After a difficult 2023 that saw the exit of some manufacturing companies, as well as the collapse of micro, small and medium enterprises (MSMEs), stakeholders, affecting the economy and real sector, TOBI AWODIPE writes.
As manufacturers and MSMEs kickstart a new business year, economic indicators do not look very promising as many industrialists are still reeling from the difficulties experienced in 2023, when many businesses experienced record losses arising from several factors.
According to the Manufacturers Association of Nigeria (MAN), over a hundred businesses, including multinationals, closed shop last year, with the latest being Procter and Gamble, who shut down on-ground operations and switched to an import-only model in December 2023. Other manufacturers that also exited Nigeria last year include Unilever, GSK and Haleon Plc, Sanofi-Aventi, Bolt Food, Jumia Food and Equinor.
The most cited challenges are the difficult operating environment, high cost of doing business, multiple taxation, unfavourable government policies, non-existent infrastructure, FX crisis, high cost of energy and so on, as reasons for leaving.
At the start of last year, businesses were hit by cash scarcity, which lasted for over three months, and this was quickly followed by elections and election-related activities, persistent inflationary pressures, high monetary policy rates, foreign exchange crisis, high levels of fiscal debt and low GDP growth, all of which negatively affected manufacturers and entrepreneurs all over the country.
The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Almona, said many businesses took back-to-back hits from the start of the year to its end and urged the government to urgently stabilise the economy to ensure the survival of others still trying to operate.
“Businesses faced a lot of problems last year and if these are not addressed, we run the risk of seeing more businesses exit this year. According to the Nigerian Bureau of Statistics (NBS), Fuel price (PMS) increased by 215 per cent from an average price of ₦206.19 per litre in December 2022 to ₦648.93 in November 2023, while the headline inflation (YoY) rate rose from 21.47 per cent in December 2022 to 28.20 per cent in November 2023 (26% rate within the year). Food inflation (YoY) rate is at 32.84 per cent from 24.13 per cent in November 2022 while ₦/$ currently trades at over ₦1,200/$ at the parallel market.
“External reserves dropped by 13 per cent from $37.07bn in Jan 2023 to $32.89bn in December 2023, just as total public debt portfolio increased by 100 per cent from ₦44.06tn in December 2022 to ₦87.91tn in September 2023. Capital importation dropped to a record low of $654.65m in Q3 2023 and the Purchasing Manager’s Index (PMI) has dropped below 50 points showing the economy is contracting. The Monetary Policy Rate (MPR) was raised from 16.50 per cent in December 2022 to 18.75 per cent as at December 2023, just as the unemployment rate increased between Q1 2023 at 4.1 per cent to 4.2 per cent in Q2 2023,” she said.
President Tinubu had on the assumption of office on May 29, 2023, announced the removal of fuel subsidy, which subsequently led to the increase in the price of petrol from N185 to between N620 and N650, a move that sent inflation figures through the roof and significantly increased energy costs for businesses. Diesel cost has been over a thousand Naira per litre, forcing many businesses to scale down on production. These, alongside the FX crisis, have significantly affected a lot of businesses.
Way forward
MAN’s Director-General, Segun Ajayi-Kadir, said to turn the current situation around, major decisions must be taken to save businesses. He advocated major infrastructural facilities to facilitate the aggregation of raw materials for export to develop the domestic economy and its people.
He added that several initiatives aimed at developing the economy have only managed various degrees of success, noting that the performance of the manufacturing sector has been largely unimpressive as Nigeria remains a largely import-dependent country.
According to him, local manufacturing, though experiencing some measure of progress in light manufacturing, still largely depends on foreign inputs. Listing several factors inhibiting the growth and development of the sector, including the high cost of power and transport and port issues, due to unfavourable policies.
He noted that the manufacturing sector contributes less than 10 per cent to the country’s Gross Domestic Product due to inflation, which has risen to about 30 per cent.
This, he said, was even as the interest rate at double digits continues to limit the potential of the sector for expansion due to the high rate of FX and the non-prioritisation of allocation to the sector that truncates its growth prospect.
The Chief Executive Officer (CEO), the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, urged the government to address the FX issues, energy costs, insecurity among others.
“The government also needs to invest heavily in rail logistics because it is now very expensive to move goods on the roads given the state of our roads,” he said.
LCCI President, Gabriel Idahosa, on his part, said many economic indices from last year were not met as expected, because while the president hoped the removal of fuel subsidy and unification of rates would jump-start the economy, most economists knew this wouldn’t happen immediately.
“Government has basic obligations to the people and if this government can meet said obligations is the question we are asking now. Nigeria’s inflation has two core drivers- transportation and food and the latter is in high drive. The major way to deal with food inflation is to ensure farmers can go to their farms daily, safely. If this doesn’t happen, food inflation, as we are experiencing right now, is a given, no matter the policy that is announced.
“To guarantee access to farms, there must be security but sadly, Nigeria’s security right now is broken and we must address this. We must move our policing system from the federal exclusiveness it is in now, to state and local levels to adequately address insecurity being experienced by food-producing communities and regions.
“Any inflation we experience now in Nigeria is primarily driven by food inflation and if we don’t deal with it, all other inflation indices will continue to rise and no budget or proclamation will fix this,” he said.
Adding that the current budget signed by the president can be a step in the right direction for businesses, Almona said it outlines plans to address critical concerns being faced by MSMEs and they have identified positive and concerning elements in it to foster constructive dialogue and provide comprehensive analysis.
“The commitment to power projects, including the Siemens Energy initiative and efforts to enhance the reliability of transmission lines, is a positive step towards addressing the critical issue of electricity supply, which aligns with the business community’s aspirations for a robust and diversified economy. However, there is an urgent need to address the structure of the power sector.
“The Government needs to consider bringing private sector investment into the transmission segment of the power sector. This would ensure adequate technical and financial capacity for a well-functioning sector to power economic growth,” he said.
He added that focusing on cultivating farmlands to grow staple crops and boost food security aligns with the need to ensure constant food supply, security, and affordability for all but warned that the productivity of the farmlands and the effectiveness of investments in food production are subject to adequate security measures.
“Investment in agriculture has a limited chance of success if the Government fails to deal with the security issues. LCCI recommends that the Government consider fast-tracking the movement of the police from the exclusive list to the concurrent list to be legislated upon by the federal and state governments. This will guarantee effective policing of the nooks and crannies of the society, particularly the farmlands.
“The announcement of a new national living wage is a positive step and the desire to create a conducive business environment is commendable. Also, the assurance to simplify fiscal and tax policies, remove obstacles hindering business competitiveness and the call for collaboration with the private sector resonates well with our vision for a thriving business environment and we hope all these materialise this year.’
The DG said that while removing fuel subsidy was necessary, its impact on individuals, families, and businesses, leading to discomfort, must be managed as well as the cost of living and inflation. Urging the Tinubu-led administration to see high inflation (above 28 per cent) and unemployment as unacceptable problems, she regretted that nothing concrete had been said on how both problems would be addressed and worried about the impact on citizens.
