Nigeria's manufacturing sector contracts in third quarter
Nigeria's manufacturing sector contracted to 4.38 per cent in the third quarter of the year from 1.75 in the previous quarter.
Tue, 22 Nov 2016 11:08:22 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Manufacturing sector contracts by 2.3% in Q3 due to prohibitive interest rates and Forex challenges
- Scarcity and high cost of Forex, inefficiency in allocation mechanism, and energy costs pose significant challenges for manufacturers
- High-interest rates hinder investment spending and economic stimulus, necessitating a review of the interest rate regime
Nigeria's manufacturing sector has faced significant challenges in the third quarter of the year, contracting by 2.3% from the previous quarter, according to FDC research. This decline does not come as a surprise as manufacturing firms have been grappling with borrowing at prohibitive interest rates, which has squeezed their margins and slowed down activity in the sector. Muda Yusuf, Director-General of the Lagos Chamber of Commerce and Industry, shed light on the persistent issues affecting the manufacturing sector during an interview with CNBC Africa. One of the primary challenges faced by manufacturers is the scarcity and high cost of foreign exchange (Forex). Yusuf emphasized that the structure of the manufacturing sector is still heavily reliant on imported inputs, making it difficult for firms to quickly transition to sourcing local materials. He cited examples such as the cement and food and beverage industries, which took several years to transition to local sourcing. The uncertainty surrounding Forex availability and the inefficiency of the allocation mechanism have further exacerbated the problem. Yusuf highlighted the need for a more transparent and efficient Forex allocation framework to support manufacturers' planning and operations. The issue of high energy costs and gas availability has also been a significant burden on the manufacturing sector. The challenges in the global gas market have led to both limited availability and high costs of gas, adding to the overall production costs for manufacturers. Furthermore, the high cost of energy, coupled with the Forex challenges, has put immense pressure on manufacturers, affecting their ability to remain competitive in the market. Additionally, Yusuf highlighted the impact of high-interest rates on manufacturing businesses, emphasizing that the current rates are hindering investment spending and overall economic stimulus. He called for a review of the interest rate regime to create a more conducive environment for businesses to thrive and contribute to economic growth. The recent contraction in Nigeria's GDP, which recorded a decline of 2.24% in the third quarter, has raised concerns about the country's economic trajectory. Yusuf emphasized the need to stimulate economic activities in the private sector, increase household spending, and enhance the competitiveness of the economy to address the ongoing challenges. Despite ongoing advocacy efforts by industry stakeholders, including the Lagos Chamber of Commerce and Industry, significant changes in policy and regulatory frameworks are yet to materialize. While there is a recognition of the government's concerns around inflation and other macroeconomic indicators, the urgent need to address the challenges facing the manufacturing sector remains paramount. As Nigeria navigates through economic headwinds, prioritizing reforms to support manufacturers and foster investment will be crucial to driving sustainable growth and recovery.