…Expect the reduction in multiple taxes affecting manufacturing companies, based on the recommendation of the Presidential Fiscal Policy and Tax Reforms Committee, will also support the sector’s growth.
THUR, DEC 28 2023-theGBJournal|The Manufacturing sector grew slower in the third quarter of the year by 0.48% y/y relative to the 2.20% y/y growth in Q2-23, mirroring the heightened production costs worsened by rising energy costs and currency pressures.
On currency pressures, we highlight that the liberalisation of the FX market implemented by the CBN caused the naira to depreciate significantly and cross the psychological threshold of NGN1,000/USD in the parallel market.
At the same time, the underwhelming performance in the oil-refining (-37.01% y/y vs Q2-23: -35.56% y/y) sub-sector continues to drag the sector’s growth.
On the flip side, the Cement (+4.20% y/y vs Q2-23: +3.34% y/y) and Chemical & Pharmaceutical (+6.77% y/y vs Q2-23: +6.41% y/y) sub-sector performed positively in the period.
Like the Agriculture sector, the low growth in 2023FY should serve as a plus for the Manufacturing sector over 2024FY.
Besides, the coming onstream of the Dangote refinery may likely push the oil refining sub-sector into growth after 18 consecutive quarters of contraction.
Consequently, we estimate the Dangote refinery will add c.104bps to the Manufacturing GDP growth in 2024FY.
In addition, Cordros Securities say they expect the reduction in multiple taxes affecting manufacturing companies, based on the recommendation of the Presidential Fiscal Policy and Tax Reforms Committee, will also support the sector’s growth.
That said, moderation in aggregate demand exacerbated by the highly inflationary environment, currency pressures, albeit lower than 2023FY levels, and elevated interest rates are downside risks for the Manufacturing sector in 2024FY.
On a balance of factors, Cordros estimate the Manufacturing sector will grow by 2.36% y/y in 2024FY (2023FY: +1.62% y/y)
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