MAN projects worse Q4 for manufacturing

The outlook for Nigeria’s manufacturing sector in the fourth quarter of 2024 looks bleak, according to the Manufacturing Association of Nigeria.

The Director General of MAN, Segun Ajayi-Kadir, has expressed concerns about how current economic realities presented no relief in sight for manufacturers who had been struggling with rising costs of production and decreased sales, in a conversation with The PUNCH.

Ajayi-Kadir painted a grim picture for Q4, going by the sector’s performance in the third quarter, saying, “Earlier in the year, we imagined that the second half would be better… But rather than experience an upswing, we have continued to have a depression.”

He identified rising interest rates, high diesel prices, and electricity tariff hikes as major obstacles for the manufacturing sector, contributing 8.46 per cent to the real gross domestic product growth in Q2 2024.

The sector’s contribution to real GDP growth dropped from 8.62 per cent in Q2 2023 and was weaker than its 9.98 per cent contribution in Q1 2024.

“The interest rate has continued to be increased, the exchange rate didn’t improve, and we had an increase in electricity tariff,” Ajayi-Kadir said, emphasising that those factors had combined to depress the sector’s growth.

He added, “We may be looking at a repeat performance if not a worse performance of the sector in the last quarter of the year.

“We have just finished the third quarter and from the reports we are getting from our members, there is no improvement in their performance.”

MAN had earlier documented its members’ challenges in the Manufacturers Confidence Composite Index report for H1 2024, where it decried the adverse impact of the interest hike.

Last month, the Monetary Policy Committee of the Central Bank of Nigeria raised the interest rate by 50 basis points to 27.25 per cent from 26.25 per cent.

The CBN has raised the interest rate five times this year as it maintained a hawkish stance in a bid to tame the country’s high inflation.

The MAN DG also identified energy costs as a major concern for the sector, as he noted that while there had been a slight reduction in diesel prices, largely due to the Dangote refinery, the costs remained burdensome for manufacturers.

“We have seen an improvement… but the cost is still high,” he said.

Ajayi-Kadir acknowledged that recent economic developments, including the naira-for-crude sale deal between the Nigerian National Petroleum Company and the Dangote Refinery, could bolster the sector’s performance in Q4.

He said, “The sale of crude oil in naira only began just a few days ago. So, it may be too early to say what the outcome will be. But generally speaking, it should reduce the pressure on forex. That is the most important thing. So, there will be more availability in the domestic economy.”

The MAN DG said the path to a better manufacturing sector performance focused on the need for policy stability and a reduction in the volatility of supply and prices.

“We are looking forward to a moderation, at least, in the volatility of supply… to see a possibility that the price will not get worse than it is now,” Ajayi-Kadir said, explaining that stable costs would help manufacturers better manage logistics and production expenses.

Meanwhile, the Director of the Centre for Promotion of Private Enterprise, Muda Yusuf, noted that the volatility of the foreign exchange market remained a significant hurdle to the manufacturing sector.

“Our manufacturing sector is highly exposed and sensitive to developments in the foreign exchange markets,” he remarked.

He stated that most manufacturers relied on imported raw materials and machinery, and the depreciation of the naira had exacerbated production costs.

The CPPE boss also observed that unless there was some stabilisation in forex rates, the outlook for manufacturing might remain subdued.

The economist linked energy prices to the broader issue of forex, stressing that if the Dangote refinery could source crude oil in naira, it might alleviate some of the cost pressures.

However, he warned that if international crude prices are applied to domestic transactions, any relief could be minimal.

The latest hike of petrol pump price to N1,030 has elicited blowback from MAN, CPPE and the Nigerian Labour Congress, who demanded a reversal.

The CPPE director urged swift government intervention in the forex market as a way to improve the Q4 outlook of the manufacturing sector.

“I am just hoping that the government will do something about that and do that very urgently,” he remarked, pointing out that more favourable forex policies would reduce the financial strain on manufacturers.

Yusuf also pointed to the government’s recently proposed economic stabilisation plan, which he believed could offer manufacturers some relief if implemented effectively.

“The bill is already in the National Assembly… I am a bit optimistic that the expeditious implementation of the plan may have some positive outlook for the manufacturing sector,” he added.

Yusuf added that if Nigeria’s refineries, particularly Dangote’s, could produce sufficient petroleum products domestically, that could significantly ease forex pressures by reducing the need for imported products.

He argued, “If we reduce the importation of petroleum products, then the pressure on our forex will reduce.”