Manufacturers see many firms closing down by April
Manufacturers project that a massive number of firms will shut down from April this year, owing to the Federal Government’s reluctance to resolve foreign exchange challenges and address other urgent policy issues affecting the real sector.
The looming shut-down may be worse than the Tsunami of the 1980s and 1990s which saw more than 1000 manufacturing companies in Nigeria close shop on the back of policy inconsistency, which gave room for unbridled importation of cheap and sub-standard products from other markets.
Manufacturers say firms are yet to start closures because many of them still have a stock of raw materials that will most likely exhaust between April and July this year.
“If nothing is done to address the foreign exchange problem for our raw materials, companies will shut down in three to six months,” said Frank Udemba Jacobs, president, Manufacturers Association of Nigeria (MAN), in a telephone interview with Real Sector Watch.
“Government needs to be careful with the fiscal and monetary policies so that they don’t shut down the manufacturing sector. Many industries still have a stock of raw materials; by the time it gets exhausted, these firms will shut down,” he said.
The Central Bank of Nigeria (CBN)’s monetary tightening and exchange control policies have prevented hundreds of import-dependent manufacturing firms from accessing the required amount of dollars with which to purchase raw materials for production.
Many firms today, especially multinationals, which used to purchase raw materials with hundreds of thousands of dollars from abroad, now do so with less than five thousand dollars. A number of them have resorted to obtaining dollars from various, more expensive, sources.
The Lagos Chamber of Commerce and Industry (LCCI) estimated in its 2015 economic review that the forex problem resulted in the loss of N1.46 trillion in stalled business activities in the last six months by local manufacturers.
The chamber said its third quarter 2015(Q3-2015) survey showed that the CBN’s forex restriction is one of the costliest policies in Nigeria in recent years.
“Private operators across several sectors (Fast Moving Consumer Goods (FMCGs), steel, furniture, pharmaceuticals and manufacturing) lost about N1.46 trillion in stalled business activities resulting from paucity of forex over the last six months,” Muda Yusuf, director-general of the chamber, said in a statement.
While commending the 2016 budget, which allocated about 30 percent to capital expenditure, Jacobs, MAN’s president, said this could help scale up infrastructure in the real sector.
“We believe it will enhance productivity and create an enabling environment for businesses to thrive. But then it depends on implementation,” he said.
Jacobs, however, wondered how the government will realise the tax aspects of its budget, stressing that it will be wrong to impose more taxes on businesses that are struggling.
“If businesses are not doing well, as they are not, then we don’t expect the taxes to come from businesses that are not doing well. The government should expand the tax net to include the informal sector. A lot of Nigerians are not paying taxes and they should be brought into the tax net,” he added.
The MAN’s president pointed out that it is possible for manufacturing to thrive in both short-run and long-run and bring the needed revenue for the government, but added that the environment should first be convivial for such to happen.
ODINAKA ANUDU