2024 is here. What are the themes and trends to watch in the manufacturing sector in Nigeria?
Segun Ajayi-Kadir, the Director-General of Manufacturers Association of Nigeria(MAN) , pinpoints the following anticipated developments and trends:
▪︎Dwindling Growth
A quick examination of the trajectory of manufacturing globally portrays a struggling sector that is now more than ever challenged by key macroeconomic variables and externalities, leading to dwindling growth.
This is evidenced by the manufacturing growth rates in China, USA, and South Africa.
The World Bank reported that the manufacturing sector in China declined from 8.7 percent in 2021 to 4.8 percent in Q3 2023; in USA, the sector performance dwindled to -0.9 percent in Q3 2023 from the 6.8 percent recorded in 2021 while South Africa also recorded a decline to -0.17 in Q3 2023 from 6.7percent of 2021.
The trend is similar to what we have all over Africa.
Of course, Nigeria is not exempted, as the manufacturing growth rate nosedived to 0.48 percent in Q3 2023 as against 2.4 in 2021.
Judging from the observed trend, it is obvious that the outlook for the manufacturing sector in 2024 may not be a positive one, at least in the first half of the year.
▪︎Recovery From Q3
The period will be challenging, with a subtle possibility of recovery from the third quarter. The envisaged recovery is highly dependent on the deployment of policy stimulus supported with a synthesis of domestic growth driven, export focused and offensive trade strategies.
This will promote resilience, steady growth and ensure that the sector gains meaningful traction in the later part of the year.
Drawing from likely economic dynamics and in the light of the aforementioned, our projections for the manufacturing sector in 2024 are as follows:
▪︎Engaging FG On Specific Policy Directions
There will be clarity on the actual and specific policy direction and priority areas of the current administration, especially around deepening industrialization.
We look forward to engaging Government in this regard.
Hopefully, the Government will see the manufacturing sector as the key driver of sustained economic growth and will give the sector the priority that it deserves.
▪︎3.2% Sectoral Growth
In 2024, sectoral real growth is expected to hit about 3.2 percent; contribution to the economy will most likely exceed 10 percent and the Manufacturers’ CEOs Confidence Index is predicted to rise above 55 points thresholds by the end of Q4 2023.
▪︎Average capacity utilization will still hover around the 50 percent threshold as the forex-related challenges and high inflation rate limiting manufacturing performance may linger until mid-year.
▪︎Forex, Inflation and Interest Rate Challenges
The sector may experience a meagre improvement in manufacturing output as forex and interest rates-related challenges are expected to subside from the third quarter.
▪︎Cement Sector To Enhance Manufacturing Outputs
Higher manufacturing output is envisaged from the beginning of the third quarter of the year as the government disburses capital provisions of the budget to abandoned, ongoing and new capital projects with expected special preference for locally made products.
▪︎The ongoing concessions of seaports, airports and roads may also provide opportunities for the cement sub-sector and contribute to infrastructure upgrade needed to enhance manufacturing productivity.
▪︎Reasonable stability in the monetary policy ambience as the apex bank reverts to playing its conventional roles and deliberately improves forex supply to the productive sector for import of inputs not available locally.
” Hopefully, the Government will see the manufacturing sector as the key driver of sustained economic growth and will give the sector the priority that it deserves.”
▪︎Stability in the forex market
The results of the emerging upward surge in global oil prices, domestic oil and gas production, local refining of petroleum products and projected gains of exchange rate unification will promote stability in the forex market and impact manufacturing positively from the second half of the year.
This will lead to reduction in the pressure on demand for forex and improve the inflow of export proceeds from oil and gas.
▪︎Tax Reforms and Banks Recapitalisation
The ongoing tax reforms and the envisaged bank recapitalization will frontally address the challenges of multiple taxation and poor access to credit that have continued to limit manufacturing sector performance, if successfully implemented.
▪︎Electricity Act 2023
Expect dynamic implementation of the Electricity Act 2023, which will increase private investment in renewable energy, enhance energy efficiency and improve electricity supply to the manufacturing sector.
▪︎The improved electricity supply will ameliorate the issue of inadequacy, reduce the disruptions occasioned by frequent outages and in turn improve energy security.
In broad terms, Ajayi-Kadir, concluded that year 2024 may start on a tough note for manufacturing but may end with some measured improvements because the envisaged policy reforms, improved commitment to domestic production and general positive outlook seams favourable for the sector.