Still reeling under the yoke of recent government’s devaluation of the naira, occasioned by the crash in the price of crude oil in the international market, Nigeria’s manufacturing sector may face tougher challenges in the months ahead convincing consumers to pay more for goods with rising production cost.
This is because while the dwindling price of crude is already sending economic and political signals around the world, the devaluation of the naira is impacting negatively on cost of production, with observers fearing the situation could precipitate a further spike in the price of products and services.
Worried by this development, the Manufacturing Association of Nigeria (MAN) is said to have gone into a strategy meeting to discuss how to deal with the situation and mitigate the consequences of a looming national economic gloom.
The stakeholders’ concern is not just that crude oil is the major export commodity for the country, but every aspect of its life revolves around it, hence yearly budgets are predicated on crude price in the international market.
Even local manufacturers who depend largely on imported raw materials are bothered that naira’s rapid depreciation against the dollar would make it unlikely for prices of goods and services to remain stable in the foreseeable future.
Feelers are that already, some sectors of the economy have started reacting to the reality of crippling budget shortfalls. For instance, banks have increased interest rates to avoid liquidity erosion while operators in the Fast Moving Consumer Goods (FMCG) are currently reviewing their prices. Just last Monday, some banks reportedly increased interest rate from 25 to 26 per cent, while several manufacturing companies have also jerked up their prices.
Prior to these reactions, Ngozi Okonjo-Iweala, the Finance Minister and Coordinating Minister of the Economy, had warned in the wake of the unsavoury development that the country needed to brace up for tough times ahead by reviewing its expenditures and building economic buffers with a budget that would be based on modest oil price.
Also commenting, an economic expert, Joel Bisola, noted with regret that the unfolding situation has put Nigerian manufacturers in a precarious condition as government’s reaction to the falling price of oil could lead to the lowering of consumers’ purchasing power and increasing cost of inputs.
He also pointed out that the resultant effect would be that goods emanating from Nigeria will command higher prices, as against imported ones, a development that “will sound a death knell on most indigenous manufacturers.”
However, Daily Sun learnt that following series of complaints by its members, MAN had hurriedly summoned an emergency meeting of its Economic Policy Committee (EPC) in Lagos to discuss the issues and the way forward. It was also revealed that members lamented the severe impact of the erosion of naira’s purchasing parity on their business and the attendant increase in prices of raw materials, machineries and spare parts.
The meeting, it was learnt, concluded that it has led to significant increase in the cost of production and created uncompetitiveness of local products especially in the face of the impending implementation of the ECOWAS Common External Tariff (CET) in January 2015. The CET is expected to allow goods from other West African countries to come into Nigeria without imposition of taxes and import duties.
A leading manufacturer and member of MAN’s EPC, summed up the association’s frustrations when he warned that the naira may end up at N200 to a dollar representing about 33 per cent depreciation.
According to him, the cost of machinery, spare parts, refractory, explosives, lubricants and LPFO, which are all imported, as well as diesel, sea freight, coal, gas, which prices are fixed in foreign currencies are all on the rise and may end up 33 per cent higher.
He lamented the non-availability of the dollar given that the Central Bank of Nigeria (CBN) has virtually stopped selling foreign currencies for frivolous transactions, a development that may affect several manufacturers.
Similarly, a source said chief executives of some FMCGs and stakeholders in the building materials, pharmaceutical, food processing industries, among others present at the meeting, stated that they were forced to increase prices of their products with rising cost of production while others may soon join the band wagon.
They, however, expressed concern over the inevitability of price increase following the unprecedented decline in the value of the naira, stressing it may affect sales adversely.
Source : SunOnline