DAILY COURIER – The 3.46 per cent (year-on-year) Gross Domestic Product, GDP, growth recorded by the Nigerian economy in the third quarter (Q3) of 2024 shows little impact on manufacturing, a major player in the real sector.
The National Bureau of Statistics (NBS) reports that the nation’s GDP growth rate of 3.46 per cent (y-on-y) in real terms in Q3 2024 was higher than the 2.54 per cent recorded Q3 2023 and, also, higher than Q2 2024 growth of 3.19 per cent.
According to NBS, the performance of the GDP in Q3 2024 was driven mainly by the services sector, which recorded a growth of 5.19 per cent and contributed 53.58 per cent to the aggregate GDP. The agriculture sector grew by 1.14 per cent, from the growth of 1.30 per cent recorded in Q3 2023.
The statistical bureau further reported that the growth of the industry sector was 2.18 per cent, an improvement from 0.46 per cent recorded in Q3 2023.
In terms of the share of the GDP, the services sector contributed more to the aggregate GDP in Q3 2024 compared to the corresponding quarter of 2023.
Requiem for manufacturing
However, the narrative is different for manufacturing whose contribution to GDP shrunk to the lowest in four years in the first nine months of 2024 as operators battle to stay afloat amid rising operating costs, data from NBS shows.
The sector’s contribution to the GDP in Q3 2024 declined to 8.21 percent from 8.42 percent in the corresponding period of 2023. The sector in Q3 2024 contributed 8.59 percent and 8.42 percent to the GDP in Q3 2022 and Q3 2021, respectively.
Analysts at FBNQuest Capital Research said in a note that the sector’s progress has been constrained by multiple macro-headwinds, including the adverse impact of high inflation on household wallets and operating costs, high-interest environment, and naira volatility.
“The sector posted another sluggish growth,” the Analysts said, noting that several multinational companies have exited the Nigerian market due to the tough business environment.
The Central Bank of Nigeria (CBN) last week raised its benchmark interest rate by 25 basis points to 27.50 percent as manufacturers still struggle with the high interest rate amid rising production costs.
Muda Yusuf, chief executive officer, of the Centre for the Promotion of Private Enterprise (CPPE) said it is troubling that despite the declining growth performance of many critical sectors of the economy as evidenced in the third quarter GDP report, the Monetary Policy Committee (MPC) continued its tightening stance.
Mixed challenges
Earlier, MAN had revealed that the inventory of unsold products in the manufacturing sector rose to N1.24 trillion in the first half of 2024 from N272 billion in the same period of last year, MAN’s latest half-yearly review report shows.
The manufacturers association attributed the rising unsold products to low consumer spending, weaker naira, and the impact of the subsidy removal.
“The high levels of unsold inventories reflect the challenges faced by consumers and the need for interventions to stimulate demand and improve the sector’s performance,” the report said.
The manufacturing sector employment generation capacity continued to decline, with only 2,606 jobs created in H1 2024, a 29.99 percent reduction from H2 2023.
Job creation fell by 37.83 percent year-on-year, reflecting the ongoing challenges within the sector, including economic uncertainties, inflationary pressures, and an unfavourable business environment.
According to the report, some sectors showed resilience and growth, while others struggled with declining production values, and reduced employment.
Capacity utilisation in Nigeria’s manufacturing sector showed a slight decline year on year from 56.5 percent in H1 2023 to 56.4 percent in H1 2024 however there was a 2.8 percent increase compared to H2 2023, reflecting some recovery.
“The sector also faced significant challenges, including high energy costs due to a 200 percent increase in electricity tariffs, forex scarcity, and declining consumer demand.
“These factors collectively resulted in elevated operational costs and a difficult business environment for manufacturers,” said the report.
In real manufacturing production value, Nigeria’s output declined by 1.66 percent year-on-year in H1 2024, falling from N1.36 trillion in H1 2023 to N1.34 trillion.
The manufacturers also lament that rising electricity tariffs, exchange rate volatility, and higher energy costs, which heightened production costs amidst declining consumer demand and the persistent increase in interest rates by CBN strained the sector.
An increase in electricity tariffs by over 200 percent imposed by DisCos significantly raised the cost of electricity for manufacturers, and the ongoing power outages placed additional financial strain on the sector.
The cost of providing alternative power continued to rise, with manufacturers spending N238.31 billion on alternative energy sources in H1 2024, a 7.69 percent increase from H2 2023.
According to the report, the surge in costs was driven by higher prices for diesel, gas and other energy sources and the need for manufacturers to invest in self-energy generation due to unreliable power supply from the national grid.
Financial pains
The MAN had disclosed that 16 major manufacturing firms suffered losses amounting to N792 billion between 2023 and 2024.
According to data from the companies’ annual reports, Nigerian Breweries spent N173.4 billion on loan repayments in H1 2024, however, a decline from N189.7 billion spent in the first half of 2023. BUA Cement spent N114.3 billion on repaying loans which occurred as term loans, overdrafts, and debt securities.
Notore Chemical Industries spent about N104.4 billion in interest payments during the half-year, in contrast with N33.1 billion spent on principal and interest payments in H1 2023.
Nestle Nigeria spent N77.3 billion on repaying some of its bank loans even as the company received about N69.2 billion in new loans during the half-year. International Breweries spent about N598 million on paying back loans in the first half of 2023, however, this figure ballooned to about N69.7 billion in the first half of 2024.
Way out
Odiri Erewa-Meggison, chairman of the Manufacturers Association of Nigeria Export Promotion Group (MANEG), said that the potential consequences of the decline to the economy arising from the shrinking manufacturing sector are numerous.
These range from unemployment, loss of revenue to the government in terms of taxes, social vices from the unemployed youths, increased crime rate, and increase in poverty between the rich and the poor or vulnerable.
Erewa-Meggison said the ways to mitigate these consequences to boost the sector’s contribution to the GDP are if the necessary interventions are put in place by the federal government.
“These include; lowering the cost of borrowing and energy, curbing the problems of insecurity, providing the infrastructure and stabilising the exchange rate,” she said.
“To expedite the implementation of existing incentives targeted at boosting the manufacturing and export value chain,” she added.
The manufacturing sector comprises thirteen activities: oil refining; cement; food, beverages, and tobacco; textile, apparel, and footwear; wood and wood products; pulp paper and paper products; chemical and pharmaceutical products; non-metallic products; plastic and rubber products; electrical and electronic; basic metal and iron and steel; motor vehicles and assembly; and other manufacturing.
Erewa-Meggison observed that the sector can still contribute meaningfully to economic growth by creating jobs for the youths.
According to her, “Even with the inadequate level of performance, the sector is the highest on employment generation and contribution to government revenue through tax payment of both company income tax and personal income tax paid by employees of the manufacturing sector.
“Since Nigeria is dependent on oil exports, if manufacturers can expand then it will create an avenue for other sources of income that will contribute to economic growth.”
The MAN reports underscore the urgent need for Nigeria to implement decisive and coherent economic reforms to address these challenges that Nigeria’s manufacturing sector faced in the first half of 2024.
The success of these reforms will be crucial in reversing the current economic downturn, creating jobs, reducing inflation, and improving the overall welfare of Nigerian citizens, the reports stated.
“The key areas of focus include enhancing policy consistency, improving the business environment, and fostering economic diversification.”
Source: TheWill
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