Despite several efforts by the Federal Government to cushion the effects of recession on the economy, recent figures from the Manufacturers Association of Nigeria (MAN) have shown that about 196 manufacturing companies shut down their operations in the last two years due to the biting recession.
This represents over 300 per cent increase compared to 45 companies reported to have closed down last year in the first year of the present administration.
Figures coming from MAN shows that about 196 manufacturing companies closed down during the recession due to harsh operating environment.
Last year, in the heat of forex restriction, MAN stated that over 45 companies were shut down as 220 Medium and Small Scale Enterprises (MSME) closed down while over two million jobs were lost. In the same vein, the association said this resulted in a huge financial loss of about N62.184 billion.
According to MAN Director of Economic and Statistics Department, Oluwasegun Osidipe, “a quick survey of MAN members and with data provided for foreign exchange losses as at the end of 2016 indicated about N62.184 billion was lost.”
The association explained that the closures and the job losses could be attributed to the unfavourable operating environment in which forex component and cost of power generation played prominent roles.
MAN stated that the share of energy cost to total cost of production in the sector is estimated at 36 per cent, which is one of the highest in the world.
“MAN survey shows that member-companies estimated annual expenditure on alternative energy source was N129.95 billion in 2016 from N58.82 billion recorded in 2015. If this amount is aggregated with billions that are paid to Discos annually, expenditure on electricity by our members, no doubt, is colossal,” Osidipe noted.
The statistics from the association said for years, electricity supply to the manufacturing sector has been abysmally poor with an average of seven hours supply and seven outages per day.
It added: “Strangely, despite the paucity in electricity supply, tariff has been increasing leading to huge amount being paid to Discos by our members on monthly basis. Our members have for long resorted to self-energy generation notwithstanding the associated huge cost.”
The association noted that the high cost of energy has been responsible for the poor competitiveness of locally manufactured products in the country, which largely has contributed to the closure and other challenges in the sector.
It added that the challenges of high inflation, dearth/high cost of borrowable funds and acute shortage of forex made the operating macroeconomic environment in first half of 2016 very unhealthy for manufacturing.
It, however, noted that MAN’s resilient evidence-based advocacy on the need to prioritise forex allocation to the manufacturing sector yielded desired result when the Central Bank of Nigeria (CBN) responded positively with the 60 per cent preferential forex allocation to the sector in the second half of 2016.
“Even though the preferential forex allocation was removed vide the forex policy of February 21, 2017, the CBN has promised to continue to accord the manufacturing sector strong priority in forex allocation,” the association said.
MAN said the preferential forex allocation regime brought life back into the sector as manufacturing activities were galvanised leading to an improved performance in the first half of 2017.
“For instance, estimate from MAN surveys shows capacity utilisation increase to 59.18 per cent in the second half of 2016 from 49.64 per cent of the corresponding period of 2015 and 44.3 per cent of first half of 2016. Similarly, local raw materials’ utilisation increased to 59.98 per cent in the second half of 2016 from 51.88 per cent of the same half of 2015 and 46.3 per cent recorded in the first half of 2016.
The survey further said that manufactured products increased to N5.02 trillion in the second half of the same year from N4.21 trillion of the same periods in 2015 and N3.76 trillion recorded in the first half of 2016 as a result of the increases in capacity utilisation and local sourcing of raw materials.
While urging the government to continue to make forex available to the sector, the Organised Private Sector (OPS) said that Federal Government may need to reconsider its position on the partial privatisation of the electricity sector, if the country wants to have regular power supply to salvage the economy.
The Nigeria Employers Consultative Association (NECA), said corporate consumers are at the receiving end of the ineptitude of the electricity sector.
The Director General of NECA, Segun Oshinowo, said the corporate citizens are having serious challenges, which he said affects business adversely.