Growing capacity utilisation in the manufacturing sector

The capacity utilisation figures for the 2nd half of 2013 released by the Manufacturers Association of Nigeria(MAN) shows that there was an increase from 46.3 per cent recorded in the first half of 2013 to 52.7 per cent in the 2nd half of 2013.

The level of capacity utilisation in the manufacturing sector is an index of the health of the sector. When it is low, it indicates poor growth as in the era when as a result of a mix of policy and economic trends many manufacturing firms operated at very low capacity.This remarkable increase recorded within last year owes to a mix of economic, policy and management factors according to analysts.

Productio output in Naira value in the second half of 2013 (H2 2013) reached N483.53 billion, indicating a 36.9-percent increase from N353.20 billion recorded in the first half of the year (H1 2013).

Within the year under review, Nigerian manufacturers equally reduced the level of inventory (stock) of finished goods to N17.34 billion, from N21.75 billion obtained by H1 2013.

According to MAN, major contributors to the output increases are members in the non-metallic products, such as cement and ceramics. The cement subsector singularly raised the bar in the non-metallic sector with a very high percentage, a phenomenon that can be attributed to the recent multi-purpose uses to which the item is currently being put, such as road construction, and massive housing development by some state governments as well as property development by private individuals.

Dangote Cement is currently being used in road construction across the states, while brands of Lafarge Cement were used to build the Third Mainland Bridge and the National Assembly, among others.

Products of the United Cement Company of Nigeria (UniCem) were likewise deployed in the building of Tinapa and Michael Ani Secretariat, among others.

Acording to the Economic Review, investigations by MAN reveal that most of the road and ancillary constructions (like pavement for walkways, drainages, bridges and dams) recently being undertaken, are done using casting and pre-fabricated materials made purely from cement products.

“The vogue that has also attracted people’s preference for ceramic tiles dictates an intensive use of ceramics for housing constructions and beautification. This has pushed up patronage for ceramic products, thereby creating a quantum leap in the sector,” says MAN.

Given the growth of capacity utilisation of the manufacturing sector in general, sector by sector analyses also show significant growth in the food, tobacco and beverages, textile, apparel and footwear, basic metal, iron and steel, as well as chemical and pharmaceuticals.

For instance, capacity utilisation in food, beverage and tobacco rose to 61.5 percent in H2 2013, from 53.5 percent reported in H1 2013.

Year-on-year increase was 9.5 percent as capacity utilisation in H2 2012 was 52 percent. That of the textile, apparel and footwear increased to 44.9 percent in H2 2013, from 37.4 percent in the H1 2013. But this represents a 5.9-percent decrease from 50.8 percent reported in H2 2012.

Wood and wood products reported 44.4 percent in H2 2013, from 42.3 percent in H1 2013. This also represents a 5-percent increase from 39.4 percent capacity witnessed in H2 2012.

Capacity utilisation in pulp, paper, printing and publishing witnessed an encouraging increase, rising to 60 percent in H2 2013, from 52.2 percent in H1 2013 and 49.5 percent in H2 2012.

For the chemical and pharmaceutical category, capacity utilisation was 53.6 percent in H2 2013, from 46.6 percent in H1 2013 and 50.8 in H2 2012.

Non-metallic products’ capacity utilisation rose to 69.9 percent in H2 2013, from 53.8 percent in H1 2013 and 51.8 percent in H2 2012.

Domestic/industrial plastic and rubber also reported an outstanding increase, as its capacity utilisation reached 59.5 percent in H2 2013, from 51.7 percent in H1 2013 and 51.1 percent in H2 2012.

Motor vehicle and miscellaneous assembly’s capacity utilisation increased to 42.7 percent in H2 2013, from 37.1 percent in H1 2013 and 35.7 percent in H2 2012. For the basic metal, iron and steel, it rose to 52.3 percent, from 45.5 percent in H1 2013 and 40.2 percent in H2 2012. However, electrical and electronics fell to 38.6 percent in H2 2013, from 42.9 percent in H1 2013 and 44.7 percent in H2 2012.

MAN’s economic review reveals that at the end of 2013, electricity supply in the country dipped by 450 megawatts (MW) from the peak generation of 4,517 MW. This makes power a major challenge among manufacturers, says MAN.

However, access to business-friendly credit remains a major challenge for manufacturers. MAN’s investigation show that members’ access to credit for expansion has been priced at high rates ranging from 17 to 21 percent.

Stakeholders believe that once there is synergy between the monetary and fiscal policies and government continues with broad-based incentives, the possibility of capacity utilisation improving further is high. 

Thus, in the light of the avowed pursuit of development banking by the new CBN governor, Godwin Emefiele there are expectations of a monetary policy regime that would incentivise the real sector, further grow capacity utilisation and generate jobs for the huge unemployed population.