Manufacturers are more confident in the economy following the latest Manufacturers Confidence Index (MCCI), but there are concerns about the unabated liquidity crisis affecting the productive sector, especially foreign exchange access.
Local producers are concerned that the recent controversy over the control of Value Added Tax (VAT) between the Federal and State governments will take a huge toll on their businesses, given the weakening currency, which is already trading at N535 to the dollar, as well as the effect of inflation on household incomes.
The difficulties in obtaining currency for the importation of raw materials and machines that are not available locally has been a major barrier for manufacturers, according to the latest MCCI released by MAN yesterday.
According to local manufacturers, the severity of the FX crisis has increased since the commencement of the COVID-19 pandemic in the early quarter of 2020, particularly as the value of the Naira has deteriorated.
They further stated that, despite the fact that the Central Bank of Nigeria (CBN) has constantly engaged in the forex market (both official and BDC windows), the impact has been little, especially in the second quarter of 2021.
As a result, according to the MCCI, 52% of manufacturers polled during the fieldwork for the second quarter, MCCI disputed that the rate at which forex was supplied improved, 30% of operators were unsure, and only 18% agreed that the rate had improved.
Therefore, MAN said it was critical that the Central Bank of Nigeria (CBN) accelerate the review of forex management procedures to ensure that the available foreign exchange in the country was efficiently used.
The MCCI revealed that the economy’s performance in the second quarter of 2021 built on the gains made in the first quarter, following a particularly challenging period brought on by the COVID-19 epidemic. Business operations looked to have stabilized in the period under review.
As a result, despite the fact that macroeconomic variables such as the exchange rate, lending rate, and inflation rate remain unfavourable, businesses have been able to keep operating, particularly at the level seen in 2019 when COVID-19 arrived in 2020.
The aggregate MCCI grew to 52.9 points in the second quarter of 2021 from 49.1 points in the first quarter of the year, owing to stronger economic conditions.
The index value achieved and over 50 neutral points for the first time since the first quarter of 2020, when it was 44.4 points, implying that the macroeconomic environment improved in the second quarter of 2021. Therefore, the performance indicated an increase in manufacturers’ confidence in the economy.
Manufacturing indicators, production and distribution expenses climbed by 21% in the second quarter of 2021, compared to a 22% increase in the first quarter of the year, showing a 1% decrease between the quarters.
Capacity utilization fell by 8% in the second quarter of 2021, compared to a 4% drop in the first quarter. Production volume fell by 8% in the second quarter of 2021, compared to a 5% drop in the first quarter.
In addition, manufacturing investment fell 15% in the second quarter of 2021, compared to 17% in the first quarter, and employment fell 9% in the second quarter, compared to 14% in the first quarter.
Similarly, sales volume fell 8% in the second quarter of the year, compared to an 8% drop in the first quarter, while transportation costs rose 20% in the second quarter, compared to a 26% increase in the first quarter.