‘The Aggregate Index Score (AIS) of MCCI increased by 1.7 points to 53.5 points in Q1 2024 from 51.8 points recorded in Q4 2023. This marks the first increase since the third quarter of 2022.’
Siaka MOMOH
Nigerian manufacturers’ confidence in the nation’s economy increased slightly in Quarter4 2024 with 1.7 points increase according to the Manufacturers Association’s (MAN) Manufacturers CEO Confidence Index (MCCI) for Q4 2024.
The Aggregate Index Score (AIS) of MCCI increased by 1.7 points to 53.5 points in Q1 2024 from 51.8 points recorded in Q4 2023. This marks the first increase since the third quarter of 2022.
The Aggregate Index Score (AIS) of MCCI is the weighted mean of the observed and expected changes in business conditions, employment and production level in the economy based on the perceptions of manufacturers in the quarter under review.
According to the report, all the standard diffusion factors increased due to the positive effect of selective reforms and the consistent appreciation of the naira in the greater part of the last month of the quarter by about 22 percent and 28 percent in the official and parallel markets respectively. This, it states, moderately reduced the cost of imported raw materials and machinery as well as the import duty payments during the latter part of the quarter.
It adds that “the expectation of easing diesel prices also contributed to the improved perception of manufacturers during the quarter as diesel cost accounts for 48 percent of manufacturers’ expenditure on alternative energy”.
Current Business Condition rose from 44.7 in Q4 2023 to 46.2 points in Q1 2024 while the Business Condition in the Next Quarter is projected to rise from 57.8 points to 59.2 points. Current Employment Condition (Rate of Employment) also improved from 45.9 points in Q4 2023 to 47.5 points in Q1 2024 while it is projected to improve to 51.2 points in the next quarter. In the same vein, the Production Level forecast is expected to move upward from a confidence level of 60.7 points to 63.5 points.
According to the report, “A cursory observation, however, reveals that indices of the Current Business Condition and the Current Employment Condition remained below the 50-point threshold. This was due to the lingering effect of the rising inflation, escalated energy prices, exchange rate instability and unstable Customs duty rates, especially in the months of January and February. The tepid rise in the Aggregate MCCI was largely occasioned by the instability in the price of gas, exchange rate and Customs duty that limited the gains associated with the naira appreciation.”
Sectoral Groups’ Performance
According MAN’s MCCI, “A close observation reveals that eight of the sectors recorded confidence levels above the 50-point threshold. However, the Electrical & Electronics Sectoral Group dipped from 56.9 points recorded in Q4 2023 to 53.3 points in Q1 2024. This was majorly attributed to the instability in the exchange rate and Customs duty as well as the erratic power supply that limited the household demands for electrical appliances during the quarter under review.
“Further observation also shows that Chemical & Pharmaceutical and Motor Vehicle & Miscellanies Assembly Sectoral Groups recorded confidence indices below the threshold at 49 points and 42.5 points respectively.”
It notes further, that apart from Forex limitations, the Chemical & Pharmaceutical Sectoral Group is challenged by the global shortage of Active Pharmaceutical Ingredients (API), the reduced sales arising from skyrocketed drug prices, lack of strategic procurement process and the imposition of high tariffs on imports. “The Motor Vehicle Assembly & Miscellaneous Sectoral Group has been plagued by low patronage by the Government and the relatively higher demand for Nigerian used vehicles by consumers. The sector is also yet to fully recover from the poor sales arising from the drastic fall in the usage of personal cars since the removal of fuel subsidy” it adds.
Industrial Zones’ Performance
Regarding industrial zones performance, Bauchi/Benue/Plateau (43.8), Kano (44), Rivers (44.3), Oyo/Ondo/Ekiti/Osun (47.1) and Cross Rivers/Akwa Ibom (48) industrial zones have low confidence in the economy as the five zones recorded indices less than 50 points. We are told “this implies that majority of the operators within these industrial zones were decimated by the volatility in the exchange rate and the Customs duty rates as well as the surge in gas prices, especially in the month of February”.
On the other hand, according the report, Kwara/Kogi (62), Edo/Delta (61.6), Apapa (60.6), Ogun (60), Kaduna (58), Imo/Abia (57.7), Ikeja (56.3), Abuja (53) and Anambra/Enugu (52.3) industrial zones recorded index scores above the 50-point standard in the quarter under review. However, manufacturers operating in Kwara/Kogi, Imo/Abia and Ikeja industrial zones recorded waning business confidence quarter-on-quarter. The diminished business confidence is mainly attributed to foreign exchange rate instability, high cost of doing business, reduced patronage and sudden change in Government policies, the report says.
In summation, MAN argues that the development of manufacturing should be at the front burner for economic policymakers as the sector is the most essential for sustained economic growth and shared prosperity and notes that however, the subdued performance of the sector is attributed to some ongoing harsh economic reforms that have compounded the long-standing challenges confronting the sector.
This, it argues, is confirmed by the finding of this report which reveals that forex scarcity, inadequate power supply, high inflation, rising energy cost, multiple taxation, policy inconsistency, exorbitant interest rate, poor infrastructure and high logistics costs are the top ten challenges depressing productivity in the sector.
