The declining purchasing power of consumers has led to a 357.57 per cent rise in the inventory of unsold finished products of manufacturers in Nigeria to N1.24 trillion in the second half of 2024 (H1'24) compared to N271 billion recorded in the same period last year (H1'23).
The Manufacturers Association of Nigeria, MAN, disclosed this in its H1'24 Economic Review made available to Vanguard, yesterday.
This came as the Nigeria Employers' Consultative Association, NECA, warned that if what led to these challenges is not addressed, it could herald another wave of business closures, higher unemployment rates and greater social dysfunction.
On its part, the Association of Small Business Owners of Nigeria, ASBON, noted that it is the removal of the import ban that led to high flooding of the Nigeria market with imported products and lowered competitiveness of made-in-Nigeria products.
In the report, MAN attributed the "alarming increase" to declining consumer purchasing power to escalating inflation, subsidy removal, and devaluation of the naira.
"The inventory of unsold finished products in the manufacturing sector surged by 357.57 per cent year-on-year, reaching N1.24 trillion in H1 2024.
"The high levels of unsold inventories reflect the challenges faced by consumers and the need for interventions to stimulate demand and improve the sector's performance," it stated.
The report also lamented that the over 200 per cent increase in electricity tariffs imposed by DisCos significantly raised the cost of electricity for manufacturers.
This, according to MAN, coupled with ongoing power outages, placed additional financial strain on the sector, forcing them to seek expensive alternative power sources.
"The cost of providing alternative power has continued to rise, with manufacturers spending N238.31 billion on alternative energy sources in H1 2024, a 7.69 per cent increase from H2 2023.
"The surge in costs was driven by higher prices of diesel, gas, and other energy sources, as well as the need for manufacturers to invest in self-energy generation due to unreliable power supply from the national grid," the report added.
MAN, however, noted that there was a 2.8 percentage point increase in capacity utilisation in the sector to H1'24 compared to H2'23, reflecting some recovery.
MAN also noted that investment in the manufacturing sector rose to N250.13 billion in H1'24, a 29.63 per cent year-on-year increase, mainly due to the depreciation of the naira, which inflated the cost of importing machinery and other essential assets.
Commenting on the report, Segun Ajayi-Kadir, Director-General of MAN, said: "H1'24 was marked by significant challenges for Nigeria's manufacturing sector, including high operational costs, declining consumer demand, and rising inflation. While some sectors showed resilience and growth, others struggled with declining production values, rising inventories, and reduced employment.
"The report underscores the urgent need for Nigeria to implement decisive and coherent economic reforms to address these challenges."
It's a recipe for more business closures, higher unemployment, others - NECA
In addition, the Director-General of NECA, Wale-Smatt Oyerinde, said: "The recent upsurge in unsold inventory and collapse of the power grip portends enormous challenges for the manufacturing sector and businesses all over.
"While local businesses continue to struggle under the weight of these malaises, there are also unintended consequences for the country as potential foreign investors will be weary of an environment that is characterized with uncertainty.
"Notwithstanding the increase in electricity tariff, businesses continue to suffer epileptic power supply with attendant increase in cost of production.
"These challenges, if not addressed could herald another wave of business closures, higher unemployment rates and greater social dysfunction."
Import ban removal, high local production cost responsible - ASBON
Also reacting to the report, President of ASBON, Dr. Femi Egbesola, said: "Removal of import ban leading to high flooding of the Nigeria market with imported products and lowered competitiveness of made-in-Nigeria products, high cost of transportation, rising cost of doing business, economic and policy instability, shift in consumers demand for cheaper but lower quality products are key drivers to high volume of unsold finished products.
"Other factors are largely due to very high price of finished goods occasioned by hyperinflation, thereby reducing the purchasing ability of the consumers."
CANMPEF blames the decline in consumers' disposal income
On its part, Chemical and Non-Metallic Products Employers' Federation, CANMPEF, has blamed the declining disposal income of consumers for the rising volume of unsold manufactured goods in the country.
The Executive Secretary of CANMPEF, Olorunfemi Oke, said, "There is a huge surge in the inventory of manufacturers of non-essential items because of the decline in the disposal income of consumers, while there is an increase in the cost of production, leading to an increase in the prices of the products.
"The huge cost of diesel, Premium Motor Spirit, PMS, (Petrol) and electricity tariff is making manufacturers consider alternative energy sources like gas and solar. Unfortunately, the supply of gas is epileptic."
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