A Good Quarter for Manufacturing Sector

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The Manufacturers Confidence Index (MCCI) of the Manufacturers Association of Nigeria (MAN) that measured changes in the quarterly pulsation of manufacturing activities in relation to movement in the macro-economy and government policies stated that the manufacturing sector fared better in the last quarter of 2021, writes Dike Onwuamaeze

The Nigerian manufacturing sector fared positively in the fourth quarter of 2021? This was revealed by the Manufacturers CEO Confidence Index (MCCI) report that was released by the Manufacturers Association of Nigeria (MAN) on Friday, January 14. The index is the barometer used by MAN to aggregate the views of CEOs of manufacturing companies on changes in the economy. The standard diffusion factors considered in the MCCI processes include the current business condition, business condition for the next three months, current employment condition (rate of employment), employment condition for the next three months, and production level for the next three months.

The MCCI report stated that the aggregate MCCI score increased to 55.4 points in the quarter under review (Q4 2021) from 54.0 points obtained in the preceding quarter (Q3) thus, showing improved performance in the period and growing confidence of manufacturers in the economy.

The report also showed that the index for Current Business Condition (CBC) increased by 1.15 points in the quarter under review from 50.3 points recorded in the third quarter of the year. Similarly, the Index for Business Condition (IBC) for the next three months increased by 3.2 points in the quarter from the 55.8 points obtained in the preceding quarter.

Similarly, the Index for Current Employment (employment rate) increased by three points in the quarter under review from 47.6 points obtained in the third quarter of the years. In the same vein, the Index for Employment Condition for the next three months increased by 2.1 points from 52.3 points recorded in the preceding quarter.

The increasing index of employment reflected the improvement in business condition in the economy during the quarter under review. It also showed that manufacturers are beginning to engage/re-engage workers after the unplanned retrenchment forced by COVID-19 pandemic and other economic challenges.

SECTORAL GROUP MCCI

The MCCI also showed that there was growing confidence in the economy across all the sectoral groups of the MAN in the period under review despite prevailing economic and health challenges. The index scores of all the sectoral groups, as contained in the report, were above 50 points, which is the benchmark, though in differing magnitudes.

For instance, the index for Food, Beverage, and Tobacco sectoral group increased by 2.8 points in the fourth quarter of 2021 from 55.9 points recorded in the preceding quarter. Similarly, the index for the Chemical and Pharmaceutical Products group increased by 1.8 points in the quarter under review from 60.3 points obtained in the preceding quarter. In the same vein, the index for Motor Vehicle and Miscellaneous Assembly maintained positive growth reading of 51.3 points in the fourth quarter of 2021 from 50.7 points obtained in the preceding quarter; thus, indicating 0.6 points increase over the period.

The trend, therefore, generally indicated an increasing level of confidence of manufacturers operating in these sectoral groups in the economy.

ZONAL MCCI

The performance of the 14 industrial zones of MAN, which are spread across the six geo-political zones of Nigeria was also surveyed to measure the level of confidence of CEOs of manufacturing concerns operating in each of the zones. Of the 14 industrial zones, the index scores for 12 zones were above the benchmark of 50 points while the other two, namely Rivers State and Abuja, fell below the benchmark in the quarter under review.

The index score of Rivers State fell to 47.5 points from 53.4 points obtained in the third quarter of 2021. In a similar vein, the index score for Abuja decreased to 43.3 points in the fourth quarter of 2021 from 48.6 points recorded in the preceding quarter.

The factors responsible for the dwindling performance of Abuja and Rivers industrial zones included a multiplicity of taxes that were triggered by excessive revenue drive of governments, poor access to foreign exchange (FX) for importation manufacturing inputs, triple rise in the cost of transportation of goods due to refusal of transporters in Lagos to take cargos to industries in these locations due to insecurity, the rising cost of production and the general reduction in disposable income of consumers. Therefore, the perspectives of manufacturers in Rivers and Abuja indicate no level of confidence in the economy.

Also, the index for Imo/Abia zone declined by eight points from 61.3 points obtained in the preceding quarter. Similarly, the index for Edo/Delta zone fell by 9.2 points in the period under review from 62.5 points recorded in the third quarter of the year. In the same vein, the index for Kano zone declined by 3.1 points in the quarter from 57.5 points obtained in the third quarter of the year.

The MAN called for proper examination to find out the contributory factors and the initiation of proactive advocacy to address the issues responsible for the reduction in the performance of these zones before it will slide below the 50points benchmark.

In the same vein, the index for production level for the next three months also decelerated to 61.5 points from 64.3 points obtained in the third quarter of the year; thus, indicating a 2.8 points decline over the period. The decline could be attributed to the poor access to FX for the importation of vital raw materials and machines that are not available locally; the progressive erosion of the disposable income of consumers; the sluggishness associated with the first quarter of the year promoted by the uncertainty around the likelihood of another lockdown in the wake of the new wave of COVID-19.

MACROECONOMIC PERFORMANCE

The MCCI report also covered the impact of key macroeconomic variables such as FX, lending rate, commercial bank loans, and federal government capital expenditure on the perspectives of CEOs of manufacturing concerns in the quarter under review.

The report showed that manufacturers experienced many difficulties in sourcing FX in the fourth quarter of 2021 as against what was obtained in the preceding quarter.

For instance, 75.1 per cent of the CEOs covered by the survey reported that access to FX by manufacturers did not improve in the quarter under review, which is higher than 59 per cent that disagreed in the preceding quarter.

Moreover, limited access to funds variously has been identified as a persisting challenge of the manufacturing sector. In this quarter, 71.1 per cent of manufacturers noted that “the smallness of size of commercial bank loans to manufacturing does not support productivity in the sector.” This is higher than 62 per cent that made the same observation in the preceding quarter.

The report noted that the government has consistently budgeted for the upscaling infrastructure to support economic activities through the execution of capital projects. It, however, observed that “low patronage of local industries, slow completion and general poor implementation of the identified capital project has been the bane of the system with high-cost impact on manufacturing concerns.

It stated that 57.4 per cent of manufacturers interviewed were of the view that the government’s capital expenditure implementation does not encourage manufacturing because they do not translate to adequate economic infrastructure and higher productivity.

OPERATING ENVIRONMENT PERFORMANCE

In the quarter under review, the perspectives of CEOs on the state of the manufacturing operating environment revealed mixed grill performance by exhibiting encouraging but slow positive growth. It identified over-regulation, high cost, and manufacturing unfriendly environment among the challenges faced by manufacturers during the period under review.

On one hand, the CEOs affirmed gradual reduction in inventory of unsold finished goods, improvement in local sourcing of raw materials and patronage of made in Nigeria goods. On the other hand, also the CEOs confirmed that issues of multiple and duplication of regulation, which often find expression in the excessive drive for tax revenue instead of widening the tax net, unfriendly tax practices of government agencies; poor access to the national ports leading to the high cost of clearing cargo and transporting goods seriously impeded the performance of the manufacturing sector during the period under review.

Estimated Impact of Macroeconomic Environment on the Manufacturing Sector

There was a marginal increase in the cost of production and distribution goods by 0.4 percentage points in the fourth quarter of 2021 above 20.0 percentage points recorded in the third quarter. However, the marginal increase in the period suggests that production and distribution costs are beginning to stabilize following the easing up of COVID-19 pandemic.

Also, capacity utilisation fell further by two percentage points in the quarter under review from 3.0 decline recorded in the third quarter of the year while the volume of production declined further by 1.7 percentage points in the fourth quarter of the year against 4.0 percentage point decline recorded in the preceding quarter.

In addition, “manufacturing investment dipped further by 0.2 percentage points in the quarter under review from 4.0 percentage point decline recorded in the preceding quarter and 15 per cent decline recorded in the second quarter of the year.

Moreover, employment declined further by 6.0 percentage points in the fourth quarter of 2021 from 5.0 per cent decline recorded in the third quarter of the year while sales volume increased by 7.3 percentage points in the quarter under review against 7.0 per cent decline recorded in the preceding quarter.
However, the cost of shipping increased further by 4.5 percentage points in the fourth quarter of 2021 from 29.0 per cent that was recorded in the third quarter of the year.

Overall, the MCCI said: “Movement in the key manufacturing sector indicators discussed above show that the macroeconomic environment is gradually improving as the impact on the indicators in the quarter under review generally receded. However, there is still the challenge of employment in the sector while the cost of shipping is still high and escalating. It is, therefore, imperative that government should evaluate the current processes for allocation of available FX to ensure it is allocated to the productive sectors of the economy, particularly at the official rate for importation of raw materials and machines that are not currently produced or available in the country.”