Manufacturers’ Capacity Utilisation, Production Volume, Decline in Q2

Samuel Mobolaji

Manufacturers’ capacity utilisation, production volume, investment, among others dropped in the second quarter of the year as harsh business operating environment continue to affect businesses in the country.

A survey conducted by the Manufacturers Association of Nigeria (MAN) had revealed worsening impacts of macroeconomic environment on the manufacturing sector in second quarter (Q2), 2024.

The survey’s report, which was titled, ‘Manufacturers’ CEO Confidence Index (MCCI) second quarter, 2024’ covered the impact of macroeconomic environment on key manufacturing indicators such as production and distribution costs, capacity utilisation, volume of production, investment, employment, sales volume and cost of shipment in the period under review.

It confirmed the effect of the harsh macroeconomic environment on manufacturing indicators. The state of insecurity, rising energy costs and lending interest rates continue to reinforce the inflationary pressure, thereby making the operating environment highly unfavourable and sales less profitable for manufacturers.

The report showed that capacity utilisation declined further by 14.1 percent in Q2 2024 from 9.8 percent witnessed in the preceding quarter; the volume of production slid further by 11.9 percent in Q2 2024 from a contraction of 10.1 percent recorded in the previous quarter; while manufacturing investment dipped by 5.0 percent in Q2 2024 from 5.2 percent contraction recorded in the preceding quarter.

Manufacturing employment declined by 4.9 percent in Q2 2024 from the 5.3 percent contraction recorded in the preceding quarter; sales volume fell by 9.3 percent in Q2 2024 compared to the decline of 7.2 percent witnessed in the preceding quarter; while cost of shipment rose by 17 percent in Q2 2024 from the 22.2 percent increase recorded in Q1 2024.

The report revealed a cursory observation of the analysis showed that all the manufacturing indicators recorded unfavourable changes during the period of review.

“In addition to the forex scarcity, high exchange rate and heightened inflation, the unfavourable macroeconomic environment was aggravated by the skyrocketed increase in the electricity tariff, the consistent increase in interest rates, the perennial fuel scarcity and the nationwide industrial action during the reviewed quarter. All of these grossly escalated the cost of manufacturing operations, distorted the manufacturing value chain, discouraged investments, increased job losses and reduced sales volume,” it added.

The director-general of MAN, Segun Ajayi-Kadir said: “Nigeria’s path to sustained industrialisation and steady economic growth remains threatened as little to no attention is given to the numerous pressing challenges that limit the performance of the manufacturing sector, saying that “a sector widely regarded as the driver of economic growth and sustainable development.

“Undoubtedly, a rapidly growing economy is only achievable when the binding constraints hindering the performance of the manufacturing sector are confronted head-on.”

In line with the position of MAN, Ajayi-Kadir said, “it is recommended that the government committedly adopt the following measures to tackle the burning challenges that are waning manufacturers’ confidence and deviating the country from the path of a sustainable robust growth.”