By Audrey Loechukwu
MON, 28 DEC, 2020-theGBJournal- Tough operating conditions inflicted the harshest pain on the manufacturing sector’s growth performance in 2020, and the result left most industry players less competitive in the domestic and regional markets.
Apart from being confronted by several structural challenges, the sector has been struggling with growth in recent years due to COVID-19 disruptions, border closure and FX illiquidity- shrinking by 8.8% at the peak of pandemic in Q2-2020.
The extent of contraction moderated however, to 1.51% in Q3-2020 following lifting of lockdown measures which supported resumption of activities in the sector. Nonetheless, lingering FX crisis was perhaps the most significant challenge for the sector in the outgoing year as most industry players found it increasingly difficult to access FX meant for importation of critical factor inputs.
Moreover, increased pressure on consumer purchasing power threatened the earnings performance of manufacturers in the FMCG space also, which propelled them to revisit their product portfolio in a bid to boost patronage.
These pressures will not relent in 2021, many analysts predict. Their prediction is echoed by the country’s biggest manufacturing mouthpiece, the Lagos Chamber of Commerce and Industry (LCCI).
‘’In our view, credit flows to the manufacturing sector will fail to achieve desired outcomes without putting in place measures to address structural, bottlenecks in the ports and customs processes and other policy challenges to productivity.’’
Addressing the structural bottlenecks such as the ones around the ports and customs processes has become part of the conversation in recent months-even years, following the Federal Government’s failure to resolve the repugnant congestion that clogs the port routes and processes as well as the equally open corruption dominant at the ports.
According to the LCCI, the reopening of the land borders should provide succour to the manufacturing sector even as the kick-off of AfCFTA serves avenue for manufacturers to penetrate new African markets.
‘’However, critical challenges such as FX scarcity, inconsistent FX policies, inefficient transport infrastructure, high production cost, weak consumer demand and the new competitiveness pressure foisted by the AfCFTA may dampen the recovery prospects of the sector in year 2021,’’.
The Chamber projects that the CBN will sustain its intervention efforts in the manufacturing sector as part of measures to boost economic recovery such as credit extension to the real economy. The low interest environment in the money market favours big manufacturing players in terms of raising cheap capital but the business environment will remain challenging for manufacturing SMEs.
‘’Thus, we see growth of the manufacturing sector being subdued in the near to medium term,’’ the Chamber wrote in a note to theGBJournal
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