BUA, others set to push manufacturing output to N7tn

New factories built by BUA Cement and African Glass Limited as well as five new paper mills that recycles wastepaper into carton drove up manufacturing output in Nigeria in the second half of last year, industry data have shown, says a report by Economic Confidential.

Manufacturing sector production output increased by almost 60 percent to N7.03 trillion in 2021 from N4.42 trillion in 2020, the Manufacturers Association of Nigeria (MAN) said in a new report on Thursday. It increased to N3.73 trillion in the second half of 2021 from N2.36 trillion in the same half of 2020.

MAN’s 2021 second-half economic review revealed that manufacturing investments soared by 83.2 percent in 2021 to N217.22 billion from 118.52 billion in 2020.

Capacity utilisation in the sector averaged 58.9 percent in 2021, up from 49.5 percent a year earlier.

The increase in manufacturing capacity utilisation and investments was attributed to the gradual recovery of business and economic activities as efforts were intensified to contain the COVID-19 pandemic.

“In addition, there are increased capacities in the paper subsector brought in by five new paper mills that are into recycling of waste papers to produce cartons. Also are the additional capacities as BUA Group introduced a cement factory in Sokoto and the new African Glass Limited factory that produced glass products,” it said.

The association, however, said manufacturing activities in the non-metallic minerals sector had been persistently low following the exclusion of some of the raw materials imported for glass production from the official foreign exchange window.

“The situation is worsened by the limited availability and high cost of prospecting for local development raw materials in the country. Capacity utilisation in the sector averaged 49.5 percent in 2021 as against 49.9 percent in 2020,” the manufacturers said.

A total of 16,110 jobs were created in the sector last year while 4,451 jobs were lost, according to the report.

“The net job created in the sector in 2021 stood at 11,659 while a net job loss in 2020 was 3,257. The trend thus shows that manufacturing jobs are also rebounding following the gradual return of economic activities in the sector after a year onslaught brought by COVID-19 pandemic,” MAN said.

Last year, Flour Mills of Nigeria announced its acquisition of an additional 5,200 hectares of land at Sunti which expanded the total land size of Sunti Golden Sugar Estates to 22,000 hectares.

Olam said its subsidiary Crown Flour Mill Limited launched a N300 million ($750,000) 10-year project to set up community seed enterprises for Nigerian farmers to increase their production of wheat.

Local sourcing of raw materials in the sector dipped to 52.4 percent in 2021 from 57.5 percent in 2020, according to the report.

“Since the full opening of the economy following the lockdown associated with COVID-19 pandemic, local raw materials and other manufacturing inputs have been relatively scarce and costly. This has also affected the output of the sector negatively,” MAN said.

It stressed the need to improve and reposition the sector back as the engine of growth.

According to the association, there is a need to maintain those policies and formulate others that will encourage investments, especially on the stability of exchange rate, development of local raw materials, and protection of lives and properties, among others.

“The manufacturing sector is very important in a growing economy but Nigeria’s manufacturing sector is currently struggling with a myriad of challenges. This data was for 2021 but since the beginning of this year, things have gotten worse; so there are fears that these improvements recorded may not be sustainable this year,” Jide Babatope, a Lagos-based analyst, said.

According to him, manufacturers are battling with a widening supply-demand gap, acute shortage of FX for transactions, continuous depreciation of the naira, and surging cost of production, among others.

He said except things improve going forward, manufacturers may not be able to maintain this kind of growth going forward.

MAN CEOs Confidence Index, which was recently released, declined to 53.9 points in the first quarter of 2022 from 55.4 points in the fourth quarter of 2021, as macroeconomic conditions and global crisis took a toll on the sector.

“Contributory factors to the decline in the index score for the first quarter of 2022 include eroding disposable income of consumers, the immediate impact of the Russian invasion of Ukraine as seen in the hike in price of diesel, wheat and other imported manufacturing inputs the persistent acute shortage of forex, insecurity, high interest rate, excessive drive for revenue by Government,” the association said.

Since Russia’s invasion of Ukraine in February, manufacturers in Africa’s largest economy have suffered production hiccups as the supply of raw materials was disrupted and the price of diesel, a major source of energy, surged by over 92 percent, causing a surge in the cost of production.

“Notwithstanding the improved performance of the manufacturing sector during the year, it is still far beyond its potential growth and contribution to national output due to an almost innumerable challenges confronting the sector,” MAN said.

The association urged the government to create plausible incentives for investment in the development of raw materials locally through the backward integration and resource-based industrialisation initiatives.

“Industrial policies in the country should be allowed to gestate with proper monitoring and evaluation rather than jettisoning or altering them frequently while the implementation of Executive Order 003 must be properly monitored to ensure compliance by MDAs in order to boost activities in the manufacturing sector,” it said.

 Economic Confidential