Manufacturing companies are still reeling from the impact of the prolonged Naira crisis with many incurring 20 per cent and 30 per cent decreases in sales turnover on consumer goods and cement respectively in the second quarter of the current year.
The Manufacturers Association of Nigeria (MAN) said that “sequel to the naira redesign and the new cash withdrawal limits by the Central Bank of Nigeria (CBN), the scarcity of both old and new naira notes across all banking halls and electronic payment channels in the country meted severe hardship on manufacturers.” This was contained in the Manufacturers CEOs Confidence Index (MCCI) second quarter (Q2) report.
According to the report, the crisis impacted negatively on the manufacturers by directly limiting their working capital, thus halting their daily business operations. In addition, the naira scarcity crushed the consumer patronage of manufacturing firms and escalated their volume of inventories, especially for retail goods.
“By exposing the highly cash-based distributive trade sector to great risk, the economic crisis had severe consequences on the manufacturing value chain and cost of logistics. The substantial reduction in money velocity left opportunity for speculation and ignited the creation of a naira black market that compounded the woes of manufacturers already plagued by insufficient forex.
“The naira scarcity clearly wiped out numerous small and medium manufacturing businesses whose transactions were cash-based, especially those within the agro-allied industries who regularly deal with local farmers in remote towns where no formal banking is in sight. More unfortunately, the exorbitant POS charges on such cash constrained the operations of resilient manufacturing SMEs and worsened their cost of doing business,” the group said.
It noted that the country’s transition to a cashless economy required no urgency or policy aggressiveness considering that a lot of progress had already been made, saying, “a comparative analysis of the country’s cashless status has shown that while the ratio of cash to GDP in Europe, U.S. and South Africa are respectively about 10 per cent, six per cent and 3.5 per cent, Nigeria’s ratio is impressively below 1.5 per cent.
“Therefore, achieving a full cashless economy should not be the pressing issue when there are tougher challenges of insecurity, exchange rate volatility, skyrocketing inflation, energy disruption, over-bloated fiscal debt, dwindling foreign reserves, business collapses and daily divestments.”
Also, the report portrayed the effect of macroeconomic trend of forex, lending rate, commercial bank loans and federal government capital expenditure on the perceptions of CEOs of manufacturing companies within the second quarter of 2023, showing that manufacturing activities continue to suffer due to persisting scarcity of forex and further depreciation of the naira.
It stressed that production and distribution costs escalated by 17.3 per cent in the quarter under review, though it witnessed a slowdown from the 24 per cent increase witnessed in the preceding quarter; capacity utilisation nosedived further by 5.6 per cent in the quarter under review; volume of production contracted by 6.1 per cent in the quarter under review, while manufacturing investment dipped further by 5.6 per cent in Q2, 2023.
MAN recommended that “the idea of throwing policies of subsidy removal and a free float exchange rate all at Nigerians within the short space of time could result in another policy somersault that is set to drag back the economy without any hope of recovery and could result in the failure of the president’s promise of a renewed hope. The abrupt removal of fuel subsidy without appropriate palliatives is already beginning to wane the confidence of Nigerians in this new administration.”
It stated, “In the medium term, it is essential to tackle problems relating to low productivity and limited export diversification, excessive import-dependent production structure and dilapidated capital goods industry.”