The importance of a vibrant manufacturing sector in emerging economies cannot be overemphasized. A functional manufacturing base attracts increased research, productivity, and exports. In addition, due to its extensive value-chain, the sector is capable of boosting jobs across different economic classes. There are several factors that could support the steady expansion of a country’s manufacturing sector. These factors trigger demand and supply dynamics which are essential for a thriving manufacturing base. They include consumption patterns, money circulation, fx liquidity, infrastructure (power, inclusive) and supply chain among others.
In the manufacturing sector, growth slowed to 2.3% y/y in Q4 compared with 4.3% y/y recorded in Q3. For FY ’21, the sector grew by 3.5% y/y compared with a contraction of – 2.8% y/y recorded in 2020. The food, beverages, and tobacco segment grew by 5.7% y/y while the textile, apparel, and footwear segment contracted by -1.3% y/y respectively in 2021, compared with a growth rate of 1.5% y/y and -7.6% y/y respectively in 2020. Combined, these segments accounted for 69.1% of the total manufacturing sector in 2021. The chemical and pharmaceutical products segment grew the fastest at 8.1% y/y in 2021, but from a low base.
Following Russia’s invasion of Ukraine, oil prices have surged above USD100 per barrel to hit their highest level since 2008. Unlike premium motor spirit (PMS), diesel has been deregulated. As such, the surge in global oil price has led to an increase in diesel price. According to the Manufacturers Association of Nigeria, the situation has resulted in soaring operational costs as most businesses rely on diesel-powered generators in the absence of reliable grid electricity. The proposed take-off of the Dangote Refinery in Q4 ‘22 is expected to help improve the supply of petroleum products in Nigeria.
Russia and Ukraine are also major exporters of agricultural commodities, particularly grains. Based on data from the Food and Agriculture Organisation, both countries accounted for about c.30%, c.80%, and c.14% of global wheat, sunflower seeds, and maize exports respectively in 2020. According to the National Bureau of Statistics (NBS), Russia accounted for c.4% (N824bn) of Nigeria’s total imports in 2021. The Russia-Ukraine crisis has halted shipments from the Black Sea, which has adverse implications for global trade activity.
Typically, to meet high fx needs, manufacturers blend fx rates across markets. Therefore, forcing some manufacturers to source funds from the parallel market, which trades at a significant premium to the I&E window (41.3% as at 31 March 2022). This also contributes to the uptick in operational costs for the manufacturing sector. We note that the CBN has released the operating guidelines for the non-oil export proceeds repatriation rebate scheme as introduced in the RT200 FX program that aims to attain a goal of USD200bn in FX repatriation from non-oil exports over the next 3-5 years.
The CBN’s Manufacturing Purchasing Managers’ Index (PMI), moderated slightly to 50.1 index points in February ‘22 from 51.4 index points in January ‘22. A reading above 50 points toward an expansion while a reading below 50 translates into a contraction.
Manufacturers face a dilemma with regards to incurring additional costs due to rising operational costs or passing on these costs to consumers. For the latter, the current squeeze on household wallets may result in a potential loss of market share to foreign competitors due to their relative affordability. We expect the uptick in operational costs to have an impact on the headline inflation rate (currently at 15.70% y/y).
To provide some level of respite, particularly given the economic downturn experienced in 2020, the CBN created a N1trn intervention scheme to boost local manufacturing. Based on industry sources, a total of N1.08trn has been disbursed to 368 projects across various sectors in agro-allied, mining, steel production, and packaging industries.
China can be considered as a poster child with regard to countries with budding manufacturing sectors. China’s industrial sector accounted for c.32.6% of its total GDP in 2021. China is export-oriented, however, it seems there is now a deliberate push towards boosting domestic consumption of China-made products. We understand that there are now steps towards significantly reducing imported items to enable the domestic distribution of locally manufactured items. In China, foreign investment has been encouraged through the creation of Special Economic Zones, which offered incentives such as reduced tax rates for foreign companies willing to set up manufacturing operations.
In Africa, Morocco is transforming itself into a manufacturing hub through investments in industrial parks, free trade zones, and supporting infrastructure such as railways, storage facilities, and ports as well as signing automotive free trade agreements with the European Union and the United State. These combined with investments from the leading automakers in Africa are largely responsible for the growth observed in Morocco’s manufacturing sector. Nigeria may consider adopting a few of these initiatives to boost the domestic manufacturing sector.
Coronation Merchant Bank Research Team note that the absence of constant power supply has contributed to the slowdown of Nigeria’s much-needed industrial take-off as self-generation places pressure on operating expenses. The CBN has disbursed N1.28trn to power sector players since 2017, under the Nigeria Bulk Electricity Trading Payment Assurance Facility (NBETPAF). In addition, N232.9bn has been released to distribution companies (DISCOs) under the Nigeria Electricity Market Stabilisation Facility – Phase 2 (NEMSF-2). These interventions are designed to improve access to capital and support the development of enabling infrastructure within the country’s power supply value chain.
The African Continental Free Trade Area (AfCFTA) agreement is expected to contribute significantly toward the development of regional value chains. To maximise the benefits of the agreement, Nigeria’s manufacturing sector needs to be strengthened through the provision of adequate infrastructure. For example, improvements in ports, transportation & power. Furthermore, there is need for significant improvement by local manufacturers in terms of product standards and service delivery. This must be achieved if local manufacturers are to be competitive in an expanding intra-continental marketplace.
ICT Changing The Face of Nigeria’s Economy
While many thought the oil sector would save the Nigerian economy, the drift is gradually shifting away from the oil sector into the non-oil sector – the Information and Communications Technology (ICT).
A recent data revealed by the National Bureau of Statistics, sighted by Investors King, shows that the ICT has contributed 16 per cent to the growth of Nigeria’s Gross Domestic Product (GDP).
On a year-on-year basis, compared to the previous year in the same quarter, ICT contributed 14.9 per cent to the GDP – a growth of 1.3 per cent.
According to the data released by NBS, “In nominal terms, in the first quarter of 2022 the sector growth was recorded at 20.54 per cent (year-on-year), 12.68 per cent points increase from the rate of 7.86 per cent recorded in the same quarter of 2021, and 14.84 per cent points higher than the rate recorded in the preceding quarter. The Quarter-on- Quarter growth rate recorded in the first quarter of 2022 was -1.87 per cent.
“The Information and Communications sector contributed 10.55 per cent to the total Nominal GDP in the 2022 first quarter, higher than the rate of 9.91 per cent recorded in the same quarter of 2021 and higher than the 9.88 cent it contributed in the preceding quarter”.
The report added that the sector, in the first quarter of 2022, recorded a growth rate of 12.07 per cent in real terms, year-on-year.
From the rate recorded in the corresponding period of 2021, there was an increase of 5.60 per cent points. Quarter-on-Quarter, the sector exhibited a growth of -9.09 per cent in real terms.
“Therefore, of total real GDP, the sector contributed 16.20 per cent in 2022 first quarter, higher than in the same quarter of the previous year in which it represented 14.91 per cent and higher than the preceding quarter in which it represented 15.21 per cent,” the data revealed.
The Information and Communications sector in Nigeria comprises of Telecommunications and Information Services, Publishing, Motion Picture, Sound Recording and Music Production and Broadcasting.
Nigeria’s Economy Moderates in Q1 2022 as Oil Sector Contracts by 23.89%
Nigeria’s GDP moderated to 3.11% year-on-year in real terms in the first quarter (Q1) of 2022
Despite the surge in global oil prices due to the ongoing war in Ukraine, the Gross Domestic Product (GDP) of the largest exporter of the commodity in Africa, Nigeria moderated to 3.11% year-on-year in real terms in the first quarter (Q1) of 2022, the National Bureau of Statistics (NBS) stated in its latest report.
Nigeria’s GDP was 2.60% higher than the 0.51% recorded in Q1 2021 when COVID-19 disrupted business activity and dragged on economic productivity. However, this was 0.88% lower than the 3.98% filed in the fourth quarter of 2021.
On quarterly basis, the nation’s real GDP grew at -14.66% in the quarter under review when compared to the fourth quarter of 2021.
Aggregate GDP increased by 13.25% year-on-year from N40,014,482.74 million in nominal terms in the first quarter of 2021 to N45,317,823.33 million in Q1 2022. According to the NBS, “the nominal GDP growth rate in Q1 2022 was higher relative to the 12.25% growth recorded in the first quarter of 2021 and higher compared to the 13.11% growth recorded in the preceding quarter.”
Nigeria’s Oil Sector
In the first quarter, Nigeria’s crude oil production dropped to 1.49 million barrels per day (mbpd), down from 1.72mbp achieved in the same quarter of 2021. This was also lower than the 1.50mbpd recorded in the fourth quarter of 2021. Suggesting that despite the increase in global oil prices in the quarter, Nigeria’s inability to up crude oil production impeded investment in the sector and subsequently dragged on revenue generation.
As expected, the real growth of the oil sector contracted by 26.04% year-on-year in Q1 2022, representing a decline of 23.83% when compared to the same quarter of 2021. Also, growth decreased by 17.99% when compared to -8.06% filed for Q4 2021.
On a quarterly basis, the oil sector grew by 9.11% in the quarter under review. The sector contributed 6.63% to Nigeria’s total real GDP in Q1 2022, own from 9.25% contributed in the corresponding quarter of 2021 and slightly higher than the 5.19% achieved in Q4 2021.
Nigeria’s Non-Oil Sector
As usual, the non-oil sector grew by 6.08% in real terms in the first quarter. This was better than the 5.28% recorded in the first quarter of 2021 and 1.34% higher than the fourth quarter of 2021.
The report attributed the growth in the non-oil sector to the increase in activities in the following sectors; Information and Communication (Telecommunication); Trade; Financial and Insurance (Financial Institutions); Agriculture (Crop Production); and Manufacturing (Food, Beverage & Tobacco).
Nigeria’s non-oil sector contributed the most to total economic growth. The sector contributed 93.37% to the nation’s GDP in the quarter under review.
FG Directs NDDC to Revoke 20 Year-old Unexecuted Projects
The Federal Government of Nigeria says it has directed the Niger Delta Development Commission (NDDC) to revoke unexecuted contracts awarded between 2000 and 2019.
Director of Corporate Affairs, NDDC, Ibitoye Abosede, said in a statement issued on Sunday in Port Harcourt. According to him, the cancellation followed recommendations of the recently-concluded forensic audit report by the NDDC.
“This is to bring to the notice of all contractors engaged by the NDDC as well as stakeholders and the general public, the implementation of the forensic audit report,” she said.
“The Presidency has directed that all contracts awarded by the NDDC from 2000 to December 31, 2019, for which the beneficiary contractors are yet to mobilise to the sites, are cancelled.
“Consequently, all affected contractors are advised to note that all monies earlier received by way of mobilisation for any of the projects are to be promptly refunded
“The contractors are to refund the monies to the commission’s account with the Central Bank of Nigeria.’’
Abosede said that the cancellation was subject to any future re-award in accordance with the Public Procurement Act and in line with the terms of the contracts for the projects.
Earlier in February, some contractors, who identified themselves as members of the Niger Delta Indigenous Contractors Association, alleged that the Niger Delta Development Commission (NDDC) owed them over N2 trillion. This, among many others, has ravaged the effective delivery of the commission.
The contractors had earlier picketed the headquarters of the NDDC in Port Harcourt, Rivers State, over the alleged outstanding debt.
Several reports have suggested that there are a group of people who have formed a “cartel” running the affairs of the commission secretly.
In 2019, the former Minister of Niger Delta Affairs, Godswill Akpabio, during an interim inauguration of a NDDC committee in Abuja said “the mandate of the committee is to help create an “enabling environment” for the forensic audit of the NDDC.”
Akpabio said the corruption and political interference have disrupted the original purpose of setting up the NDDC.
“I think people were treating the place as an ATM, where you just walk in there to go and pluck money and go away, I don’t think they were looking at it as an interventionist agency,” said Mr Akpabio, a former governor of Akwa Ibom State.
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