People & Money

Why Manufacturers’ Confidence In Economy is Declining

The Manufacturers Association of Nigeria (MAN) has said that growing insecurity in the country, declining disposable income of consumers, rising inflation coupled with neglect of governance for politics are elements that are making its members lose confidence in the Nigerian economy.

“ Clearly, the prevalence of familiar binding constraints to the steady growth of the manufacturing sector, the reverse effects of COVID-19 pandemic and the food shortages, rising inflation, foreign exchange parity, economic uncertainty, a general increase in price of petroleum products, supply chain disruptions and the growing concern of future increase in the prices of wheat and fertilizer manufacturing inputs occasioned by the Russian invasion of Ukraine are contributory factors that impacted the aggregate MCCI,” the association said.

 The association in a report made available to media men on Thursday stated that the fragile confidence is underlined by the drop in the Manufacturers CEO’s Confidence Index (MCCI) for Q1 2022 from 55.4 points to 53.9 points, representing a 1.5 points dip.

 Apart from the above factors mentioned as the reasons for declining confidence in the economy, other factors responsible for the drop in the MCCI for Q1 are the high-interest rate, excessive drive for revenue by the government, and the persistent forex and energy crises.

According to MAN in the report, inflation in Nigeria jumped to 15.92 percent in March on the back of an increase in the price of goods and services at a time the purchasing power of consumers has been eroded by the devastating Covid pandemic and the 2019 plunge in oil price.

 The MCCI which is a quarterly research and advocacy study of the Manufacturers Association of Nigeria (MAN) measures the state of the economy through the manufacturing sector.

The standard diffusion factors deployed in the MCCI analytic processes include the Current Business Condition, Business Condition for the next three months, Current Employment Condition (Rate of Employment), Employment Condition for the next three months and Production Level for the next three months.

  MCCI has a baseline index of 50 points that suggests a stationary point in the economy and affirms the level of confidence and performance in the quarter under review. Points

 above 50 points indicates that manufacturers have confidence in the economy and improvement in manufacturing performance, while any index point below 50 points indicates otherwise.

The MCCI collates data from a direct survey of over 400 Chief Executive Officers of MAN member-Companies across the country who are on daily basis, affected by the macro economy and the various government policies.

The MCCI at the end of the fourth quarter of 2021 was 55.4 points and has now dropped to 53.9 points at the end of the first quarter of 2022.

Association also expressed concern about the effect of Russian-Ukrain war which has caused a hike in the price of diesel, wheat and other imported manufacturing inputs.

 In summary, the country’s manufacturing sector witnessed a fairly stable macroeconomic performance in the first quarter of 2022, as the country’s economy is still stagnant as seen in current business conditions across the country.

 MAN in the MCCI Q1 2022 report says the slight decline still confirms sustained confidence of the sector on the economy despite the slight reduction in its performance in the quarter.

 The MCCI has since the second quarter of 2021 remained above the 50 neutral points, reaching 55.4 points in the fourth quarter of the year. The score according to MAN indicates sustained confidence of manufacturers, though fragile in the economy and improved manufacturing performance over the period.

 While appraising the MCCI Q1 2022, MAN states that “On the overall, the score suggests fairly stable confidence in the economy driven primarily by improvement in the current business condition.

 The body notes that the sector’s performance was pulled down by the declining employment and production conditions arising from familiar supply-side constraints.

 “The general decline in the index point and the dimmed outlook for the second quarter evidenced by expectations of lower production, employment and unfriendly business condition, is a cause for concern.

 This, MAN notes has now compelled, especially from the government, a National Response and Sustainability Strategic Plan to avert the looming economic crisis and shortages that would arise from the impact of the Russian invasion of Ukraine.

 “In capitulation, available facts and recent experiences have shown that the emergence of a challenge in one country can become a major constraint with spiral effects for the entire world.  The learning curves from recent development include the need for leaders all over the world to jointly manage global peace and deepen the cord of interdependence of countries along the line of development priorities of nations and the obvious reality that when disruption occurs in any part of the global economy, only countries with automatic stabilizers and strong internal economic mechanisms will be able to respond appropriately.”

 “The trend observed in the first quarter 2022 MCCI resonates with a priori expectations, the oscillatory trajectory of the macro economy, and fluctuating manufacturing performances observed in the last two years. In fact, the performance recorded is largely similar but with slight differing magnitude when compared with what was obtained in the last quarter of 2021.”

All of these clearly show that the ongoing invasion of Ukraine will continue to have negative spiral effects on every sector of the economy if not halted as soon as possible.

 It noted that the implication of allowing the invasion to continue for the manufacturing sector will include enormous decrease in capacity utilization (as factories begin to experience stock-out situations), inflation, dwindling sales, lower productivity, unemployment and heightened insecurity. Certainly, all of these would also have severe implications for the economic and social well being of over 200 million Nigerians.

MAN stated that the performance recorded is largely similar but with slight differing magnitude when compared with what was obtained in the last quarter of 2021.

“The prevalence of familiar binding constraints to the steady growth of the manufacturing sector, the reverse effects of COVID-19 pandemic and the food shortages, rising inflation, foreign exchange parity, economic uncertainty, gene the real increase in the price of petroleum products, supply chain disruptions and the growing concern of future increase the prices of wheat and fertilizer manufacturing inputs occasioned by the Russian invasion of Ukraine are contributory factors that impacted the aggregate MCCI,” MAN added in the report.

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