The Pandemic and The Manufacturing Sector

Proshare

Friday, July 17, 2020 / 10:06 AM / by FBNQuest Research / Header Image Credit: Market Watch


Proshare Nigeria Pvt. Ltd.

                                                              

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)

 

Proshare Nigeria Pvt. Ltd.

 

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.


Proshare Nigeria Pvt. Ltd.

 

Related News

  1. Q1 2020 GDP: Overall Growth Performance Weighed Down By The Non-Oil Sector
  2. Total Value of Capital Importation into Nigeria Stood At $5,854.38m in Q1 2020 - NBS
  3. Nigeria's GDP Grew By 1.87% YoY in Real Terms in Q1 2020
  4. Headline Inflation Increases By 12.56% YoY In June 2020; 0.16% Higher Than May 2020 Rate
  5. The Pandemic and The Services Account; Debit Decreased by US$1.5bn to US$8.9bn in Q1 2020
  6. OAuGF 2017 Audited Annual Report; Auditor-General's Qualified Report
  7. Bismark Rewane to Speak on Nigeria's Economic Outlook H2, 2020
  8. NBS Publishes COVID-19 Impact Monitoring Survey Report for June 2020
  9. External Debt Stock Flat in Q1 2020
  10. Headline Inflation to Increase to 12.55%, Monthly Inflation to Dip in June 2020
  11. Q1 2020: Debt Service Settled on a Plateau
  12. UPDATED: Minimizing the Impact of COVID-19, the New and Unexpected Shock to the Nigerian Economy
  13. Decline in Foreign Inflows to Persist - Comercio Partners
  14. Nigeria's Total Public Debt Stood At N28.63trn in Q1 2020 - NBS
  15. Employment: Looking Beyond Interventionist Programmes
  16. Continuing Deficit on the Current Account
  17. Dr. Ayo Teriba to Speak on Nigeria and The Trilemma Of Debt, Revenue and Liquidity
  18. Policy Directions on PMS, Tariff Hike, Gas and Stamp Duties and Implications on Households
  19. NBS Publishes National Living Standard Survey 2018-19 Report
  20. NESG Inaugurates NES26 Planning Committee; To Hold Summit October 26-27, 2020
  21. Fiscal Changes Forced by the Hit From the Double Whammy of COVID-19 and the Crashing Oil Price
  22. Avoiding or Mitigating Recession In Post COVID Nigeria
  23. Manageable Rise in the FGN's Domestic Debt

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.
READ MORE:
Related News
SCROLL TO TOP