"Expect More Companies to Shut Down, More Job Losses in Nigeria" - Chima Ugonna, CEO of Sterling Manufacturing
Manufacturing companies in Nigeria have continued to identify threats to their businesses and of course, the economy, following the many issues encountered in the sector. These threats, they claim, have been enhanced by the recent hike in fuel prices, forex challenges, unfavourable government policies, unstable power supply, excessive taxes and many more.
More recently, GlaxoSmithKline Consumer Nigeria Plc, a company that has existed in Nigeria for over half a century, announced its exit without giving a clear reason for doing so.
In understanding some of these issues, Legit.ng had a sit down with Chima Ugonna, the Chief Executive Officer of Sterling Manufacturing Company, a plastic manufacturer based in Lagos, Nigeria.
Ugonna said that many more foreign companies will leave Nigeria and local ones will fold up if government does act fast in solving some of the pressing issues that have plagued the sector for decades.
Source: UGC
Inflation on the rise
The rising inflation rate in the country has continued to rise with no signs of slowing down soon. In the month of July, Nigeria's inflation rate rose to to 24.08%, according to the National Bureau of Statistics. Data shows that the figure is the highest since September 2005, when the rate was 24.3%.
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Ugonna said that the rising inflation in the country will only result in the increase in the prices of raw materials, the cost of production and products sold to consumers.
He said:
The prevailing inflationary situation in Nigeria is casting a detrimental shadow over the functioning of the manufacturing sector, hence, the growing concern for escalation in expenses associated with raw materials, workforce, and additional elements integral to production.
The consequence of this upward cost trajectory could potentially engender challenges for manufacturers in acquiring essential resources for their production pipelines, subsequently exerting pressure on their profit margins.
Rising energy cost on businesses
According to a statement released in the previous week, the Manufacturers Association of Nigeria (MAN) reported that their collected data indicated a significant increase in expenditure on procuring alternative energy by manufacturers in 2022.
The figures show a rise to at least N144.5 billion, compared to N77.22 billion in the preceding year, 2021.
Ugonna says that another major issue businesses have to deal with is providing all types of energy sources for their operations. Whether is it electricity from the national grid or fueling generators, the costs keep rising by the day.
He said:
The other day, electricity distribution companies were advocating for an increase in the tariff. Of course, you know there already is a huge hike in the cost of petrol and diesel which we use to fuel our generators.
Forex scarcity affecting importation
The allocation of foreign exchange by the Central Bank of Nigeria has put manufacturers in a critical predicament, according to Ugonna. He expressed concerns about manufacturing companies being at risk due to the challenges of accessing foreign exchange.
He said:
A lot of our raw materials are imported from abroad and in recent years, the continued depreciation of the naira has made the dollar quite inaccessible. If you go to the bank, you will have to buy for around N600/dollar and still not get enough dollars for your transactions.
Many importers now have to resort to the black market to get dollars for even more ridiculous rates of N900-N1000 a dollar. You can see how this will affect business.
Multiple taxations by government agencies
Most business and companies in Nigeria have continued to lament the burden and effect of multiple taxations. Ugonna says manufacturers provide most of their infrastructure and yet, are heavily tasked by the government.
He said:
There has to be a way for these multiple taxes to be streamlined. Every now and then, there are agents from local to state and federal government levels collecting taxes from us. Apart from that, there is also the issue of heavy taxation on our imported goods at the ports.
This affects business a lot and results in a situation where manufacturers find it more expensive to purchase raw materials needed for production. The way out for us is to transfer these elevated costs to customers through raised prices.
Company closures, job cuts in coming months
Sadly, the issues raised have caused the decline in the manufacturing sector's contribution to the Gross Domestic Product (GDP) which stood at N1.5 trillion for the second quarter of 2023.
Ugonna fears that if the inherent problems are not solved in the nearest future, more foreign companies will exit the country and many of the local ones will fold up.
He said:
With the way things are going, it’s only a matter of time before more foreign companies pack up and return home. Already, many local manufacturers are closing shops every day because of the unstable economy.
As this continues to happen, the spiral effect is that many people to lose their jobs and further populate the job market and this will be reflected in the decline of purchasing power in many homes.
Recently, the National Bureau of Statistics released the Nigeria Labour Force Survey (NLFS) report for Q4 2022 and Q1 2023 where it reported Nigeria's unemployment rate at 4.1%, a sharp drop from 33.3% recorded in Q4 2020.
The unemployment rate has raised a lot of eyebrows with many disputing the figure, and referring to millions of Nigerians that are actually unemployed.
The new figure also contrasts with the 133 million people it earlier claimed were living in poverty in its “Nigeria Multidimensional Poverty Index’’ released in November 2022.
Manufacturers’ confidence in Nigeria has also declined to a 12-month lowest, signaling the need for concern and a call for the government to remove all obstacles before the sector.
Top manufacturing companies in Nigeria
In related news, Legit.ng highlighted the top manufacturing companies in Nigeria by popularity and branding.
Nigeria’s economy is fully dependent on its manufacturing industry. In Nigeria, the manufacturing sector brings about 10% of each year’s GDP.
Millions of Nigerians are involved in this industry and they help to improve the country’s economy.
In the article, Legit.ng listed the top manufacturing companies in Nigeria, highlighting their business and features.
Source: Legit.ng
