December 23, (THEWILL) – There are strong indications that high inflation, interest and exchange rates constitute major macroeconomic challenges that would confront the manufacturing sector in the coming year – 2025.
Since the inception of the Bola Tinubu administration on May 29, 2023, manufacturers have borne the brunt of the reform policies introduced by the government to revamp the economy.
Key among the policies are the removal of petrol subsidy, devaluation of the naira through the foreign exchange reform, and upward review of electricity tariff.
The tight monetary policy regime of the Central Bank of Nigeria (CBN) have added to the woes of the manufacturing sector which is gasping for breath under a troubled economy.
In 2024, the CBN raised its interest rate six times between February and November, totaling 875 basis points aimed at reining in inflation.
The Monetary Policy Committee of the CBN raised the interest rate by 25 basis points to 27.50 per cent in November from 27.25 per cent in September 2024.
The CBN Governor, Yemi Cardoso, noted that the decision to raise the country’s Monetary Policy Rate is to tackle inflation, which stood at 33.87 per cent in October 2024. This has further jumped to 34.6 percent in November, 2024.
According to Dr Muda Yusuf, CEO, Centre for the Promotion of Private Enterprise (CPEE), manufacturing companies have experienced high cost of borrowing. This, in turn, has resulted in frequent increase of their products’ prices which resulted in lower sales because of the decline in consumer power.
He expressed concern that the current challenges of the manufacturing sector would likely spill over to the coming year because of the gravity of the situation.
For instance, the Manufacturing Association of Nigeria (MAN) had revealed a disturbing trend within its sector arising from the current economic crisis.
The group, in a recent report said about 767 manufacturing companies shut down operations while 335 experienced distress in 2023 leading to unsold goods of about N350 billion.
It attributed the development to various economic difficulties, including exchange rate volatility, rising inflation, and a general worsening of the investment climate.
It noted that these adversities have taken a toll on the manufacturing sector, significantly impacting its performance and sustainability.
“Again, many of the firms recorded huge losses in their 2023 financial statements, resulting in lean asset sizes, compared to the previous year,” said Engr Frank Amadi, a processing company owner.
Almost all the major manufacturing firms recorded losses in their operations according to their annual financial reports for 2023.
Their ill-fortune was created by a combination of the devaluation of the naira, double-digit inflation rate, high operating costs and diminished consumer spending.
Others include foreign exchange challenges, worsening insecurity, poor infrastructure, corruption and other debilitating factors.
Nigerian Breweries recorded N106 billion loss; Nestle Nigeria posted N104 billion loss, Dangote Sugar suffered N73.8 billion loss while Cadbury Nigeria incurred N27.6 billion loss – all in the 2023 financial year.
Although some of the companies managed to recover from their severely challenged operations which showed in their lean assets base, it is obvious that their yea0r-end results are not going to be satisfactory. There is likely to be high level of job losses.
Economic experts noted that the huge losses suffered by the manufacturing firms cannot sustain the level of workers they employ, both directly and indirectly.
“Remember that many of the companies engage in backward integration which helps to provide sustainable jobs for those in the supply chain who specialise in different areas such as agriculture and transportation”, said Abimbola Daniel, a human capital manager.
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Backward integration is a practice where companies are encouraged to cultivate their own raw materials by purchasing from their suppliers or establishing farms to grow produce for their factories.
The consumer goods firms have taken giant strides in supporting and implementing the policy which has benefitted the small and medium enterprises (SME), especially those engaged in agriculture and transportation.
For instance, Nestlé Nigeria instituted a project to engage 5,000 smallholder farmers, initially, for the supply of raw materials for its agro-business operations.
The initiative, ‘Developing Inclusive Grain Value Chains Project’, was in partnership with IDH — a Sustainable Trade Initiative and TechoServe outfit.
Nigerian Breweries stepped up local production of sorghum and cassava to boost local raw material supply for its plants.
The 78-year-old consumer goods firm has made significant strides towards the development and commercial cultivation of sorghum and its use by the industry since the 80’s.
FrieslandCampina WAMCO Nigeria developed its local raw milk sourcing in a bid to support backward integration, an initiative that has proved a source of sustained income to almost 2,000 farmers (including 900 women).
Manufacturers in the flour milling sector have been taking steps to increase their tempo of backward integration in recent times. Flour Mills of Nigeria Plc has invested in several farms and other agricultural projects to cultivate raw materials for most of its processes. Cadbury Nigeria established a cocoa processing plant in Ondo.
This situation led to resorting to importation of raw materials to make up for the shortfall. Unfortunately, the option was caught up in the webs of the high exchange rate which saw the naira depreciate massively since mid-June 2023 when the new forex regime was introduced.
The naira which exchanged N467/$1 on June 13, 2023 – a day before the devaluation of the currency on June 14, 2023 now exchanged for N1,700 in the official foreign exchange market.
According to data by the National Bureau of Statistics (NBS), manufacturers spent about N2 trillion to import raw materials for production needs in the first nine months of 2023.
The NBS’ Foreign Trade Statistics indicated that in the first quarter of 2023, N555.4 billion was spent on raw material import.
The figure rose slightly to N567.8 billion in the second quarter and increased considerably to N950.9 billion in the third quarter.
Major imports during the period included cane sugar meant for sugar refinery imported from Brazil, other lubricating oils meant to be mixed, further imported from the United States and milk preparations containing vegetable fats and oils, powdered or granular, imported from Germany.
Commenting on the fate of the manufacturing sector in 2025, Yusuf said the challenges faced by the sector were part of the inevitable outcomes of the reform policies of the government which triggered inflation and high cost of living.
According to him, while the reforms are necessary, they should be done in a way that the pains will be much less on the people.
“The issues should be addressed in a more systematic way so that those that are producing will be able to deliver their products to the market at a more cheaper price,” Yusuf said while featuring in a national television programme on Sunday.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
