The Manufacturers CEOs Confidence Index (MCCI) report released on Tuesday show that top 200 chief executives of major firms believe they are struggling with power, foreign exchange access, lending rates and regulations.
The report conducted by the Manufacturers Association of Nigeria (MAN) shows that the confidence of the CEOs stands at 51.3 points in the first quarter of 2019.
In terms of foreign exchange access, 41 percent of the CEOs did not agree that the rate at which the sector sources forex has improved. While 36 percent agreed that FX access has improved, 23 percent were not sure.
“The response therefore suggests the need for continuous fine-tuning of forex policy in the country, particularly as it concerns the manufacturing sector,” MAN says in the report.
Adesola Sotande-Peters, vice president of finance at Unilever Nigeria, recently said during a breakfast meeting that the manufacturing sector is highly dependent on the unfavourable foreign exchange which makes companies struggle to access materials for production.
Presently, under the official foreign exchange, a naira is traded for N305 while it is traded for N360 in the black market, leaving manufacturers bearing huge production costs.
Despite the move by the Central Bank of Nigeria (CBN) to cut its benchmark interest rate to 13.5 percent from previous 14 percent in March, manufacturers are still not encouraged to borrow, which has reduced the sector’s capacity to reach potential.
Sixty-three percent of the CEOs do not agree that the rate at which commercial banks lend to manufacturers encourages productivity in the sector.
Manufacturers borrow at above 22 percent today.
Besides the double digit interest rate by banks, manufacturers say a policy should be designed to improve the proportion of commercial banks loanable funds that goes to the manufacturing sector.
Ninety-three percent of CEOs agreed that multiple/over-regulation by all tiers of government Ministries, Departments and Agencies (MDAs) depresses productivity in the manufacturing sector.
Babatunde Ruwase, president of the Lagos Chamber of Commerce and Industry (LCCI), said at a breakfast meeting that “some regulatory agencies are not consistent with the ease of doing business policies, some of which borders on high regulatory compliance cost, lack of clarity in regulatory requirements overlapping regulatory functions among others.”
Also, 89 percent of the CEOs agreed that poor access to national ports and the associated gridlock negatively affect productivity in the manufacturing sector. “The poor scenario accounts for delay in clearance of manufacturing inputs and machinery as well as high demurrage which increases cost of production in the sector and often times put manufacturing concerns in stock-out situations. It is therefore important that Government urgently addresses the difficulty in accessing the national ports, particularly Lagos ports,” MAN says.
The CEOs identified poor electricity and gas supplies/non-reliability of gas supply/scarcity of diesel as the biggest issue.
“Power came out to be the main concern,” Paul Gbededo, chairman of MAN Economic and Policy Group, said.
He explained that manufacturers have found it difficult to rely on public electricity, saying that small industries are the hardest hit.
“The big companies generate their own power, but the small companies struggle,” he said.
“High cost of generating power leads to high cost of production. That is why solving the issue of electricity can see us becoming more competitive,” Gbededo said on Tuesday in Lagos.