Wednesday, April 24Inside Business Africa

Poor patronage, weak purchasing power drive unsold inventory to N420 billion

Although the COVID-19 pandemic may have forced many Nigerians to buy locally produced goods on account of distortions in global economy and supply chain, weak consumer purchasing power and lockdown have affected sales and production, driving inventory of unsold goods to N420billion in the first quarter (Q1) of 2020.

According to the Manufacturers Association of Nigeria (MAN), there is a need for government to initiate policies that will strengthen the purchasing power of consumers to stimulate aggregate demand and deliberately support industries to reduce the production cost of manufactured products in the country.

In its latest MAN CEOs Confidence Index (MCCI) for Q1, the local producers called for a special bailout fund for the sector with tangible deliverables on the number of jobs to be created, the volume of exports to be generated, projected revenue and quantum of local raw materials to be used by manufacturers.

The MCCI survey seeks to measure the thoughts of the CEOs on the economy with a view to ascertaining their level of confidence in the prevailing economic policies, regulatory guidelines and manufacturing-operating environment in Nigeria.

The MCCI recorded 44.4 points representing a significant decline from 51.9 points recorded in Q4 2019, indicating that manufacturing performance was dismal, as the index fell below the 50 points benchmark for the first time since the first edition of this report was published in 2019.

MAN attributed the performance to a general lull in the economy; absence of synthesized fiscal and monetary policies; poor performance of key macroeconomics fundamentals; ever-increasing cost of production occasioned by the unfriendly operating environment; and heavy disruptions in the global value chain triggered by the trade war between two leading economies; and the outbreak of COVID-19.

The operators then called for a state of emergency in the manufacturing sector enable the Federal Government to study the current situation in the industry, and craft sustainable stimulus packages to herald its recovery.

The Head, Research Department, MAN, Dr. Oluwasegun Osidipe, explained that respondents to the MCCI’s survey were chief executive officers (CEOs) of manufacturing companies in Nigeria.

The Association also called on the government to reduce the financial pressure on companies occasioned by the lockdown, necessitated by measures to contain COVID-19, by providing 60 per cent of employees’ salaries for at least three months to prevent the retrenchment of workers.

It also demanded a downward review of interest rates on bank facilities to manufacturers to five per cent with two years’ moratorium.

“Manufacturers that are investing in order to scale up production should be granted loans at five per cent interest rate for a period of five to seven years to improve liquidity and ramp up productivity.

“Government should prevail on the Central Bank of Nigeria (CBN) to extend its COVID-19 stimulus packages to manufacturers not covered by existing CBN’s initiatives. The CBN should also grant manufacturers increased access to foreign exchange at the pre-COVID-19 rate to support the importation of raw materials, machines and spares that are not available locally,” the MCCI said.

The survey also indicated that a majority of CEOs affirmed that the persisting high lending rate would not encourage any meaningful manufacturing. This is compounded by the CBN’s policy contradictions that expect deposit banks to lend more to the private sector on one hand and on the other increased the Cash Reserve Ratio that tactically reduced the quantity of money that would be available for lending.

It added: “Fifty per cent of respondents submitted that the size of commercial bank loan available to the sector has shrunken greatly and consistently discouraged manufacturing productivity as government borrowing continues to crowd out the real sector.”

The MCCI also demanded that the government should sustain the implementation of the backward integration policy by “properly funding relevant institutions, giving utmost priority attention to the development of local raw-materials in commercial quantity and creating a friendlier environment for investment on the value-chains of these materials that are not locally available.”

“Furthermore, the government shall involve the private sector operators in the crafting and implementation of adjustment frameworks that would deepen the backward integration efforts and ensure that the little gains made so far in the country’s industrialisation drive are sustained,” it added.

Source: Guardian

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