HOW THE FOREX CRISIS AND NAIRA REDESIGN HINDERED THE GROWTH OF MANUFACTURING

The manufacturing sector in Nigeria faced several difficulties in 2023, much like other economic sectors. These difficulties had a significant impact on both industry participants and Nigerian consumers.

Manufacturers grumbled loudly about the negative impacts of government policies on the real sector for the majority of last year.

Unfavorable policies pertaining to ports, transportation, and electricity were among the causes cited by Segun Ajayi-Kadir, Director-General of the Manufacturers Association of Nigeria, as contributing to the 2023 economic slowdown.

Ajayi-Kadir stated that the country continued to be heavily dependent on imports, meaning that the manufacturing sector's performance had been generally underwhelming. She also noted that multiple programs aimed at boosting the economy had varied degrees of success and failures.

He pointed out that because of inflation, which increased to more than 28% in November, the manufacturing sector's share of the nation's GDP was less than 10%.

That was because the double-digit interest rate was still restricting the sector's prospects for growth, he said.

He asserted that the sector's growth was further hindered by the high rate of foreign exchange and the non-prioritization of funding allocated to it.

The MAN DG repeated many of the concerns that manufacturers had brought up time and time again in this interview.

In a May interview, Ajayi-Kadir stated that the importation of machinery and raw materials that are not domestically produced was a persistent source of stress for manufacturers due to a severe lack of foreign exchange.

SCARCITY OF NAIRA

The serious shortage of naira notes in the first half of 2023 was the first significant government policy that severely impacted manufacturers. This came after the Nigerian Central Bank decided to create the local currency.

Francis Meshioye, the President of MAN, bemoaned the impact the shortage of naira notes was having on the economy's productive sector at a meeting with reporters.

He claimed that the improper flow of commodities caused by the shortage of naira notes had a detrimental effect on business operations.

Meshioye claims that the lack of naira and the difficulties with e-payment systems had a detrimental impact on the free flow of goods and resulted in a 25% decline in sales.

“I want to assume that this is a very temporary issue,” he stated. It's broad. There are some things you are now unable to accomplish with online banking, even if you wish to. We're having issues. POS isn't operating.

The manufacturer will undoubtedly be impacted by any shortage of a product that is necessary for the consumer. We perceive it as impeding the appropriate delivery of our products to the final customer. What impact would that have？

It implies that stock will be piled, and when stock is piled, cash is trapped. Investments move to places where returns are consistent, and we pay high interest rates that won't produce strong returns.

This decline represented the second-deepest decline since the survey's inception ten years prior. A healthy industry is indicated by any reading higher than 50. The March data, which showed 42.3 points, indicated decline.

Stanbic IBTC reports that the business environment in the nation improved in December, with the PMI increasing to 52.7 from 48.0 in November.

EXCESSIVE TAXATION

One of the main points of complaint for manufacturers in 2023 was overtaxation, which was caused by paying various taxes. MAN stated in May that companies will be forced to reduce operations due to the higher excise duty on beverage and tobacco goods. This would lead to a number of negative outcomes, including factory closures, job losses, and a drop in exports.

Meshioye made this statement at a news conference in Lagos to express disapproval of the fiscal policy measures for 2023.

He pointed out that the Federal Government, acting through the Ministry of Finance, Budget, and National Planning, had made a promise to the association, which was blatantly broken by the excise duty hike.

He claimed that because there had previously been an authorized rise in place, the business was taken aback by the exponential increase in excise tax included in the 2023 Fiscal Policy Measures, which amounted to “an increase on an increase.” given that a 2023 rise had already been authorized.

Meshioye asserted that the rise coincided with the manufacturing sector's deep dive into an unparalleled crisis and severe recession brought on by unusual hurdles.

“The manufacturing sector has been struggling with crashing sales, mainly attributable to the sustained naira scarcity,” stated the president of MAN. Production reductions and a review of industry investments will be required if sales volumes continue to drop.

The DG of MAN expressed his regret that various governmental bodies at the federal, state, and local levels of government were imposing over thirty different kinds of taxes, levies, and fees on manufacturers.

These taxes include capital gains tax, value added tax, petroleum profit tax, stamp duties, corporation income tax, tertiary education tax, and police special trust fund tax.

FOREX SHORTAGE

Forex scarcity is not particularly a unique experience for local producers. Owing to the nation's significant reliance on imported materials for manufacturing, manufacturers have long struggled to obtain foreign exchange for their import requirements.

By the end of December, in the Investors' and Exporters' Forex window, the value of the local currency had fallen from 471 naira per dollar to 897 naira per dollar, following the Central Bank of Nigeria's (CBN) decision to stop fixing the value of the naira and allow it to fluctuate based on market forces. Manufacturers' operational costs grew dramatically as a result of this abrupt decline in value.