Worsening economic crisis aggravates unemployment problems
BY EMEKA EJERE
There are strong indications that many more Nigerians could be pushed back into the world of unemployment as businesses in general and manufacturers in particular bemoan the deteriorating operating environment.
The situation mainly caused by the energy crisis and the scarcity of foreign currencies on the one hand and the multiple taxes on the other hand, according to the stakeholders, leads to the contraction of many companies and the outright closure of others.
The pump price for diesel only recently reached an all-time high of N750 per litre, a figure representing an increase of nearly 300% from the N225 per liter of product in January 2021.
This comes amid a relentless national grid collapse that has left the country in the dark over time, leaving organizations to rely heavily on diesel for their operations.
According to a statement from the Association of Bureaux De Change Operators of Nigeria (ABCON), seen by BusinessHallmark on Saturday, the naira was trading at 596/dollar in the parallel market and 415.83/dollar in the official market, creating a rate difference. of N180.17 per dollar.
ABCON claimed that the depreciation of the naira against global currencies was due to the pressure of growing demand for dollars without sufficient liquidity to meet the demands of retail end users, manufacturers and other key players in the industry. economy.
Earlier this year, Finance Minister Ms. Zainab Ahmed hinted that excise duties would soon be imposed on a range of products manufactured in the country. This is in addition to a number of already existing taxes.
According to a survey by a major national daily published last week, the persistent crises in the foreign exchange and electricity sector have contributed to the closure of more than 50 companies in the past five years.
Some of the manufacturing companies that have left the industry in the last five years include: Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries and Stone Industries. Others are: Solo Industries, Quick Born Industries, Supercor Industries, Arabi Industries and Rola Industries.
The investigation also revealed that Peak Aluminum, Phonenix and Wise Machine Industries are no longer functional.
Players in the manufacturing sector believe the number of closures could be over 50, given the impact of the currency crisis on manufacturers.
According to the Manufacturers Association of Nigeria (MAN), the average interest rate charged to manufacturers in 2020 was 22% and over 20% in 2021. The association further disclosed that capacity utilization, which examines the rate at which manufacturers use their installed capacity, has not reached 60% for more than 10 years. It was 49.5% in 2020. Capacity utilization in South Africa was 82% in 2021.
Ways to go
In a recent CEO Confidence Index conducted by MAN, more than 50 business leaders suggested ways to prevent factory closures and galvanize the manufacturing sector.
They said, “The government should encourage investment in local commodity development through backward integration and resource-based industrialization initiatives.”
They urged the government to ensure efficient allocation of available foreign exchange to productive sectors, especially the manufacturing sector, while supporting the initiative of eligible customers to ensure that more electricity is supplied to the manufacturing sector.
They added, “It is important to strengthen the Bank of Industry and the Bank of Agriculture to provide adequate liberal financing to the manufacturing sector. It is also important to monitor the implementation of Executive Order 003 to ensure compliance by MDAs to boost activities. in the manufacturing sector”.
In an intervention, the Center for the Promotion of Private Enterprise (CPPE) warned that for the Federal Government’s aspiration to lift more Nigerians out of poverty to be realized, the tax burden must not be allowed to become excessive and unbearable for the manufacturing sector.
In a brief titled “CPPE calls for suspension of planned imposition of excise duties on manufacturers” and signed by its founder and chief executive, Dr. Muda Yusuf, the center noted that given the strategic importance manufacturing for the Nigerian economy, what the sector needs right now is more stimulus, not more taxes.
The brief made available to Business Hallmark reads: “Earlier this year, Finance Minister Ms. Zainab Ahmed hinted that excise duties would soon be imposed on a range of products manufactured in the country. .
“But these are very difficult times for manufacturers as they face escalating production costs resulting from high energy costs, rising operating expenses, steep currency depreciation, illiquidity of the foreign exchange market, galloping inflation and numerous structural bottlenecks.
“They also experience large spikes in raw material cost, cost of funds, high import duties, prohibitive transportation costs and high logistics costs.
“Much of these costs cannot be passed on to consumers due to low purchasing power and high consumer resistance. Given the strategic importance of manufacturing to the Nigerian economy, what the sector needs right now is more stimulus, not more taxes.
“The cost of diesel has increased by nearly 300% over the past few weeks. It averaged 288 naira per lira in January this year and reached 750 naira per liter in some places. The cost of gas is also increasing and there are also sharp increases in electricity tariffs.
“Several manufacturers are unable to import vital raw materials due to the shortage of foreign exchange, a situation that is severely hampering their production and productivity. Many are forced to source foreign currency from the parallel market at exorbitant rates.
“Manufacturers have yet to recover from the shocks of the pandemic and subsequent recession. The manufacturing sector’s contribution to GDP is still below 10%. The growth recorded in the sector in the fourth quarter of 2021 was only 2.28%, after a contraction of 2.75% in 2020.
“Manufacturers are struggling with unfair competition, especially from products imported from Asia which have flooded the Nigerian market, largely because of the porous borders. These imports are often much cheaper than locally produced goods.
“The cost of logistics continued to be on the rise, mainly due to the condition of the roads, the limited freight capacity of the rail system, the crisis in the main ports, the traffic jam around Lagos ports and supply chain extortion.
“The manufacturing sector offers good prospects for job creation and lifting more Nigerians out of poverty, in line with government aspirations. But if the tax burden becomes excessive and unbearable for this critical sector, achieving these results by the government will be difficult. “
Meanwhile, as the country continues to struggle with the shortage of foreign exchange in the economy, ABCON has requested the Central Bank of Nigeria (CBN) to establish the BDC’s autonomous foreign exchange trading window with a maximum daily limit. determined.
This, according to the association, will allow eligible BDCs to access dollars from banks, the autonomous market and the widowed forex diaspora at prevailing market prices.
Traders have also requested an enhancement to existing BDC automation portals to deposit trade returns to CBN/ABCON/Nigerian Financial Intelligent Unit/Nigeria Inter-Bank Settlement System Plc portals for effective regulatory monitoring and supervision.
The body also called for the creation of an automation portal to encourage the registration of undocumented and unlicensed operators for effective monitoring, identification and tracking of their transactions. ABCON believes that the proposal will save the naira from further decline and improve the stability of the exchange rate.
ABCON’s National Executive Council said the “decision to save the naira” had been accepted by the body after its meeting in Lagos over the weekend, where it unveiled strategies to “save the local currency, bridge the exchange rate differentials and reduce volatility in the foreign exchange market.’
ABCON Chairman Alhaji Aminu Gwadabe said there was an urgent need to improve dollar liquidity in the market and ensure price stability in the economy.
“The naira has constantly come under serious pressure due to the scarcity of the dollar, making it difficult for forex end users, manufacturers and major industry players to access the dollar needed to meet their needs” , noted Gwadabe.
“ABCON, under my leadership, will continue to encourage our members to play the vital role of bridging the exchange rate gaps in the market and reducing the widening of the premium between the parallel market and the official window.”