The Manufacturers Association of Nigeria (MAN) has reported significant reductions in production and employment in the first quarter of 2024, attributing the downturn to various macroeconomic challenges.
Presentation of the MCCI Report
During a press conference in Lagos, MAN’s Director of Research and Advocacy, Oluwasegun Osidipe, presented the Manufacturers CEOs Confidence Index (MCCI). Despite a slight increase in MCCI points above the 50-point confidence threshold, the report highlighted that both current business conditions and employment levels remained below 50 points, reflecting persistent challenges.
Factors Behind Production and Job Cuts
MAN identified several factors contributing to these issues, including rising inflation, high energy prices, exchange rate instability, and increased Customs duty rates. These factors collectively resulted in a 20% surge in production and distribution costs in Q1 2024, along with a 9.7% decline in capacity utilization.
Declining Production and Employment Metrics
The volume of production decreased by 10.14% in Q1 2024, following a 4.6% contraction in the previous quarter. Similarly, manufacturing employment dropped by 5.27%, compared to a 4.46% decline in the preceding quarter. Additionally, sales volume fell by 7.16%, a significant decline from the 1.6% decrease seen in the previous quarter.
MAN’s Call for Government Intervention
MAN President Francis Meshioye emphasized the adverse effects of forex volatility, inflation, and energy crises on the manufacturing sector. He urged the government to address these cost-push factors driving inflation and to expedite the recapitalization of banks. Meshioye advocated for prioritizing the manufacturing sector through sector-specific recommendations and policy support to revitalize the economy.
Challenges in Capacity Utilization
Capacity utilization, a key indicator of how much of a factory’s production potential is being used, continued to decline. A survey from September showed a decrease to 56.5% in H1 2023 from 57.9% in H1 2022. In March, MAN reported that 767 manufacturers had shut down operations, and 335 were distressed due to economic challenges, further highlighting the sector’s struggles.
Disputes Over Electricity Tariff Hikes
MAN has also petitioned the Nigerian Electricity Regulatory Commission (NERC) to halt the increase in tariffs for power users in the Band A category. The April 2024 Multi-Year Tariff Order raised tariffs from N68/kWh to N225/kWh. MAN’s Director-General, Segun Kadiri, argued that the tariff increase, along with other economic pressures, made it impossible for manufacturers to remain competitive.
NERC’s Response to MAN’s Appeal
At a public hearing, NERC Vice Chairman Musiliu Oseni questioned MAN’s directive to its members not to pay the new tariffs, labeling it as self-help. However, he praised MAN for appealing against the order through due process. A ruling on the appeal is expected within 30 to 45 days.
The ongoing economic challenges faced by the manufacturing sector in Nigeria underscore the need for targeted government interventions and supportive policies to restore confidence and stimulate growth in the sector.
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Written By: Doris Chinwe Omemgbeoji