Production cost, election uncertainty dampen manufacturers’ confidence

Rising cost of production and the uncertainty surrounding the forthcoming elections have dampened the business confidence of Nigeria’s manufacturers in the economy within the first quarter (Q1) of 2015, latest survey by the Lagos Chamber of Commerce and Industry (LCCI) has shown.

The Business Confidence Index (BCI), released to Real Sector Watch weekend, shows that exchange rate fluctuation and influx of fake/substandard products have also reduced the confidence of players in the productive sector of the Nigerian economy in this quarter.

It further reveals that manufacturers, both the big players and SMEs, see regulatory infractions and worsening public power supply as disincentives.

Generally, confidence level of players in all sectors of the economy dropped from 30 percent posted in last quarter of 2014 (Q4-2014) to 22.3 percent, representing 7.7 percent point slack.

BCI is a measurement of the degree of optimism on the state of the economy by business leaders. It shows how willing investors are to spend in the economy.

“Decreasing business confidence is often a pointer to slowing economic activities because business owners are likely to decrease their investment.

“The more confident entrepreneurs and managers feel about the business environment, the more likely they are to make new investments, create job and impact the economy,” says LCCI.

The Q1 2015 BCI survey covered 180 top business executives in 162 companies over the period, January 6 – 23, 2014. Only top decision makers (owners, CEO/MD, directors and top managers) participated in the survey, according to LCCI.

The has been low tempo in the manufacturing sector as no visible investment has taken place within the quarter.

Latest data released by the Manufacturers Association of Nigeria (MAN) show N483.05 billion worth of investments were made in the first half of 2014. Analysts see uncertainty surrounding elections, especially the recent postponement, as a big impediment as many investors are uncertain about the economic direction and are gripped by fear of possible post-election violence.

Similarly, many manufacturers import raw materials and machinery from other climes. Devaluation has increased naira to dollar exchange rate from N168/$ to almost N200/$ in the inter-bank market.

Local manufacturers can only have access to the inter-bank rate as the official forex market, otherwise called the Wholesale/Retail Dutch Auction System, was recently closed by the Central Bank of Nigeria to bring sanity into the forex market. But this also has implications on the manufacturing sector.

“Many manufacturing firms will simply close down,” was the response of Frank S.U. Jacobs, president, Manufacturers Association of Nigeria (MAN), in a telephone chat with Real Sector Watch, immediately after the closure.

“How can you diversify the economy by doing things that will rather destroy the sector,” Jacobs said.

Remi Bello, president, LCCI, said the closure has worsened production costs and could likely escalate it further by 20 percent.

Similarly, the confidence level in the agricultural sector has affected access to and cost of credit, infrastructure shortcoming, weak agricultural-industry linkages, transport and logistics constraints, says LCCI.

ODINAKA ANUDU