Nigeria Economy | |
Nigeria Economy | |
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Friday, July
17, 2020 / 10:06 AM / by FBNQuest Research / Header Image Credit: Market Watch
Nigeria's
manufacturing sector continues to struggle, mainly due to the economy's many
structural challenges. It is regarded as an underperformer. In 2019 the sector
accounted for 9% of total GDP and grew by a paltry 0.8% y/y. Its largest
segment (food, beverage and tobacco) grew by 2.2% y/y while the second largest
(textiles, apparel and footwear) contracted by -0.1%. In Q1 2020 manufacturing
growth was flat. Prior to the Covid-19 pandemic, the sector was struggling with
soft consumer demand, operational challenges with epileptic power supply as a
major deterrent and difficulties with securing production inputs regularly.
Manufacturing has been severely hit by the pandemic. Factory closures,
particularly in China, led to supply chain disruptions, which have affected
manufacturing plants in Nigeria. The results have been raw material shortages,
increased costs of inputs and reduced orders.
The current economic downturn, emanating from lower oil prices and the
virus spread, has resulted in fx policy adjustments by the CBN. Both fx
illiquidity and pricing pose additional challenges for manufacturers.
According to a local manufacturing company focused on personal care products,
fx is more accessible in the parallel market (N455/US$) but the transaction
volumes are not sufficient to cover its necessary dollar-denominated costs.
Most local manufacturers are considering passing on increased production
costs to consumers but worry they could lose market share to their foreign
competitors due to their relative affordability.
GDP, manufacturing
(% chg y/y) |
|
Sources: National Bureau of Statistics (NBS);
FBNQuest Capital Research |
Although there would be short-term pain before the efficiency gains, the
Manufacturers Association of Nigeria is pleased with the CBN's steps towards fx
unification. This will enable stable planned production for manufacturers,
encourage a market-friendly business environment and may attract foreign direct
investments beneficial to the sector.
Given Nigeria's heavy reliance on imports for both inputs and finished
products, boosting domestic production is now imperative more than ever. The
FGN has announced some relief packages that should assist local producers.
However, the impact may be minimal since structural issues are yet to be
addressed.
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