Rising prices in Africa’s biggest economy are making many products unaffordable as manufacturers’ inventory of unsold goods rose by 22 percent in one year, according to the Manufacturers Association of Nigeria (MAN).
In the association’s latest half-yearly review report, inventory of unsold finished products in the manufacturing sector increased to N469.7 billion in 2022 from N384.6 billion in 2021.
“The high inventory recorded in the period is attributed to low purchasing power in the economy due to declining real income of households following the continuous increase in inflationary pressures in the country,” it said.
It said this was worsened by naira scarcity, which began in the last quarter of 2022. “The withdrawal of large amounts of the ‘old naira’ without commensurate replacement with the ‘new notes’ resulted in a cash crunch in the economy with very limited means of purchasing items by households across the country.”
Inflation in Africa’s most populous nation has been at a 17-year high since July last year, owing largely to the fallout of the Russia-Ukraine war. In April 2023, it rose for the fourth consecutive time at 22.22 percent from 22.04 percent in the previous month, according to the National Bureau of Statistics (NBS).
The high inflationary pressures also increased the cost of inputs like diesel and foreign exchange, causing the manufacturing sector to decline to 2.45 percent last year from 3.35 percent in the previous year.
Segun Ajayi-Kadir, director-general of MAN, said the downturn in the sector’s performance was connected to insufficient power supply, high cost of diesel and foreign exchange and brain drain that is shrinking the labour force.
Last year, the naira depreciated against the dollar, dropping to as low as 448/$1 from N381/$1 in 2020 at the official market. It depreciated to 740/$1 from N472/$1 at the parallel market.
According to the NBS, diesel prices, which are deregulated in Nigeria, rose by 183.7 percent to N817 per litre in December 2022 from N288 per litre in January.
Chinyere Alomona, director general at Lagos Chamber of Commerce and Industry, said apart from eroding purchasing power, high inflation has led to inventory stockpiles
“If left unchecked, the high inflation may further constrain production, lead to a steeper rise in poverty figures, frustrate economic growth, and lead to higher unemployment and non-competitive exports, especially in the sub-region,” she said.
The MAN report also revealed that the manufacturing sector production’s value dropped by 9.3 percent to N6.67 trillion in 2022 as against N7.39 trillion recorded in 2021. This means that despite cutting output, manufacturers sold less goods last year.
“Manufacturing production was severely affected in the second half of 2022 by absence of implementation of new capital projects by the government as they focused on the election,” the association said.
They added that production was also negatively affected by limited purchases by households due to the naira redesign policy, the high inflationary pressure in the country, high cost of energy, particularly diesel and gas, acute shortage of foreign exchange for importation of raw materials and machinery needs of the sector that are not locally manufactured in the time being and many more.
Ajayi-Kadir of MAN said it is critically important that the challenges identified by manufacturers in the course of the survey are adequate.
He said the Federal Government should improve FX availability by prioritising FX intervention through the official market, particularly to support the raw materials and machine needs of the industries.
“Develop and implement a roadmap for improved power supply focusing on off-grid solutions and independent power projects by the private sector to ensure adequate supply of energy for production and also attract and expand investment,” he added.
Others are to review the current status of the four national refineries to determine their current state, refocus on backward integration and resource-based industrialisation and widen the tax net rather than increasing the tax base or the tax burden of existing taxpayers.