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Macroeconomic Review 2024…Industries: Grappling with reforms - THE NATION
Bold and necessary reforms, particularly the fuel subsidy removal and exchange rate liberalisation have inflicted temporary pains on households and businesses, especially manufacturers, writes Assistant Editor, CHIKODI OKEREOCHA
Since May 29, 2023 when he took over the leadership of Africa’s largest and most populous economy, President Bola Tinubu has never wavered in his resolve to position Nigeria’s real sector, particularly manufacturing, as the continent’s most productive and globally competitive sector.
The recent commencement of the disbursement of N75 billion single digit loan to Micro, Small and Medium Enterprises (MSMEs) through the Bank of Industry (BoI) was seen by policy analysts and operators in diverse sectors as a demonstration of his firm resolve to put the manufacturing sector and, by extension, the economy on a sustainable growth trajectory.
The N75 billion single digit loan facility, with nine per cent interest, and no hidden charges, allows MSMEs to access up to N1 million. It was in fulfillment of the President’s 2023 promise to approve some funds as palliative to cushion the effects of subsidy removal, which implementation inflicted some temporary pains on manufacturers and other real sector operators.
Indeed, since President Tinubu’s May 29, 2023 ‘subsidy is gone’ declaration, including the simultaneous liberalisation of the exchange rate, it’s been a topsy-turvy situation for operators in various sectors including manufacturers, with many of them lamenting both policies’ unintended backlashes such as high cost of borrowing, soaring inflation, exorbitant exchange rate and escalated energy prices, among others.
Unsurprisingly, the unsavoury effects of these two major reforms snowballed into year 2024. For instance, the Managing Director of Coleman Wires and Cables Industries Limited, Mr. George Onafowokan, described 2024 as a particularly challenging year for manufacturers in Nigeria, citing subsidy removal, devaluation of the naira, and currency instability as significant factors that impacted the industry.
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According to Onafowokan, the convergence of the naira, its ongoing instability, and the removal of fuel subsidies contributed to increased transportation costs and general economic strain. “There’s nobody who has not felt the negative impact of the economy. We have negativity almost literally everywhere,” he stated.
The Coleman MD also expressed concern over the instability of the naira, which he said made business planning nearly impossible. He, however, stressed the importance of manufacturers remaining hopeful despite the challenges, noting that losing hope would effectively mean shutting down operations.
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Interestingly, the hope which Onafowokan encouraged manufacturers to imbibe in the face of challenges, appeared to have paid off with BoI’s N75 billion incentive. He said that the intervention fund could provide some relief to manufacturers and also help close the working capital gap created by naira devaluation.
The Director-General of Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, in his overview of the sector, said Nigeria’s economy continued to grapple with formidable challenges in 2024 which stymied its growth potential and eroded economic stability.
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He said, for instance, that real Gross Domestic Product (GDP) growth rate was sluggish, reflecting the country’s struggle to regain momentum amidst persistent economic and policy headwinds.
Inflationary pressures also intensified, significantly diminishing the purchasing power of Nigerians, with millions more being pushed into poverty due to the combined effects of soaring prices and stagnant wages.
“The policy environment during this period was marked by uncertainty and turbulence. Despite efforts to stabilise the economy, including aggressive monetary tightening by the Central Bank of Nigeria (CBN), which raised the Monetary Policy Rate (MPR) to an unprecedented 26.25 per cent, the desired outcomes in terms of curbing inflation and stimulating growth remained elusive,” Ajayi-Kadir said.
According to him, the higher interest rates exacerbated borrowing costs, placing further strain on businesses across various sectors, particularly manufacturing, which already faced significant challenges, such as forex scarcity, high operational costs and unreliable electricity supply.
This year, the CBN hiked the benchmark interest rate six consecutive times from 22.75 per cent to 27.5 per cent. However, inflation remained elevated. Ignited by further rise in price of Premium Motor Spirit (PMS), the headline inflation resumed its upward trajectory to 33.88 per cent in October 2024 after easing to 32.7 per cent in the third quarter due to bumper farm harvest.
The high inflationary pressure and continuous interest rate hikes, according to manufacturers, constrained GDP growth. They identified the major stoking factors of the high inflation as rising exchange rate, energy prices, food prices and money supply growth.
Insecurity, poor storage facility and high transport cost caused food inflation to resume its upward trajectory.
They also noted that despite the progress in exchange rate unification, the naira depreciated between Q3 2023 and November 20, 2024 by over 54 per cent and 56 per cent respectively.
