Manufacturers identify dollar scarcity, cost of funds as biggest business impediments

THE Manufacturers Association of Nigeria (MAN) says scarcity of foreign exchange (FX) and high cost of funds are two biggest hiccups facing industries in the country.

Reviewing challenges faced by manufacturers in 2020 at a luncheon held in Lagos recently, Mansur Ahmed, president of MAN, said high costs of energy, funds and logistics were key issues hurting the growth of manufacturing companies in the country.

Ahmed explained that low purchasing power of consumers had resulted in decreased demand for locally manufactured products, leading to unsold inventories in many companies.

He pointed out that regulatory pressure, poor port administration and policy somersaults were other challenges faced by players in the sector.

“The implication of these challenges highlighted is that it impedes the growth and development of the manufacturing sector, thereby affecting the attainment of the sector’s full potential of massive job and wealth creation,” Ahmed said.

Nigeria relies on crude oil proceeds for  90 percent of foreign exchange and more than 50 percent of revenue, according to government documents. Low crude oil prices since late 2014 have led to diminished dollar inflows, resulting in acute foreign exchange scarcity in Africa’s biggest economy.  Nigerian manufacturers import 40 percent of their raw materials, sourcing 60 percent locally, according to the latest Executive Summary of Economic Review published by MAN (in 2019).  Manufacturers are struggling to find the greenback needed to import inputs, with many of them unable to meet supply targets due to lack of raw materials. Two top manufacturers who spoke with The ICIR on the condition of anonymity, for fear of being victimised by the Central Bank of Nigeria(CBN), said they only got 2 to 10 percent of their dollar needs from the foreign exchange market in the last two years.

“We asked for 60,000 dollars to import our raw materials, but we were only given 3,000 dollars by our bank,” one manufacturer in the textile sector, who imports inputs from China and India, said.

Another manufacturer complained that apart from dollar scarcity, exchange rate differentials between dollar and naira had shot up production cost.

Frank Udemba Jacobs, former MAN president, had previously admonished the CBN to adequately fund the FX needs of local manufacturers to boost job creation, FX inflows and economic growth.


Cost of funds

Apart from dollar scarcity, cost of funds in Nigeria is high in Nigeria compared with many Sub-Saharan African (SSA) countries. Nigeria’s Monetary Policy Rate (MPR), which is the benchmark interest rate in the economy, is 11.5 percent, according to the CBN. This is higher when compared with South Africa’s 3.5 percent; Kenya’s 7.5 percent; and Zambia’s 8 percent, according to their central banks. In Ethiopia, another SSA nation, the benchmark interest rate was put at 9 percent, according to the National Bank of Ethiopia. Botswana’s rate is estimated at 3.75 percent while  Uganda’s is 7 percent. Similarly, while Namibia’s benchmark rate is 7.75 percent, Mali’s is 9.12 percent. These are benchmark interest rates, meaning that lending rates from commercial banks to customers will be higher.



    Benchmark Interest Rate in Selected Sub-Saharan Countries
    Benchmark Interest Rate in Selected Sub-Saharan Countries


    MAN said  in the Executive Summary that its members were charged 21.25 percent interest rate by deposit money banks in 2019.

    The association noted that high cost of borrowing remained a core challenge for the manufacturing sector in the country.

    At a press conference held in Lagos last Thursday, the Lagos Chamber of Commerce and Industry (LCCI) said low interest rate was needed in Nigeria to boost manufacturing and other sectors of the economy.

    “A low interest regime will encourage blue-chip corporates to undertake further investments, thereby stimulating aggregate demand and
    economic growth,” said Toki Mabogunje, president of the LCCI.

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