Worsening economic crisis deepens unemployment woes
Millions of Nigerians graduate from university unable to get jobs

BY EMEKA EJERE

There are strong indications that many more Nigerians may be thrown back into the world of unemployment as businesses in general and manufacturers in particular are lamenting worsening operating environment.

The situation mainly occasioned by energy crisis and scarcity of foreign exchange on one hand and multiple taxes on the other hand, according to stakeholders, is causing the shrinking of many businesses and outright shutdown of others.

Only recently, the pump price of diesel hit a record high of N750 per litre, a figure representing close to 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.

According to a statement by the Association of Bureaux De Change Operators of Nigeria (ABCON), seen by BusinessHallmark on Saturday, the naira was exchanging at 596/dollar at the parallel market and 415.83 to the dollar at the official market, creating a rate gap of N180.17 per dollar.

The ABCON claimed that the depreciation of the naira against global currencies was due to pressure from rising dollar demand without sufficient liquidity to meet the demands from retail end users, manufacturers, and other key players in the economy.

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 last week, the lingering foreign exchange and power sector crises have contributed to the shutdown of over 50 companies in 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 thatPeak 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.

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.”

As a way of intervention, 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 close to 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 N750 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. “

Meanwhile, as the nation continues to grapple with shortage of forex in the economy, ABCON has called on the Central Bank of Nigeria (CBN) to establish BDCs’ Autonomous Foreign Exchange Trading window with a determined maximum daily limit.

This, according to the association, will enable eligible BDCs to access dollars from banks, autonomous market, and Diaspora forex widow at the prevailing market prices.

The forex dealers also requested an enhancement of existing BDCs’ automation portals to file transaction returns on CBN/ABCON/Nigerian Financial Intelligent Unit/ Nigeria Inter-Bank Settlement System Plc portals for effective regulatory monitoring and supervision.

The body also canvassed the creation of an automation portal to encourage the registration of undocumented and unlicensed operators for effective monitoring, identification, and tracking of their transactions.ABCON believes the proposal will save the naira from further decline and enhance exchange rate stability.

The ABCON National Executive Council said the “move to save the naira” was agreed upon by the body after its meeting in Lagos at the weekend, where it unveiled strategies for ‘Save the local currency, bridge the exchange rate gaps and curb volatility in the forex market.’

The President, ABCON, Alhaji Aminu Gwadabe, said there was an urgent need to enhance dollar liquidity in the market and ensure the stability of prices in the economy.

“The naira has consistently come under serious pressure due to dollar scarcity, making it difficult for forex end users, manufacturers, and key industry players to access the dollar needed to meet their needs”, Gwadabe noted.

“ABCON under my leadership will continue to encourage our members to play the vital role of closing the exchange rate gaps in the market and reducing widening premium between the parallel market and the official window.”

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