2010: Gloomy Year for Manufacturing Sector?
THE year 2010 may not be a better time for the nation’s manufacturing sector currently smarting from the effects of the inclement business environment that has prevailed in the country since the last two decades. Why? Because nothing has changed. Instead of getting better, things will get even worse for the sector as critical indicators have revealed.
Last year was indeed a bizarre one for manufacturers and industrialists in the country as many of them yielded to the excruciating pressure of the harsh operating environment and closed shops, while others are just marking time.
According to the Manufacturers Association of Nigeria (Man), the manufacturers’ umbrella body in the country, over 860 companies closed shops.
The ones currently in business are the multinationals, which have moved their core businesses to neighbouring West African countries where cost of doing business is relatively low. Although many of them have denied that they have moved out of the country, they are only doing skeletal business to placate the government that they are committed to the economic development of the country.
The global recession led to the closure of the industries as unfavourable conditions lingered, particularly for companies which depend on importation to survive and had to spend more foreign currency.
Though the sector has not been free of crisis lately, the recession did more harm as there was a noticeable drop in the sector’s contribution to the Gross Domestic Product (GDP), as compared to 2008 as confirmed by data from both the Central Bank of Nigeria and the National Bureau of Statistics for the third quarter of last year.
Comparing the sector’s contribution for the same period (third quarter) in 2008 and this year, the agencies noted that manufacturing activities have dwindled as most companies have left the shores of the country or either closed shop due to manufacturing hardship.
The situation is not likely to get better.
The failure by the federal government to deliver on her promise to produce 6,000 mega watts of electricity by December 31, 2009 will worsen the state of the manufacturing sector.
The epileptic power supply is the strongest variable in the high of doing business in the country. And as long as manufacturers continue to provide their basic infrastructure like power, it will not be easy for them this year.
The planned deregulation of the down-stream sector will in the short-run trigger increase in the price of petroleum products. A large proportion of manufacturers use AGO (diesel) to power their generators; this and the recent in price hike in gas by Gaslink Nigeria Limited, will add to the cost of production.
The objectives of infrastructure programme as articulated in the 2010 budget is a long-term project will not be realized this year. In the budget the government made provision for construction of new railings, road construction and improvement of basic infrastructure to enhance business activities in the country.
The ongoing crisis in the banking sector has dried-up credit lines to manufacturers as banks are not lending. Inflation rate is moving in all direction but downwards. The foreign exchange market, which for almost a year now has been stable, suddenly lost ground against major traded currency and has not been able to recover. The CBN effort to stem the market failed to achieve set objective as the naira dipped further against the United States dollar.
The global economic meltdown, which has ravaged many developing countries, has not abated yet. The International Monetary Fund (IMF), had in its April edition of Economic Outlook, predicted that Nigeria‘s average growth rate would slow to 4.8 per cent between 2009 and 2014.
The World Bank, recently, predicted a tough time for African countries and emerging economies.
According to IMF and World Bank, emerging and developing economies are expected to suffer serious setbacks as growth is expected to slow to 6.75 per cent in China and 5 per cent in India .The average growth rate for developing countries is expected to decline from 7.44 per cent over past five years to a projected 5.33 per cent over the next five years. These are already manifesting in the country as has been reflected in 2010 federal budget.
Last year was indeed a bizarre one for manufacturers and industrialists in the country as many of them yielded to the excruciating pressure of the harsh operating environment and closed shops, while others are just marking time.
According to the Manufacturers Association of Nigeria (Man), the manufacturers’ umbrella body in the country, over 860 companies closed shops.
The ones currently in business are the multinationals, which have moved their core businesses to neighbouring West African countries where cost of doing business is relatively low. Although many of them have denied that they have moved out of the country, they are only doing skeletal business to placate the government that they are committed to the economic development of the country.
The global recession led to the closure of the industries as unfavourable conditions lingered, particularly for companies which depend on importation to survive and had to spend more foreign currency.
Though the sector has not been free of crisis lately, the recession did more harm as there was a noticeable drop in the sector’s contribution to the Gross Domestic Product (GDP), as compared to 2008 as confirmed by data from both the Central Bank of Nigeria and the National Bureau of Statistics for the third quarter of last year.
Comparing the sector’s contribution for the same period (third quarter) in 2008 and this year, the agencies noted that manufacturing activities have dwindled as most companies have left the shores of the country or either closed shop due to manufacturing hardship.
The situation is not likely to get better.
The failure by the federal government to deliver on her promise to produce 6,000 mega watts of electricity by December 31, 2009 will worsen the state of the manufacturing sector.
The epileptic power supply is the strongest variable in the high of doing business in the country. And as long as manufacturers continue to provide their basic infrastructure like power, it will not be easy for them this year.
The planned deregulation of the down-stream sector will in the short-run trigger increase in the price of petroleum products. A large proportion of manufacturers use AGO (diesel) to power their generators; this and the recent in price hike in gas by Gaslink Nigeria Limited, will add to the cost of production.
The objectives of infrastructure programme as articulated in the 2010 budget is a long-term project will not be realized this year. In the budget the government made provision for construction of new railings, road construction and improvement of basic infrastructure to enhance business activities in the country.
The ongoing crisis in the banking sector has dried-up credit lines to manufacturers as banks are not lending. Inflation rate is moving in all direction but downwards. The foreign exchange market, which for almost a year now has been stable, suddenly lost ground against major traded currency and has not been able to recover. The CBN effort to stem the market failed to achieve set objective as the naira dipped further against the United States dollar.
The global economic meltdown, which has ravaged many developing countries, has not abated yet. The International Monetary Fund (IMF), had in its April edition of Economic Outlook, predicted that Nigeria‘s average growth rate would slow to 4.8 per cent between 2009 and 2014.
The World Bank, recently, predicted a tough time for African countries and emerging economies.
According to IMF and World Bank, emerging and developing economies are expected to suffer serious setbacks as growth is expected to slow to 6.75 per cent in China and 5 per cent in India .The average growth rate for developing countries is expected to decline from 7.44 per cent over past five years to a projected 5.33 per cent over the next five years. These are already manifesting in the country as has been reflected in 2010 federal budget.
