediment to manufacturing in the country is the abysmally poor power generation and distribution system with Nigeria able to generate a miserly 5,000 megawatts. It distributes just a little over 3,000MW to a population of 220 million. The cost of generating alternative power by MAN member-companies was N639 billion between 2014 and 2021.

Nigeria has one of the world’s highest volume gas reserves but is struggling to use it to generate electricity to power homes and industries. To halt the dangerous exit of manufacturing concerns from the country, the government needs to sort out the power sector fast.

A good way to start will be a deliberate policy to utilise most of the gas being flared to generate electricity, while the distribution companies must be given to more competent investors who will not only invest in the business but bring modern technologies and serve consumers and allow them to pay for only what they consume.

Nigeria has poor infrastructure with inadequate and dilapidated road and rail networks. Massive investments must be made to develop roads and rails with the private sector and international investors playing a key role.

The current losses being declared by many companies on the backdrop of naira volatility must be halted, while multiple taxations by the three tiers of government should be urgently addressed to give manufacturers a breathing space.

The forex crisis and the other problems bedevilling the Nigerian economy have made international airlines charge exorbitantly high airfares. Breweries and cement manufacturers, among others, have been raising the prices of their products to cope with the rising cost of production, while attacks on and looting of trucks delivering goods to some parts of the country must be halted.

The federal, state, and local governments should create an atmosphere conducive to the private sector to create jobs.