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BUSINESS NEWS: Manufacturers reduce investment by 61%, borrowing cost hits 22%

BUSINESS NEWS: Manufacturers reduce investment by 61%, borrowing cost hits 22%

Publish date: 2022-06-20 23:28:39 | Author: Odinaka Anudu | Source:

Nigerian manufacturers reduced their investments in the economy by 61 per cent between 2018 and 2021, according to The Punch analysis from economic reviews of the Manufacturers Association of Nigeria, MAN.

Investment made by manufacturers fell from N552 billion in 2018 to N217.22 billion in 2021, signifying a 60.7 per cent decline over the period.

While investments made by members of MAN was N552 billion in 2018, they declined to N496.11 billion in 2019. During the advent of COVID-19 crisis in 2020, investments crashed to N118.52 billion, rising slightly to N217.22 billion in 2021.

“This is a reflection of the kind of issues facing the manufacturers in Nigeria. There is multiplicity of taxes. One agency demands one form of tax and another demands another form of it,” said Professor of International Economics at Covenant University, Jonathan Aremu, in a chat.

“Access to finance is a big issue. The interest rate is too high and even if it is low, where will the money come from?” he asked.

He said more than ever before, manufacturers were facing issues ranging from high cost of production to issues of competitiveness, saying that the multiplier effects of decreased investment on jobs in the economy would be better imagined.

He urged local manufacturers to improve the quality of their products in order to compete favourably in the global market.

Nigerian manufacturers are facing a number of issues that worsen their cost of production. The energy cost is huge due to low energy supply to industrial zones by electricity distribution companies. Many manufacturers have abandoned DisCos and are using 100 per cent of gas to power their factories.

 Manufacturers spent N425 billion on alternative energy sources such as gas, low-pour fuel oil, diesel, and petrol between 2017 and 2021, according to The PUNCH’s computation of energy expenditure of members of MAN within the period.

Foreign exchange crisis is also hurting them badly as many of them told The Punch that they often got one to five per cent of their dollars needs for the importation of inputs.

A dollar was priced at N415.82 at the Importers and Exporters Window on Monday, but its parallel market rate was N605-N610.

The parallel market provides alternative for manufacturers, but its rate hikes production costs, according to MAN.

Director of Research and Strategy, Chapel Hill Denham, Mr Tajudeen Ibrahim, told THE PUNCH that the decline in investments could be attributed to foreign exchange scarcity and the effects of COVID-19.

“The first factor that could have caused this is the scarcity of foreign exchange to import materials needed in terms of equipment and inputs,” he said.

“The second point is that some of them suffered the impact of COVID-19 and are just beginning to recover.  We are at the early stage of recovery, and if we have good economic policies in the next dispensation, the manufacturing sector will rebound,” he noted.

Apart from foreign exchange crunch facing the Nigerian economy, the operating environment is also hard hit by policy inconsistencies, high cost of credit and logistics challenges.

According to MAN, cost of funds for members who borrowed from deposit money banks rose from 20.75 per cent in 2020 to 21.5 per cent in 2021.

At the third Monetary Policy Committee, MPC, meeting of 2022 in May, the Central Bank of Nigeria raised the monetary policy rate, which is the benchmark interest rate, from 11.5 per cent to 13 per cent.

Nigeria’s rate is among the emerging market’s highest, findings have shown.

South Africa’s rate is currently 4.75 per cent while Namibia’s lending rate as at February 2022 was four per cent.

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