The latest edition of the MAN’s CEOs Confidence Index of the Manufacturers Association of Nigeria (MAN) showed that the Nigerian manufacturing sector has waded through the setbacks occasioned by the COVID-19 pandemic to bounce back to its pre-pandemic performance, writes Dike Onwuamaeze
The Nigerian manufacturing sector has bounced back to its pre COVID-19 pandemic performance. This was the verdict of the MAN’s CEOS Confidence Index (MCCI) for the second quarter of 2021, which was released last week.
The MCCI is an index created by the Manufacturers Association of Nigeria (MAN) to gauge the quarterly pulsation of manufacturing activities to changes in the macroeconomic ambience and government policies.
It also served as the barometer used by the MAN to garner the perceptions of chief executive officers of manufacturing companies on changes in the economy by considering the Current Business Condition (CBC), Business Condition for the next three months, Current Employment Condition (CEC), the employment condition for the next three months and production level for the next three months.
The MCCI report stated that the manufacturing sector’s aggregate index bounced back to its pre COVID-19 performance by gaining 3.8 points to move from 49.1 points it recorded in the first quarter of this year to 52.9 points in the second quarter of the year.
It said: “On account of the improved economic tranquility, aggregate MCCI increased to 52.9 points in the second quarter of 2021 from 49.1 points recorded in the first quarter of the year. That was the first time the index value would reach and exceeded the 50 neutral points since the first quarter of 2020 when it recorded 44.4 points, thus, suggesting that the macroeconomic ambience improved in the second quarter of 2021. By implication, the performance shows an improvement in the confidence of manufacturers in the economy.”
In addition, the Current Business Condition (CBC) in the manufacturing sector scored 50.8 points in second quarter of the year against 46.7 points it recorded in the preceding quarter. This indicated 4.1 points increase over the points it scored in the first quarter.
The MCCI report stated that it was also the first instance that that CBC scores went above the 50 neutral points since the first quarter of 2020. Similarly, index of CBC for the next three months also increased to 54.9 points in the second quarter of 2021 from 53.4 points recorded in the preceding quarter; thus, indicating 1.5 points increase over the quarters.
In the same vein, the Index of Employment Condition (IEC) in the next three months increased to 50.7 points to mark the first time sincethe first quarter of 2019 that the IEC would score above the 50 neutral points.
In the same manner, the Index of Production (IoP) for the next 3 months increased to 60.2 points in the second quarter of 2021 from 58.7 points recorded in the preceding quarter, thus, indicating 1.5 points increase over the quarter.
“The improved scores of the indexes support the continuous improvement in the macro economy following the economic devastation by the COVID-19 pandemic. As the confidence of the manufacturers on the economy gradually improves, it is important that the identified challenges of the sector are adequately addressed so as to continue to advance the momentum of manufacturing in the country,” the MCCI said.
The MCCI survey for the Q2 2021 covered 400 chief executive officers of MAN’s member-companies who provided data on the afore-mentioned diffusion factors, macroeconomic indicators and business operating environment variables, which were analysed descriptively using tables, simple percentage and charts.
The MCCI has a baseline index of 50 points, which implied a stationary point in the economy. “Therefore, any index point above 50 points indicates that manufacturers have confidence in the economy and improvement in manufacturing performance, while any index point below 50 points indicates otherwise. By the design of the Diffusion Index, the more index point tends to 100 points the higher the level of confidence in the economy and improvement in manufacturing activity,” the report said.
SECTORAL GROUP MCCI
Index scores across sectoral groups also showed improvement in the second quarter of 2021 from what obtained in the first quarter of the year. The MCCI report said that out of 10 sectoral groups, six scored above the 50 neutral points while the remaining four sectors scored below the benchmark in the quarter under review.
Among the sectoral groups that scored above the 50 neutral points was the Food, Beverage and Tobacco group that increased to 59.3 points in the second quarter of 2021 from 51.2 points obtained in the preceding quarter.
Likewise, Index for Textile, Wearing Apparel, Carpet, Leather and Leather Footwear group increased to 52.4 points in the second quarter of 2021 from 48.57 points recorded in the first quarter of the year.
Index for the Chemical and Pharmaceutical sector group increased to 58.6 points in the second quarter of the years from 55.9 points recorded in the preceding quarter just as Index for Domestic/Industrial Plastics & Rubber increased to 57.4 points in the quarter under review from 56.3 points recorded in the preceding quarter. Likewise, Index for Basic Metal, Iron & Steel, Fabricated Metal increased to 56.8 points in the quarter under review from 54.4 points recorded in the first quarter of 2021.
However, the index for Pulp, Paper & Paper Products Printing, Publishing and Packaging (6Ps) group, however, declined to 53.3 points in the second quarter from 54.8 points recorded in the first quarter of the year.
The Index for the Wood and Wood Products increased to 46.0 points in the second quarter of 2021 from 38.9 points recorded in the preceding quarter. Index for Non-Metallic Products sectoral group stood at 46.8 points in the quarter under review as against 42.9 points recorded in the preceding quarter. Similarly, Index for Electrical & Electronics group increased to 48.2 points in the second quarter of 2021 from 42.8 points recorded in the first quarter of the year.
Also, Index for Motor Vehicle and Miscellaneous Assembly increased to 49.7 points in the second quarter of the year from 45.3 point observed in the preceding quarter.
“The performances of the sectors suggest significant improvement in the confidence of manufacturers in the economy. However, it is expected that the macroeconomic environment will continue to adjust so as to sustain and improve on the current optimism and momentum in the manufacturing sector,” the report said.
ZONAL MCCI
The MCCI’s survey carried out in different industrial zones across the country showed that nine out of the 14 industrial zones scored index points that were higher than the 50 neutral points.
The report stated that Imo/Abia Edo/Delta, Oyo/Ondo/Ekiti/Osun, Kaduna, Ogun, Apapa, Ikeja, Rivers and Kwara/Kogi industrial zones scored index point greater than the benchmark 50 neutral points. The result indicated improved confidence in the specific economic environment by manufacturers operating in those zones.
Among the three top industrial zones in Nigeria, the index for Ikeja in Lagos State , which is the industrial hub of the country, increased to 57.1 points in the second quarter of the years from 52.7 points recorded in the preceding quarter. Similarly, index for Ogun zone increased to 56.6 points in the quarter under review from 55.6 points scored in the preceding quarter. For Apapa industrial zone, the index points increased to 56.3 points in the second quarter of 2021 from 54.6 points observed in the first quarter of the year.
Conversely, Kano (Challawa/Sharada/Bompai) industrial zone, Anambra/Enugu, Abuja and Cross-Rivers/Kawa-Ibom industrial zones scored index points that were below the benchmark 50 neutral points for the period under review. This was an indication that the confidence of manufacturers operating in the zones has been persistently low; “thus suggesting that the macroeconomic environment was unfriendly in the quarter.”
The index performances of the industrial zones corroborated the full return of manufacturing activities to the pre-COVID-19 level and the overall improvement in the macro economy since the receding of the pandemic.
Summarily, it can be observed that from the various trends, the distortion brought by the COVID-19 pandemic on the macro economy is fast retreating while the economy moves back to the condition before the onset of the pandemic.
However, the MAN’s report said: “While production and distribution expenses are contracting, manufacturing investment and employment improved marginal in the quarter under review, the capacity utilisation, production and sales are still sluggish which is attributed to the erosion firms’ budget and households’ income by the persistent high inflationary pressure on the economy.”
MANUFACTURERS CHALLENGES
The MCCI stated also that myriads of challenges were identified during the second quarter that included poor access to foreign exchange for importation raw materials and machines that are unavailable locally ranked first among the challenges
RECOMMENDATIONS
Recognising the various challenges identified in this report and need to adequately address them so as to sustain the little improvement made in the sector in the last two quarter of 2021, the MAN made a number of recommendations.
One of its recommendation was on the need for banks to build capacities for handling the streaming applications and Form M to ensure seamless and timely processing of FX application by manufacturers.
It also called for the granting concessional FX allocation at the official FX market to manufactures for importation of productive inputs that are not locally available.
The MAN also recommended for the retention of the Eligible Customer initiative for electricity regulations in the country. It said: “The MAN believes that the regulation is capable of addressing to a large extent the current electricity challenge of the manufacturing sector.
“Unfortunately, the distribution companies and their cohorts are doing everything within their powers to frustrate the initiatives. This may have in one way or the other been responsible for the recent call for the cancellation of the project.
“We, therefore, encourage the government to continue with the plan and create a platform where all stakeholders within NESI will deliberate on the implementation of the regulation and resolve all pending issues that have affected the seamless running of the Eligible Customer initiative.”
The MAN also called for the publishing of the list of the approved harmonised taxes and levies for the manufacturing sector by the Joint Tax Board (JTB) and the commencement of its implementation.
It lamented over the “unbridled double regulation of chemical materials by the Standards Organisation of Nigeria (SON) and the National Agency for Food and Drug Administration and Control (NAFDAC). We encourage the government to streamline NAFDAC with the control of only for related chemical materials while the SON oversees non-food related ones.
“Consequently, the index performance underpinned the improvement in the confidence of manufacturers on the economy, although much is still required to ensure that the current momentum in the economy is sustained and improved upon. We believe that with the ardent implementation of the recommendations, there would be significant positive change in the business operating environment in the country.”
