Amid ongoing pressures within the foreign exchange market and escalating production expenses, the Manufacturers Association of Nigeria (MAN) is sounding alarms regarding the mounting surplus of unsold goods, posing a dire threat to the viability of companies in the manufacturing sector and potentially leading to job losses.
Recent evaluations by Financial Vanguard indicate a substantial devaluation of the naira against foreign currencies, witnessing a staggering 254 percent decline since the Central Bank of Nigeria (CBN) initiated the currency floatation in June 2023. Before this move, the naira held at N471 per dollar, yet by February 23, 2024, it plummeted to N1,665.50 per dollar on the Nigerian Foreign Exchange Market (NAFEM), marking a depreciation of over 253.6 percent within eight months. This forex turmoil, coupled with soaring inflation and energy expenses, has diminished purchasing power, resulting in diminished demand for goods.
Manufacturers are grappling with the repercussions of these adversities, with reports indicating a buildup of unsold stock from the previous year due to the adverse effects of exchange rate fluctuations, inflation, an influx of counterfeit and substandard goods, smuggling, and other macroeconomic challenges. Numerous manufacturing entities are now confronted with the dilemma of scaling back production and closely monitoring market dynamics to evaluate the viability of future manufacturing endeavors. The ongoing devaluation of the naira against major currencies and forex instability are compelling manufacturers to reassess their operations, with some contemplating cessation of production altogether. The inability to operate profitably under present conditions exacerbates the situation, potentially resulting in workforce downsizing.
Accessing foreign exchange remains a significant hurdle for manufacturers, with limited availability through conventional channels such as Bureaux De Change (BDCs) and banks providing only a fraction of the required funds. The situation is further compounded by forecasts from the International Monetary Fund (IMF), cautioning an additional 35 percent devaluation of the naira in the forthcoming year, potentially elevating inflation to as high as 44 percent.
In response to these challenges, manufacturing firms are exploring various strategies, including backward integration to procure raw materials domestically and mitigate the impact of high exchange rates and forex scarcity. Nonetheless, some enterprises are compelled to downsize or suspend operations altogether.
The forex crisis has also prompted companies like Nigerian Breweries (NB) Plc to implement price adjustments to cope with escalating input costs. Furthermore, global giants such as Procter & Gamble (P&G) have declared their departure from Nigeria due to complications in repatriating earnings amidst forex shortages.
To tackle the immediate challenges confronting manufacturers, stakeholders advocate for short-term measures such as stabilizing import rates for raw materials, facilitating access to low-interest credit facilities, and eliminating bureaucratic obstacles hindering the importation of essential materials. Additionally, there is a call to promote domestic production and prioritize local enterprises to reduce reliance on imports and stabilize the exchange rate.
Small businesses are particularly vulnerable to the forex crisis, confronting closures, revenue declines, and job losses. Nevertheless, opportunities for innovation, diversification, and leveraging technology exist to navigate these challenges. Embracing initiatives like the African Continental Free Trade Area (AfCFTA) could unlock new markets and enhance productivity.
In conclusion, while the ongoing economic reforms aim to address longstanding distortions in the forex market, the associated costs underscore the imperative need for meticulous policy evaluation and a balanced approach to ensure stability and bolster support for businesses and citizens alike.
