Mass shut down of companies looms

BY EMEKA EJERE

Nigeria may be witnessing mass shutdown of businesses anytime soon if the escalating cost of energy, scarcity of foreign exchange, multiple taxation among other factors conspiring against conducive business environment remain unabated.

The situation, which is taking toll on the profit margin of most companies, has necessitated a culture of steady hike in the prices of most consumer goods and services, with stakeholders raising concerns of possible mass withdrawal of patronage.

Only recently, the pump price of diesel hit a record high of N850 per litre, a figure representing far above a 300 percent increase from the N225 per litre the product went for in January 2021.

This is happening amid incessant national grid collapse that has overtime left the country in darkness, forcing organisations to heavily rely on diesel for their operations.

Last week, oil marketers under the aegis of the Natural Oil and Gas Suppliers Association (NOGASA), alerted that the cost of diesel would keep increasing and might hit N1,500/litre in the next two weeks if nothing drastic was done to curtail the current challenge faced by importers of the product.

According to NOGASA, the only solution to the current challenge was for the federal government to raise the pump price of premium motor spirit (PMS) otherwise known as petrol a little in order to reduce the huge foreign exchange used in its imports, so as to free up some forex for diesel import.

Although the Naira on Friday appreciated marginally at the Investors and Exporters (I&E) window, exchanging at N420.12 to the dollar, a 0.01 appreciation against N420.17 traded on Thursday, the domestic currency depreciated further at the black market on Friday, exchanging at an average of N610 and selling at N613.00 to a dollar, findings show.

Earlier this year, the Minister of Finance, Mrs Zainab Ahmed, hinted that excise duty would be imposed on a range of manufactured goods in the country anytime soon. This is in addition to a number of already existing taxes.

According to investigation by a major national daily report of which was released a fortnight ago, the lingering foreign exchange and power sector crises have contributed to the shutdown of over 50 companies the last five years.

Some of the manufacturing companies that have exited the industry in the last five years include: Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries, and Stone Industries. Others are: Solo Industries, Quick Born Industries, Supercor Industries, Arabi Industries, and Rola Industries. The investigation also revealed that that Peak Aluminium, Phonenix and Wise Machine Industries are no more functional.

Players in the manufacturing sector believe that the number of shutdowns could be more than 50, considering the impact the foreign exchange crunch has had on manufacturers.

According to the Manufacturers Association of Nigeria (MAN), the average interest rate charged on manufacturers in 2020 was 22 per cent and over 20 per cent in 2021. The association further revealed that capacity utilisation, which examines the rate at which manufacturers make use of their installed capacity, has not reached 60 per cent in over 10 years. It was 49.5 per cent in 2020. Capacity utilisation in South Africa was 82 per cent in 2021.

On Friday, bread producers and caterers threatened to withdraw their services nationwide due to the unprecedented increase in bakery materials and the neglect of the insensitivity of the federal government to their plight.

In a communiqué issued by their national body – Association of Master Bakers and Caterer of Nigeria, they stated that the cost of flour, sugar and other materials used in bakery business had skyrocketed beyond the reach of many bakers.

In the communiqué, which was issued after the National Executive Council meeting of the association in Abuja, and seen by our correspondent on Friday, the bakers stated that they would down tools from July 13, 2022.
The communiqué, signed by the association’s executives, led by its National President, Mansur Umar, read in part: “Increase in prices of bakery materials especially flour and sugar having reached unprecedented levels, for example, flour is now between N25,000 and N27,500, so also other ingredients.

“The National Wheat Cultivation Committee already constituted is yet to be inaugurated after over one year. NAFDAC, SON, NESREA have turned the bakers into money making machine by charging our members outrageous levies even at this very challenging moment.

“Consequently, the NEC in session resolved that all zones, state, Local Governments and units of our association should commence full mobilisation of our members nationwide to embark on withdrawal of services starting from Wednesday July 13, 2022 for an initial period of two weeks.”

Speaking on the state of the economy, the chairman of the Gas Group, the Manufacturers Association of Nigeria (MAN), Mr Ola Adebayo, said the federal government’s policies have not translated into positive economy growth and real sector development.

Adebayo said, “One thing I have observed is that policy formulation is different from implementation. With the recent events, I don’t think the government has passed. We only have very good policies on paper, but the implementation has been lacking. Once there is no implementation, it becomes just an idea.”

Ways to go

In a recent CEO Confidence Index conducted by the MAN, more than 50 heads of corporate organisations suggested ways of preventing factory shutdowns and galvanising the manufacturing sector.

They said, “Government must incentivise investment in the development of raw materials locally through the backward integration and resource-based industrialisation initiatives.”
They urged the government to ensure effective allocation of available forex to productive sectors, particularly the manufacturing sector while sustaining the eligible customer initiative to ensure that more electricity was supplied to the manufacturing sector.

They further said, “It is important to strengthen the Bank of Industry and Bank of Agriculture to adequately provide liberal finance for the manufacturing sector. It is also important to monitor the implementation of Executive Order 003 to ensure compliance by MDAs so as to boost activities in the manufacturing sector.”

Meanwhile, the Centre for the Promotion of Private Enterprise (CPPE) has warned that for the federal government’s aspiration of lifting more Nigerians out of poverty to be realised, the burden of tax must not be allowed to become excessive and unbearable on the manufacturing sector.

In a brief titled, “CPPE calls for suspension of planned imposition of excise duties on manufacturers” and signed by its founder and Chief Executive Officer, Dr. Muda Yusuf, the centre noted that given the strategic importance of manufacturing to the Nigerian economy, what the sector needs at this time is more stimulus and not more taxes.

The brief made available to Business Hallmark read: “Earlier this year, the Finance Minister, Mrs Zainab Ahmed, hinted that excise duty will be imposed on a range of manufactured goods in the country anytime soon. But these are very difficult times for manufacturers as they contend with escalating cost of production arising from elevated energy costs, rising operating expenses, sharp currency depreciation, forex market illiquidity, galloping inflation and numerous structural bottlenecks.

“They are also experiencing significant spikes in the cost of raw materials, cost of fund, high import duty, prohibitive cost of transportation and high cost of logistics. A huge proportion of these costs cannot be passed on to the consumers because of weak purchasing power and high consumer resistance. Given the strategic importance of manufacturing to the Nigerian economy, what the sector needs at this time is more stimulus, and not more taxes.

“The cost of diesel has risen by over 300 percent in the past few weeks. It was at an average of N288 per lire in January this year and jumped to as high as N850 per litre in some locations. The cost of gas is similarly on the increase and there are also sharp increases in electricity tariffs.

“Several manufacturers are not able to import vital raw materials because of forex scarcity, a situation which is severely inhibiting their production and productivity. Many are forced to source forex from the parallel market at exorbitant rates. Manufacturers are yet to recover from the shocks of the pandemic and the subsequent recession. Manufacturing contribution to GDP is still less than ten percent. The growth recorded in the sector in the fourth quarter of 2021 was a mere 2.28%, after a contraction of 2.75% in 2020.

“Manufacturers are struggling with unfair competition, especially from products imported from Asia which have flooded the Nigerian market, largely because of the porosity of the borders. These imports are often much cheaper than goods produced locally.

“The cost of logistics has continued to be on the upward trend, driven largely by the state of the roads, the limited freight capacity of the railway system, the crisis at the major ports, the traffic gridlock around the Lagos ports and extortions in the logistics chain.

“The manufacturing sector offers good prospects for job creation and lifting more Nigerians out of poverty in line with the government aspirations. But if the burden of tax becomes excessive and unbearable on this critical sector the realisation of these outcomes by government would be difficult. “

The crisis in numbers

Contrary to the claim of President Mohammadu Buhari, in an interview with Bloomberg on Tuesday that the economy under him is better than it was in 2015, available statistics suggest that the economy is in a much worse state.

Under Buhari, Nigeria experienced two recessions – one in 2016 and another in 2020 fuelled by COVID-19. As at the fourth quarter of 2014, Nigeria’s unemployment rate was 6.2 per cent, according to data by the National Bureau of Statistics (NBS).

But as at the fourth quarter of 2021, the NBS disclosed that unemployment rate in the economy had risen to 33.3 per cent, making it one of the worst in the world and signifying a 437 per cent increase over the seven-year period.

As at May 2015, Naira exchanged for dollars at N197/$ at the interbank market and N217/$ at the parallel market. Today, Naira is N415-N420 to a dollar at the I&E window and around N605-N610 at the parallel market. Petrol subsidy has since risen from N100 million in 2015 to N4 trillion in 2022. Inflation is not spared as prices have risen by over 70 per cent, from 9.01 per cent in 2015 to over 17 per cent in May 2022.
Similarly, in 2018, Nigeria was adjudged by the World Poverty Clock as the world’s poverty capital. According to the World Bank, the poverty rate was 33.1 per cent by the end of 2014/ beginning of 2015, but poverty rate will likely sit at 42.6 per cent in 2022.