Gas, FX add to age-old problems facing manufacturing
Gas and foreign exchange challenges are adding to age-long woes facing manufacturers, putting a heavy pressure on the sector that is expected to push economic diversification.
Nigeria’s manufacturing sector has struggled with infrastructure challenges and multiple taxes that have defied solutions over the years.
Added to these are constant delays and high charges at ports, which feature prominently on the list of biggest manufacturing gridlocks.
Smuggling of prohibited products and high logistics costs are also die-hard problems that refuse to go.
Contractual breaches after product supplies to government agencies as well as poor patronage are also key issues that the public sector has not been able to tackle.
Included on the list of age-old problems is lack of clear policy direction, which has bred policy somersaults and policy flip-lops, hitting sectors like textiles and steel hard.
However, gas and FX have now gained prominence as they do more harm on the manufacturing sector than good.
Manufacturers resort to alternative energy sources because of constant power outages across the country. Latest data from the Manufacturers Association of Nigeria (MAN) show power outages occurred six times daily at industrial zones between July and December 2015. Thirty to forty percent of manufacturers’ expenditure goes to alternative energy sources.
The key real sector players have resorted to the use gas because it is cheaper than the Low-Pour Fuel Oil (LPFO). However, there is gas scarcity at the moment, which has stopped operations across firms, hurting output and margins targets.
Fidson’s N9 billion plant was not able to take off many months after completion due to FX- and gas-related issues, the company told Real Sector Watch recently.
The Manufacturers Association of Nigeria (MAN) Gas Users Group said recently that Shell Petroleum would sell gas to the Nigerian Gas Company (NGC) at about nine cents, while NGC would resell to other franchisers at $2. They, however, wondered why gas franchisers sold to manufacturers at $7.38 per standard cubic metres (scm), saying that the situation had ramped up energy costs from 30 to 45 percent, while threatening to shut down prices.
Micheal Ola Adebayo, chairman of the group, said recently that apart from incessant gas price hike, the price of the product in the country ($7.65 per scm) was higher than the global price ($2. 5 per scm), lamenting negative impact of lack of natural gas on the manufacturing companies.
Apart from gas, foreign exchange woes have continued. The FX scarcity, brought about by oil price lows and un-diversification of Nigeria’s revenue bases, shut down 54 manufacturers and 222 SMEs in 12 months preceding August.
The CBN recently directed that 60 percent of FX be allotted to manufacturers, but there is no sufficient greenback anywhere to satisfy manufacturers.
“It’s good but just a scratch on the back. Dollar inflows are still not coming owing to lack of confidence in the market. The pressure from those using banned 41 items on the market may be enormous,” said Matthew Ibeabuchi, CEO, MD Services Limited.
Nigeria is currently in recession as FX woes present big woes for Africa’s once biggest economy. Manufacturers scramble for FX to buy raw materials and machinery because most of the inputs they need are not found in the country at the required quantity and quality. However, latest MAN data show up to 53 percent of inputs are still sourced locally.
Okey Akpa, chairman of pharmaceutical manufacturers in MAN, said there was a need to revive petrochemical industry to push local sourcing of drug inputs.
Another manufacturer said local raw materials were good enough, but need more ‘touching’ in the form of development.
ODINAKA ANUDU