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SME Guide

Manufacturers Reduce Output and Workforce Amid Economic Downturn – MAN

The Manufacturers Association of Nigeria (MAN) has stated that manufacturers were compelled to cut production and jobs in the first quarter of the year due to macroeconomic headwinds.

MAN’s Director of Research and Advocacy, Oluwasegun Osidipe, revealed this on Thursday while presenting the Manufacturers CEO Confidence Index at a press conference in Lagos.

According to the report, despite slight optimism, which saw MCCI points record a marginal increase above the 50-point confidence threshold, current business conditions and current employment remained low, below 50 points.

MAN attributed this to the lingering effects of rising inflation, escalated energy prices, exchange rate instability, and customs duty rates.

The report indicated that production and distribution costs surged further by 20 percent in the first quarter of 2024, while “capacity utilisation declined further by 9.7 percent.”

It further stated, “The volume of production slid further by 10.14 percent in Q1 2024 from a contraction of 4.6 percent recorded in the previous quarter. Manufacturing employment further declined by 5.27 percent in Q1 from the 4.46 percent contraction recorded in the preceding quarter.”

Sales volume also fell 7.16 percent in the first quarter of the year, compared to the 1.6 percent decline witnessed in the previous quarter.

Commenting on the report, the President of the Manufacturers Association of Nigeria, Francis Meshioye, noted that the forex, inflation, and energy crises had a negative impact on the manufacturing sector.

Meshioye lamented that production levels declined, a development that led to decreased competitiveness in the sector.

He urged the government to address the cost-push factors driving inflation and also expedite the recapitalization of the banks.

Meshioye said, “Undoubtedly, the manufacturing sector remains the most sustainable driver of steady economic growth, the inflow of foreign exchange, and enduring shared prosperity. MAN is therefore expecting that the government will intentionally prioritise the manufacturing sector by implementing the sector-specific recommendations contained in this report and providing the required policy support and incentives. This is the surest way of revamping the sector and repositioning the economy towards sustainable growth and development.”

Capacity utilisation refers to how much of a factory’s production capacity is currently being utilised. The KPI tracks how much of a manufacturing operation’s potential output is being met and includes everything from machinery capacity to available resource utilisation. A less-than-optimum capacity utilisation would imply that part of a company’s workforce is asked to go home since the factory is not operating at full strength.

In recent months, manufacturers have remained vocal about their inability to operate at optimum capacity due to various challenges confronting the economy. Last September, a H1 survey by MAN revealed that capacity utilisation in the sector declined to 56.5 percent from 57.9 percent recorded in the corresponding half of 2022. In March, the association said that 767 manufacturers shut down operations while 335 became distressed in 2023. This, MAN said, came against the backdrop of exchange rate volatility, rising inflation, and other economic challenges that have worsened the investment climate.

MAN Petitions NERC
Meanwhile, MAN has petitioned the Nigerian Electricity Regulatory Commission to stop the hike in the tariff payable by power users under the Band A category. MAN also questioned the monthly tariff review methodology being implemented by NERC, as it argued that the recent hike in electricity tariffs would further destroy manufacturing firms in Nigeria.

The association defended its petition against the April 2024 Multi-Year Tariff Order during a public hearing held at the headquarters of NERC in Abuja on Thursday. The April 2024 MYTO led to an increase in the tariff for Band A customers from about N68/kWh to N225/kWh.

The Director-General of MAN, Segun Kadiri, told a four-man panel of the power sector regulator, headed by the Vice Chairman of NERC, Musiliu Oseni, that it was impossible for manufacturers to absorb the high cost of electricity.

He said, “Power to a manufacturer is like blood to a human being. It represents anywhere between 28 and 40 percent of our cost structure, depending on how power-intensive your manufacturing process is. So you can imagine that if there is a 250 percent increase in that particular cost, it is going to inflict damage. We operate in an environment in which this increase is coming on the back of the exchange rate challenge, petrol subsidy removal, increase in import duties, multiple taxation, and other challenges.”

Kadiri said the tariff increase has made the manufacturing industry in Nigeria uncompetitive, adding that it should be reversed to prevent further damage to the sector.

“If we add the cost of electricity to the burden that we already have, we are not going to make a profit. More than 36 companies have been disconnected at this moment. If it is possible for them to pay and pass on the cost, we would not bother after all. Inflation has been generally agreed to be cost-induced, yet the CBN, in their wisdom, still increased the MPR by 150 basis points. We are being bashed from all angles, and we need to engage in such a way that we are able to survive. We know that discos are businessmen, and we are also businessmen; nobody will go into a business and try to make a loss. But what we are seeing in the increase is that the Discos are going to survive and the manufacturers are going to die. It is not possible for manufacturers to take on this cost,” the MAN DG stated.

In his remarks at the hearing, the Vice Chairman of NERC wondered why MAN would instruct its members not to pay the new tariff, stressing that this amounted to resorting to self-help. Oseni, however, commended the association for following due process by appealing against the order, as he noted that a ruling on the appeal would be disclosed within the next 30 days, with an additional 15-day extension if needed.

However, the distribution companies at the hearing kicked against the decision by MAN not to pay the new rates, as they vowed to disconnect any manufacturer who fails to comply with the April 2024 power tariff order.

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