Introduction & Pleasantries
Distinguished members, Gentlemen of the Press, Ladies and Gentlemen, I welcome you to this Press Conference organized as part of activities of the 48th Annual General Meeting of the Manufacturers Association of Nigeria.
This year marks a turning point not only in the economy but also in the day to day activities in our respective lives. As you already know, countries including Nigeria are experiencing the adverse effect of COVID 19 pandemic which is negatively impacting the world economy and the way we do things. This development explains the reason we are having a virtual AGM instead of the usual gathering of all members of this great Association and our esteemed invited guests for the first time in about fifty years.
2020 in Preview
MAN is aware of the unprecedented trauma that this pandemic has unleashed on human lives, businesses, health systems, institutions and economies around the world. To this end, I sincerely appreciate members of MAN for their support to government when it was most needed to provide palliative as a way to cushion hardship experienced by Nigerians and to contain the spread of Covid-19. From our record, manufacturers donated about N8 billion in cash and N300 million naira worth of palliative materials to both Federal and States Governments. We are sincerely grateful to our frontline health workers and other service providers for their commitments, sacrifice and service to humanity.
On our part, MAN remains resolute to continuously support its members in their pursuit to explore business expansion opportunities to navigate the current challenging times confronting the industry due to Covid-19. Through strategic partnerships, the Association has embarked on a number of engagements that will lead to immediate relief and long- term success to Nigeria's manufacturing ecosystem in the areas of intra-trade facilitation, renewable energy, and local raw material sourcing amongst others.
From all indication, it is clear that Nigeria was not immune to this challenging time as the world manufacturing also experienced inconsistency in production growth indicating an overall economic slowdown, which resulted in job losses, decline in consumer demand and a general deterioration in living standard.
The Nigerian Economy & The Manufacturing Sector
So far in 2020, the performance of the economy has been fragile and slowly sliding into recession. Our Economic outlook for the first quarter 2020 found maximum expression in the actual performance of economic indicators, as economic activity in the year was disrupted by the spiral effects of the pandemic.
This pandemic disrupted the global supply chain, caused a massive slowdown in the international trade and in our case worsened the already fragile economy. The consequence of this development was that sectoral groups ran short of supplies of raw materials due to disruptions in the global value chain and many still cannot access forex. The global price of crude oil also crashed leaving the country with no choice than to review downward its expenditure plan for the year.
The manufacturing sector performance that was expected to be strong having recorded an impressive performance in the 4th quarter of 2019 on account of border closure suffered a huge setback. In the same vein, inflationary pressure remains a source of concern as COVID-19 disrupted the demand and supply side of the global economy.
The pandemic created unprecedented challenges for economies across the globe as the period under review recorded an unprecedented distortion in the value chain as countries directly or indirectly shut their borders and imposed export restrictions on critical raw materials while some imposed outright ban on food, pharmaceuticals and other essentials.
For Nigeria, the outcomes include lockdown, near shut down of the operations of 8 manufacturing sectoral groups, disruption in supply chain, inventory of unsold items and loss of jobs.
Arising from the scenario, the expectation is that inflation, interest and exchange rates will jointly trend upward from their current states in differing magnitude of between 15% and 18% and the rate of unemployment will double, reaching the 50% mark for the first time in our history.
Suffice it to point out that MAN CEO Confidence Index (MCCI) fell significantly to 44.4 points in the first quarter of 2020 as against 51.9 points recorded in the fourth quarter of 2019; thus, affirming the negative impact of the outbreak of COVID-19 pandemic on the confidence of manufacturers in the period.
To cushion the effect, Government introduced a number of impressive initiatives in form of economic policies, schemes and projects aimed at encouraging businesses and consolidating prior achievements.
Among such commendable government initiatives in the year are specific stimulus packages such as N50 Billion facility for SMEs and Households, N100 Billion for Healthcare and Pharmaceuticals, and N1Trillion for Manufacturing and Agricultural sectors.
This is expected to boost the performance of the manufacturing sector so as to overcome the current challenge and for companies to sustain their operations instead of experiencing further decline in production.
MAN commends the Government for the initiative towards unifying foreign exchange windows in the country, however, we urge the CBN to ensure that the unavoidable shocks that would result from multiple exchange transition to a single exchange regime are properly managed to have minimal effect on the sector. Particularly, the burden of foreign currency denominated loans and offsetting of existing credit commitments to foreign suppliers of raw materials should be given priority consideration.
It is our conviction that the foreign exchange unification initiative will engender a regime of a balanced participation for forex users and promote a transparent as well as efficient allocation of forex required for sustained economic growth.
Concerns of the Manufacturing Sector
Data obtained from manufacturers revealed that some of these initiatives though hold long-term benefits but necessitated tougher business decisions to mitigate the short-term impact on the manufacturing sector performance. These divergent scenarios underscored the policy short-term volatility and the persistence of familiar manufacturing challenges.
Interestingly, downward movement of key economic indicators reinforced the need for more proactive initiatives as against reactive initiatives. For instance, while the aggregated economy recorded a positive growth as indicated by increase in real national output to 2.39% in 2019 from 0.81% in 2018, manufacturing sector growth plunged significantly to 0.77% in 2019 from 2.09% recorded in 2018 (NBS). The dwindling manufacturing performance was substantiated by capacity utilization in the sector which slowed to 56.8% in 2019 from 57.8% achieved in 2018.
In addition, the quarterly Manufacturers CEOs Confidence Index (MCCI) which was launched in the first quarter of 2019 to gauge perception of CEOs of member companies on the economy and the state of the manufacturing sector using pre-determined factors, economic policies and operating environment parameters. MCCI averaged 51.2 points in 2019, an indication of a meagre 1.2 points above the 50-points performance threshold thus signifying that the manufacturing sector is still struggling. This shows that the sector is still in need of a comprehensive and integrated support system from the government.
Gentlemen of the press, esteemed members, Ladies and Gentlemen, we are aware of the numerous challenges responsible for the persistent lackluster performance of the manufacturing sector. However, it is expedient that I mention some of these challenges that have mostly impacted manufacturing concerns as contained in the feedbacks from the MAN CEOs Confidence Index report. These include the fact that:
? Manufacturers are increasingly finding it difficult to source foreign exchange for the importation of raw materials, machinery and spares that are not available locally;
? Inventory of unsold finished manufactured products has risen to an all-time high of about N402.4 Billion confirming the reality that the disposable income of the consumers has been grossly eroded;
? Manufacturers are still inundated with numerous, oftentimes duplication of demands from the tiers of Government in form of taxes, levies, fees, permits, etc;
? Manufacturing companies are continually overwhelmed with multiple regulations from different regulatory agencies and excessive drive for revenue by government agencies;
? Dearth of trade facilitation infrastructure, poor access to the nation’s sea ports and longer turnaround time for clearance of cargo collectively stifle the smooth operations of manufacturing concerns;
? Inadequate electricity supply and incessant increases in tariff without commensurate improvement in generation, transmission and distribution remain key challenges;
? The manufacturing sector spent over N67.38b on self-generated electricity with energy cost accounting for over 38% of production cost in 2019; and
? Genuine exporters are still being owed huge sums of money as backlog of unpaid outstanding from the Export Expansion Grant scheme.
As customary, our Association made series of submissions to Government on these challenges accompanied with suggestions on how to resolve them. It is gratifying to note that government has given due attention to some of these challenges.
? Reduce the financial pressure on companies occasioned by COVID-19 by compensating manufacturing concerns that are forced to shut down with 60% of employees’ salaries for at least three months to prevent laying offs of employees and massive unemployment.
? Support manufacturing concerns with existing loan facilities by reviewing the terms, especially reducing interest rates to 5% with 2years moratorium. For manufacturers that are investing in order to scale up production should be granted loans at 5% interest rate for a period of 5 to 7 years. These will no doubt improve liquidity and ramp up productivity in the manufacturing sector in a manner that will cover up for obvious losses due to COVID-19.
? Prevail on the Central Bank of Nigeria (CBN) to extend its COVID-19 Stimulus packages to manufacturers not covered by existing CBN initiatives. The CBN should also grant manufacturers increased access to Foreign Exchange at pre COVID-19 rate to support the importation of raw materials, machines and spares that are not available locally.
? Introduce fiscal measures by waiving import duties on Active Pharmaceutical Ingredients (APIs), other essential products and food related raw materials for one-year effective April 2020;
? Extend timelines for filing and paying taxes (including excise duty with a provision that it should be based on sales and not production) by 6 months after the economy returns to normalcy.
? Reverse the Value Added Tax Rate back to the pre 2020 Finance Act rate and reduce the Personal Income Tax to a flat rate of 10% for one-year effective April 2020. This will improve the disposable income of Nigerian workers, stimulate consumption, promote an upsurge in demand and increase production output.
? Direct all Regulatory Agencies, especially Standards Organizations of Nigeria (SON), National Agency for Food and Drugs Administration & Control (NAFDAC) to reduce their respective administrative charges (Pre-COVID-19 rates) payable by manufacturing concerns by 50%.
? Direct the Nigeria Customs Service, the Nigerian Ports Authority and other related agencies of Government to treat all requests from Manufacturers expeditiously with great sense of responsibility and understanding of the prevailing situation. As a matter of urgency, direct that cargoes containing manufacturing raw materials are cleared swiftly and ensure compliance with additional free days from the terminal and shipping lines to clear the containers to avoid demurrages as already announced.
? Grant manufacturers waivers from all demurrages payable between February and July 2020, especially those occasioned by the lockdown directives of Government and others associated with COVID-19 pandemic.
Gentlemen of the press, we commend the Government for a number of incentives put on the table to reflate the economy. We consider these initiatives to be in the right direction
These packages expressed Government’s intention to improve access to affordable long-term loans, sustain manufacturing and further promote inward-looking policies with a view to building a self-reliant economy.
While looking forward to the release of implementation guidelines for some of the stimulus packages to spell out the conditions/transmission mechanism for their implementation and ensure transparency, the Association will engage the CBN to provide vital information on how banks will be supported to guarantee business continuity and expansion
Finally, we also thank the Government for constructive engagement with MAN on the AfCFTA. However, MAN has some few concerns on the trade in Goods Market access. There is a major concern on the Rules of Origin. Why MAN appreciates a simple, transparent and flexible Rules of Origin, it is important for extensive engagement with the productive sectors before finalization of the Agreement.
I thank you all for your attention.
ENGR. MANSUR AHMED