Companies groan as poor policies erode profits

A manufacturing factory in Nigeria

…as many foreign companies embark on divestment

By AYOOLA OLAOLUWA

Nigeria’s business communities are groaning over the state of the economy amidst economic downturn, investigation by Business Hallmark revealed. Though, the National Bureau of Statistics (NBS), after reviewing the nation’s Gross Domestic Product and other related economic performance numbers, had declared in March 2018 that Nigeria is officially out of recession, checks revealed that the reported growth was largely due to the surge in the price of crude oil.

Meanwhile, the manufacturing and financial sectors are struggling for survival. According to findings, Corporate Nigeria, the main driver of economic growth, has suffered tremendous neglect since the advent of the President Buhari’s administration on May 29, 2015.

Apart from the administration’s obvious sidetracking of the business community in economic and business matters, many of its policies have also impacted negatively on the sector.

The Director General of Lagos Chambers of Commerce and Industry, Dr. Muda Yusuf, blamed some of the problems the nation is going through on the current administration’s slow start in building the economy. According to Yusuf, absence of an economic blueprint was one of the concerns of the private sector in the early days of the administration.

He also blamed the late formation of a cabinet as well as the peculiar late passage of budgets on the part of government as an anathema to economic growth.

Yusuf said that the manufacturing sector experienced some major challenges during the past three years of the current administration.

“The factors were both external and domestic. The main external factor was the collapse of oil price which affected forex availability and triggered sharp exchange rate depreciation.  There was very little the government could do to stem that.

“However, the policy component of the problem resulted largely from lack of support, foreign exchange policy choices which aggravated the problem of forex liquidity.  The restriction of 41 items from access to interbank forex market added to the plight of some manufacturing firms. The high interest rate and unfair competition from imported products were also factors that constrained the growth of the industrial sector. High energy cost continued to impede the competitiveness of the sector. Capacity utilization was between 40 – 45% over these periods.

“The good news is that segments of the manufacturing sector that had substantial backward integration capabilities had a very good leverage during the review period.  Such firms became more competitive and more sustainable and profitable. They are largely in the food and beverage categories.

The LCCI boss said the agriculture sector, however, gained government support especially in funding for rice farming and processing.

“However, the pace of mechanization, which can only be handled by the private sector, is still low which was why food prices remain an issue in the country.  It is only mechanized agriculture that would guarantee food security in a country with a population of over 180 million”, the LCCI boss argued.

“The key reforms, especially in respect of the petroleum industry and the infrastructure sectors were also slow in coming. The good news is that the outlook for the short to medium term looks better now than a year ago. The Economic Recovery and Growth Plan (ERGP) launched recently by the President had provided clearer economic policy direction of the administration.  This has improved the level of investors’ confidence and lessened uncertainties”, Yusuf said.

Owing to the president’s annoyance with Corporate Nigeria for its perceived involvement with corrupt politicians to loot the nation’s recourses, the president had severally sidetracked the business community while taking important economic decisions, to the detriment of the nation.

The president had travelled abroad on several occasions for economic meetings, leaving behind reputable businessmen like Alhaji Aliko Dangote, Tony Elumelu, Jim Ovia, Femi Otedola, among others. This action, according to experts, denied the country the much needed expertise to negotiate favourable business deals.

“When you are going for business deals, you go with your best brains, professionals, titans of industries to negotiate the best deals for you, and not the retinue of politicians and hangers on that we usually have on the president’s entourage”, said a disappointed economist who did not want his identity revealed.

The president, probably due to his aversion for the business class, had boycotted several economic Forums and conferences organized by the private sector.

It is on record that the president never graced any of the yearly economic summit organized by The Nigerian Economic Summit Group (NESG). The summit is usually an avenue to brainstorm on moving the nation’s economy forward.

These oversights on the part of the government, checks revealed, came with severe consequences for the nation. For example, less than five years ago, Nigeria celebrated becoming the largest economy in Africa under the former President Goodluck Jonathan. But series of clumsy policies following President Buhari emergence, have sent the Nigerian economy nose diving.

The economy that was growing at almost seven percent before the inauguration of the government entered into a recession in less than 12 months. The collapse of oil price and the activities of the militants in the Niger Delta regrettably compounded the economic challenges, culminating in a recession.

An estimated 11 million jobs have been lost in Nigeria under President Muhammadu Buhari’s administration, leading to the World Poverty Clock, a website that monitors real-time progress against poverty globally, revealing that Nigeria has overtaken India as the world’s headquarters for “extreme poverty”.

According to Trading Economics, a worldwide reference site for economic data and financial markets and the World Bank Bi-annual Economic Update, the rate of unemployment in Nigeria increased steadily throughout 2017, whilst unemployment statistics for Quarter 1 in 2018 stood at 14.2%.

Rattled by the unemployment figures periodically dished out by its own statistics agency, the NBS, the federal government, rather that empowering the private sector to drive growth that will ultimately lead to rise in employment, attempted to battle unemployment with the setting up of  the N-Power scheme in 2016.

The scheme, which is an unprecedented initiative to undertake mass recruitment of young graduates, is already facing hiccups. Reports suggest that the first batch of volunteers, whose two year tenure is ending this month, would soon be thrown back into the labour market to make way for the second batch of recruits.

The Managing Director of Financial Derivatives Company Limited, Mr. Bismarck Rewane, warned that due to the geometric rise in unemployment and underemployment, unemployment rates could rise to 21.5% by Quarter 4 this year.

While the rate of unemployment has continued to get worse, consumer price index also rose to a dangerous level, before it bottomed. The naira was devalued from N197 per dollar to N360 per dollar.

According to the Manufacturers Association of Nigeria, 272 manufacturing firms closed down in Nigeria from 2015 to 2016. While the investment climate has considerably improved, more companies have downscaled or shut down out rightly.

The unfavourable business climate and policies also had a damaging effect on investor confidence with many foreign firms fleeing to safety.

In July 2018, consumer goods giant, Procter and Gamble (P&G), announced that it was closing a $300 million Nigerian plant. According to P&G, the economic policies of the current Nigerian administration made it impossible for it to continue to operate their plant in Agbara in a profitable manner.

Also, British manufacturer, PZ Cussons, the maker of Imperial Leather and Kings Vegetable Oil, whose largest and most diverse single market is Nigeria, recently reported that their annual profits will be lower than expected  because of plummeting losses from Nigeria.

In March 2018, the company issued a profit warning, blaming its poor showing for the last financial year on Nigeria’s economic downturn.

PZ Cussons Chairperson, Caroline Silver, said recently that, “Macro-conditions in Nigeria have resulted in a sharp decline in Africa profits for the year and hence, a disappointing result for the group as a whole.

Earlier this year, British hospitality group, InterContinental Hotels Group Plc, the world’s third largest hotel chain, announced that it was withdrawing from Nigeria after five years of operating in Lagos.

In 2017, Abu Dhabi-based telecommunications giant, Etisalat, left Nigeria due to the Central Bank of Nigeria’s tightening of capital controls leading to a shortage of dollars. With investors continued fleeing Nigeria and capital investment levels remaining low, experts said there is little possibility of market growth with the general elections due to hold in 2019. Other businesses operating in Nigeria have not fared better.

Rather than engage the private sector in the drive for economic prosperity and more resources, the current government, while short of funds, is driving the economy from the debt trap to a debt crisis.

Today, Nigeria’s total public debt has risen from N12.1 trillion early in 2015 to N22 trillion currently. Correspondingly, budget provisions for debt obligations have risen from N0.943 trillion in 2015 to N2.4 trillion in 2018. The country is clearly being run into a debt crisis by the current government.

Presently, all indices of human development in Nigeria are appalling. Over 11 million Nigerians have lost their jobs since the government was inaugurated; 13 million Nigerians children are out of school; 17 million Nigerian children are stunted from malnutrition; 110 million Nigerians now live below the poverty line and total public debt has risen to N22 trillion.