Saturday, May 16, 2015

Anxiety as tougher time clouds manufacturing sector in 2015

Hopes for manufacturers to have a blooming 2015 is on the bleak as experts says the crashing down of Nigeria's local currency at the international market portends a tougher 2015 for the manufacturing sector, Ayodele Samuel writes.
2015 is a significant year for Nigeria, aside been a transitional year for government, the manufacturing sector has been neglected by policymakers and politicians to battle for votes despite various challenges steering the sector in the eyes.
The recent devaluation has hiked production costs while threatening job losses and reducing competitiveness of local products in the global market, Nigeria's manufacturers are in for a tough year ahead.
But more worrisome is the fact that manufacturers have now been barred by the central bank from accessing dollars through the Retail Dutch Auction Scheme (RDAS), thus pushing them into inter-bank and parallel markets where dollar is costlier. Stakeholders say this will further balloon production costs in the New Year and could reverse all the efforts made so far to steer the sector.
Former minister for Commerce and Industry and Immediate Manufacturers Association of Nigeria MAN President, Chief Kola Jamodu expressed concerns over the outlook for 2015 especially for the manufacturing sector, stating that key investment inflows are domiciled in the capital market rather than in the real sector.
"There are a lot of challenges in 2015. Demand is extremely sluggish and with the way the currency is dangling, I will advice Nigerians to avoid dollar exposure. The volume of export is dropping and this remains a source of concern to manufacturers".
Like Jamodu, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) also predicted a tougher time ahead for manufacturers in the country based on the continued drop in the cost of crude at the international market and the devaluation of the Naira.
NACCIMA National President, Alhaji Mohammed Badaru Abubakar, said the country is beset with so many challenges arising from falling crude oil prices, which have precipitated the proposed austerity measures and devaluation of the naira while insecurity in the North-East has also remained a serious challenge.
Abubakar noted that due to a lot of pressure on the Naira as a result of high demand, the CBN devalued the Naira to an official Rate of N168 perdollar, but said the interbank exchange rate still goes as high as
N185per dollar as at December 22 while Monetary Policy Rate (MPR), he said, has gone up to 13% as against 12% in the 1st half of this year and Crude Oil price continues to fall, noting that it currently stands at $60.12 per barrel as against $102 per barrel as at August 2014.
"As can be seen, the macroeconomic fundamentals are less stable than they were in the 1st half of this year and this has serious implications on the progress of the real sector of the Nigerian economy," he said.
He also noted that there still exist a gap between the savings and lending rate, saying that the cost of funds currently hovers between 22 – 35% depending on the profile of the firms, which he said is too high for any productive venture and has significant implication on the global competitiveness of Nigerian firms and their products.
Abubakar explained that the macro-economic indicators show a disparity in the state of affairs of the nation's economy and citizens' well-being.
While the challenges abound, he noted that the country might have to depend heavily on local manufacturers that source their raw materials locally without exposure to the forex market.
"The falling price of crude oil is expected to affect the price of imported commodities like the premium motor spirit and the likes, but the real sector remains heavily affected.
"Slow-paced growth should be expected till after elections. But with early budget implementation, there is a lot to be done. The economy should not be ignored in the face of elections. The first quarter may be rough but the effect should be mitigated.
Also the Lagos Chambers of Commerce, Industry, LCCI, in annual economic review for 2014 and outlook for 2015 noted that the country's inflation rate may cross the double-digit mark in the first half of 2015 as the combined austerity measures introduced by the government and tighter monetary policy of the Central Bank of Nigeria will put additional pressure on consumer prices.
The LCCI said with the unfolding oil price slump and the consequent exchange rate depreciation, it was plausible to predict higher inflation conditions in the new year.
"There will be pressures on production and operating costs across sectors. High cost of imports will also be a major factor. As a result of the import-dependent character of the economy, the sharp declines in exchange rate will naturally push up the operating costs of enterprises in the economy. Many firms are already feeling the heat across all sectors," the LCCI said.
According to the chamber "a natural outcome of the depreciating exchange rate in an import-dependent economy is inflation. Cost-push inflation will begin to manifest in the next few weeks of 2015. This will be driven by high cost of production and high cost of imported finished goods.
"The tight monetary policy may continue into the 2015 and this will keep the interest rate high in the economy."
The group noted that in the past few weeks, the naira exchange rate had depreciated by about 11 per cent in the interbank market and over 12 per cent in the parallel market, adding that the impact of the depreciation on operating costs would be very profound in 2015.
Aside the fall in Naira , the Common External Tariff (CET) billed to begin in the new year remains another threat to the nation's manufacturing sector.
Although ECOWAS members had agreed that tariff across the 15 member countries will now be uniform to usher in a common regional market and free trade zone across the sub-region, stakeholders are of the opinion that the regime threaten Nigeria's manufacturing sector that is facing challenges due to its tough business environment.
NACCIMA National President, urged manufacturers to belt up for a challenging year in 2015, saying that production cost will go up amidst the challenges of infrastructure, porous border and the battle against cost push inflation, which is inevitable.
"Giving these scenario on the state of the nation, it becomes obvious that the ongoing socio-economic reform programmes of the Federal and State Government must be intensified and appropriate policy framework put in place through public private partnership (PPP) arrangements to drive the process towards achieving the desired growth of the economy that will positively impact on the country's realization of its Medium Term Expenditure Framework (MTEF)," Abubakar advised.
Also MAN President, Dr. Frank Jacobs on his part urge manufacturers to take cautious efforts before initiating international transactions that may expose them to the forex market, even as he urged government to give considerations to the real sector in the course of policy formulation.
Other stakeholders urge government to promote conducive business climate, such as ensuring the provision of steady electricity supply, as well as mount pressure on the banks to reduce their lending rates, saying that with cost of finance with a high interest rates and frightening COT charges on accessed funds, there is no way manufacturers can survive in their businesses in the new year.

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