By Adegbenro Barakat Opeyemi(SIWES Student, Moshood Abiola Polytechnic)
The Manufacturers Association of Nigeria (MAN) has highlighted the mounting pressure on manufacturing companies due to the burgeoning inventory of unsold goods, exacerbated by currency fluctuations and high production costs.
This trend poses a threat to the sector’s survival, leading to job losses and factory closures.
MAN’s first-quarter industry outlook for 2023 identified persistent operational challenges, including gas supply inadequacies, soaring gas and power costs, and erratic power supply.
The Nigerian Foreign Exchange Market saw a staggering 254% decline in the value of the naira since the Central Bank of Nigeria (CBN) liberalized the currency in June 2023, according to Financial Vanguard’s research.
The outlook also underscores escalating transportation expenses, the adverse impact of insecurity, and limited access to long-term financing for manufacturing activities.
The naira’s exchange rate plummeted from N471 per dollar to N1,665.50 by February 23, 2024, marking a 253.6% decline since flotation.
The forex crisis, coupled with surging energy prices, has fueled inflation, eroding consumer purchasing power and dampening demand for goods.
MAN’s Director General, Segun Ajayi-Kadir, attributed the overflow of unsold products to exchange rate instability, inflation, counterfeit goods, smuggling, and macroeconomic challenges.
Ajayi-Kadir revealed that manufacturers primarily source foreign exchange through Bureaux De Change (BDCs), as banks typically provide less than 20% of the required amount.
The International Monetary Fund (IMF) anticipates a further 35% depreciation of the naira in 2024, with inflation projected to peak at 44%.
Manufacturing firms have resorted to various strategies to mitigate the crisis, including investment in backward integration for local raw material sourcing.
However, some have downsized operations or halted production due to erratic power supply and exorbitant production costs.
In response to the forex crunch, Nigerian Breweries (NB) Plc and BUA Sugar Refinery Limited have adjusted prices, citing rising input costs.
Major corporations like Unilever Plc and Nestle SA have curtailed production in Nigeria, citing dollar scarcity hindering profit repatriation and backlog clearance for debt payments and raw material imports.
Dollar scarcity is just one of the myriad challenges confronting Nigerian companies, alongside unreliable electricity and port congestion.
