OVER THE FX CRISIS, MANUFACTURERS REDUCE OUTPUT AND EMPLOYMENT

According to research, the lack of foreign currency is having a serious impact on industries.

As a result, manufacturers are now forced to reduce production, employment, and imports of raw materials.

Due to manufacturers' struggles with currency shortage, the value of goods imported under the category of industrial supplies decreased by N480 billion.

The National Bureau of Statistics' foreign trade statistics reports for the first half of 2022 and is impacting manufacturers' capacity to import the supplies for industrial output. It was noted that the value of imported industrial supplies in H1 2022 was N2.66 trillion.

The overall value fell to N2.18 trillion by H1 2023, a fall of N480 billion despite higher import result of the Central Bank of Nigeria's policy.

OPERATORS COMPLAIN

Segun Kuti-George, national vice chairman of the Nigerian Association of Small-Scale Industrialists, attributed the sharp decline in the importation of industrial goods to the lack of available foreign currency.

He claims that the inability of industrialists to import the raw materials required for production due to a lack of FX forces them to reduce capacity utilization.

He declared, It is a result of a combination of FX scarcity. Manufacturers in Ma must reduce production when they lack the FX needed to buy raw supplies. The conditions are becoming more challenging every day.

The current economic climate, according to Gabriel Idahosa, Deputy-President of the Lagos Chamber of Commerce and Industry, is a major reason to reduce production.

Idahosa stated, Of course, it will show up in the numbers we are seeing if firms do not have FX to import whatever they need to import, including raw materials and industrial supplies.

Since the economy is a living creature, anything that affects one component will have an impact on the others. With the kind of inflation, if consumer purchasing power is low, no producer will import a lot of industrial supplies because no funds to do so.

It doesn't make sense to keep producing and stockpiling it at the warehouse when the ones there haven't been sold because capacity utilisation has decreased. It is merely a manifestation of the economy's biological essence. All the pieces are affected by anything that affects one.

Addressing the FX volatility, according to Segun Ajayi-Kadir, Director-General of the Manufacturers Association of Nigeria, is essential for manufacturing production.

The manufacturers' lack of access to FX results in high import input costs and manufacturing costs. This would raise the cost of items.

But the truth is that the government does not have enough foreign currency to meet all of the demand in the economy, including that of the sector, he continued. Nigeria has not even been able to meet its OPEC export quota; crude oil earnings are the main source of FX entering the nation.

The government only has a finite amount of foreign currency accessible for the economy, and the recent floating made constraints more difficult.

Ajayi-Kadir encouraged the government to establish a specific rate for determining the import duty for inputs used in production, such as raw materials, equipment, and spare parts that are not readily available locally.

PRODUCTION DECREASES

Additionally, in real terms, the manufacturing sector's share of Nigeria's GDP fell to N1.5 trillion in the second quarter of 2023.

Comparing this to the N1.8 trillion contribution recorded in Q1 2023, there has been a quarterly reduction of 17.24%.

Additionally, the manufacturing sector's percentage contribution to real GDP decreased from 10.13% in Q1 2023 to 8.40% in Q2 2023.

Oil refining, cement, food, drinks, and tobacco production, textile, garment, and footwear production, wood and wood products, pulp paper and paper products, chemicals, and pharmaceuticals are among the 13 activities that make up the manufacturing sector.

Other ones include non-metallic products, rubber and plastic goods, electrical and electronic equipment, basic metals like iron and steel, and motor vehicles and their assembly.

Numerous constraints that plagued the real economy in the second quarter of the year have been blamed for the decline in the sector's economic output.

The Manufacturers Association of Nigeria reported in its Manufacturers CEOs Confidence Index report that the MCCI's aggregate index score dropped from 54.1 points in the first quarter of 2023 to 52.7 points in the second quarter.

The research claims that the second quarter of the year saw a decline in industrial operations as a result of various taxes, high energy prices, FX illiquidity, and high financing costs, among other things.

The producers said that these factors had resulted in low capacity utilization, employment losses, and the use of other survival strategies to maintain manufacturing activities.

JOB AND PRODUCTION LOSSES

According to a survey by the Manufacturers Association of Nigeria, businesses are reducing employment and production in order to cope with the nation's economic difficulties.

The research claims that there were 2,818 fewer jobs between Q2 2022 and Q1 2022.

Read the report. At the end of 2022, the total number of manufacturing jobs was predicted to be 1,686,725 based on data from MAN surveys conducted since 2013. However, manufacturing employment fell to 6741 in the second half of 2022 from 8508 and 9559 recorded in the comparable halves of 2021 and 2022, respectively.

In regards to the cause of the decline, it was further stated that “the decline in the number of jobs created in the sector during the period corroborates the poor operating business environment that was perverse with high energy cost, exorbitant cost of borrowing, high inflation, low sales due to limited cash, and many more.”

The report also revealed that between Q2 2023 and Q1 2023, manufacturing output fell by N1.31 trillion, or 32%.