Manufacturers Groan under High Cost of Production

By Crusoe Osagie

The nation’s manufacturing sector is increasingly coming under severe strain, occasioned by the high cost of production, investigation, has revealed.

The development, which assumed ascendancy in the last six-weeks, has been traced, amongst other factors, to the continuous fall in oil prices on the international spot market, and the slide in the foreign exchange rate of the naira when compared against the dollar and other hard currencies.

Fear is being expressed by stakeholders in the Organised Private Sector (OPS), some of who spoke in confidence, that it is a matter of time before the unfolding development, snowballs into a major economic crisis, if no urgent steps are taken to stem the tide.

Besides the falling oil prices on which the nation relies for over 85 per cent of its federally collectable revenue,   the devaluation of the naira and the non-inclusion of raw material inputs in sourcing foreign exchange from the bi-weekly Royal Dutch Auction System (RDAS), according to a source in one key player in the OPS, have grave implications for those in manufacturing, who depend on essential inputs from overseas.

The official said what is playing out now, is reminiscent of the events of 1986 when the naira was devalued by the then military government, which resulted in the steep rise in prices and caused collateral damage to manufacturers of consumer products, “the effects of which the nation has not recovered from.

He said what is happening presently will lead to the lowering of the purchasing power of the local currency, increase in cost of inputs, pointing out that the resultant effect would be that goods emanating from Nigeria will command higher prices, as against imported ones.  This, he added, “ will sound a death knell to the indigenous manufacturers, or whatever is left of that sector “

While acknowledging the fact that the unfolding scenario was unanticipated, the official, nevertheless called for a shock therapy, saying the response to the challenge, especially by manufacturers and other segments of the OPS, might result in production cuts and price adjustments, with its attendant consequences.

He said one of the most painful unintended outcome of the measures manufacturers might adopt to keep afloat, would be to lay-off some of their workers.

“This will be at variance with government’s often trumpeted agenda, which is that of creating jobs,” he said.

The official said since the economy has come under so much stress, the federal government should, as a matter of urgency, consider postponing the implementation of the  proposed  ECOWAS Common External Tariff (CET).
The effects of the oil price slide and the woeful standing of the exchange rate of the local currency against the greenback, is also telling on the prices of consumer items and building materials.

A staff of a leading publishing outfit, expressed his frustration about a car he intended to procure, and on which he had reached a financing deal with his bank. He said: “ We have agreed on a loan of four million, but to my surprise, they have revalued it to N5.6million, holding the exchange rate of the naira, responsible.”
It was also learnt, that prices of building inputs have equally skyrocketed.
Responses to inquiry from leading manufacturing outfits showed that the prevailing economic circumstances, are responsible.

One official said: “Besides the cost of energy which is enormous, the cost of money and the exchange rate regime, have simply compounded the situation.
An accountant with a media outfit said :” newsprint which we procured for N160,000 per tonne two weeks ago, has shot-up to over N178, 000 per tonne, representing an increase of over N28000.  The future is certainly not rosy. “

Culled from: http://www.thisdaylive.com