‘2019 fiscal plans below expectations, may limit real sector’s success level’

Citing the various challenges encountered by the real sector in the 2018 fiscal year, operators have described the proposal for 2019 as below expectations and may not aid the realisation of a sector that will contribute significantly to the country’s Gross Domestic Product (GDP).

Specifically, manufacturers noted that from the observed trends in the Nigerian budget cycle, the 2019 budget proposal might undergo late passage and the resultant negative effect on the overall economic ambience of the country might be colossal for an economy whose current growth rate is still fragile.

Considering the state of the budget, the Manufacturers Association of Nigeria (MAN) opined that a lot of works still need to be done, as they hoped that the budget will be passed with dispatch.

Indeed, the local producers stated that the manufacturing sector could be in for a tough operating environment in 2019, seeing that the needed supporting policies and infrastructure have not been given sufficient priority.

MAN is however hopeful that the capital expenditure component of the budget will be conscientiously implemented.

According to the operators, proposed allocation of N61.07 billion for the development of Industry, Trade and Investment Development (ITID) is a good one as ITID is clearly becoming increasingly critical following the continuous advancement in global integration.

However, they noted that the proposals fall short of the expectation of stakeholders and may limit the achievable success level in 2019.

Already, local manufacturers attributed the poor performance of the sector in 2018 to high cost of doing business, sluggishness in manufacturing activities due to the heaps of unsold inventory mainly resulting from the delay in implementation of the budget during the year and dwindling purchasing power of the average consumer.

In terms of high energy costs, hopes of recording a deceleration in the inflation rate appear to be weak, as rising energy costs are taking a toll on industrial firms, services sector and small businesses dependent on Automotive Gas Oil, also known as diesel, for operations.

Specifically, the price of diesel has risen to a high of N260 per litre, with businesses taking a beating on the back of rising energy costs.

The battle against rising energy costs comes after global manufacturers were lulled by a protracted period of relatively low oil prices. It also adds to other challenges including pressure to find ways around a trade war between the U.S. and China.

The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, described the impact of the diesel price hike on businesses as very severe, adding that with the high cost of diesel, high transportation cost becomes inevitable.
“The environment for manufacturing has created a competitiveness problem for the sector. The first critical constraint is energy cost. It is difficult to drive industrialisation without energy that is affordable and available.

“Over 80 per cent of the energy requirement of the Nigerian manufacturing sector is provided by the firms themselves. They operate generators powered either by diesel, petrol, gas or LPFO. These are very costly energy sources”, he added.

A review of the proposed allocation of N61.07 billion for the development of ITID, according to MAN showed that on the front burner of national discuss is the issue of AfCFTA which should address not just market access but improvement in production capacity to trade.

“Therefore, the N42 billion allocation for the development of the Special Economic Zone Projects across the geopolitical zones to drive manufacturing/exports; Export-Expansion Grant (EEG); N5.12 billion (though grossly insufficient to drive the needed impetus) allocation in the form of tax credit to support export through the Export Expansion Grant; the N15 million allocation for the recapitalization of Bank of Industry (BOI) and Bank of Agriculture (BoA); and the N10 billion provided as a grant to BOI to subsidize interest rate charged on loans to SMEs are very important developments.

“However, they all fall short of the expectation of stakeholders and may limit the achievable success level in 2019”, the association added.

To make the real sector perform at an effective level, MAN urged for the development of petrochemical industries in the country, adding that the industry is a critical raw-materials source for manufacturing, agriculture and other sectors.