
MAN CEO MCCI Report : Forex scarcity, weak currency, high funding cost, overregulation, others are albatrosses of manufacturing in Nigeria
MAN CEO MCCI Report : Forex scarcity, weak currency, high funding cost, overregulation, others are albatrosses of manufacturing in Nigeria


Paucity of forex, high lending rate , overregulation by regulatory agencies ,multiple taxes and levies among others are some of the macroeconomic factors that have continued to hamstring the Nigeria’s manufacturing industry sector, according to CEO Manufacturers Confidence Index (MCCI) report released recently by the Manufacturers Association of Nigeria (MAN) for the second quarter of 2021.
The report said “difficulty in sourcing forex for importation of raw-materials and machines that are not locally available has been a critical challenge to the manufacturing in Nigeria,” adding that “since the onset of COVID-19 pandemic in the early quarter of 2020, the severity of forex challenge has intensified, particularly as the value of the Naira deteriorated. Unfortunately, even with gradual return to normalcy of business activities and the increasing recovery of forex earning as crude oil prices improved, acute shortage of forex persisted.”

In addition, the Central Bank of Nigeria (CBN) has consistently intervened in the forex market (official and BDC windows) but the result has been negligible, particularly in the second quarter of 2021. Consequently, 52% of manufacturers interviewed during the fieldwork for the second quarter MCCI, disagreed that the rate at which forex was sourced improved. 30% all manufacturers interviewed were not sure while only 18% agreed that the rate has improved as depicted in Figure ‘i’.
On this account therefore, it is critically important for the CBN to speed up the on-going review of forex management procedures to ensure that available forex in the country is productively utilized.
Added to the forex scarcity is high lending rate. According to the MCCI report, “cost of funds in Nigeria, which is usually at double digit, has always been one of the core challenges of the manufacturing sector. This is because it tells directly on cost of production and the competitiveness of the sector.
Majority (76%) of manufacturers enumerated in the fieldwork of this report disagreed that the rate at which commercial Banks lend to manufacturers encourages productivity in the manufacturing sector. Only 13% of those sampled agreed that the current lending rate encourages productivity in the sector while the remaining 11% were not sure as shown in Figure ‘ii’.
It is therefore expedient for the Central Bank of Nigeria to take-up a rigorous monetary management measures that would encourage reduction in lending rates on loans offered to the productive sector by the commercial banks. With the Monetary Policy Rate (MPR) standing currently at 11.5%, there may not be credible reason the average lending rate to manufacturers by the banks is still as high 22% as revealed by MAN survey of the sector.
Size of Loan to the Sector 70% of manufacturers enumerated in the fieldwork of the report disagreed that the size of Commercial Bank loan to the manufacturing sector encourages productivity in the manufacturing industries. 17% of the respondents are not sure of the effect of such loans while the remaining 13% agreed that the size of the loan encourages productivity in the sector. Lending to the real and the manufacturing sectors have dwindled over the years due to the increased presence of the Government in the Nigerian Money market – Government Treasury Bill, Bonds, Sukuk, etc have almost crowded out private sector borrowing in the market. It is therefore pertinent that Government balances its participation at money market with the interest of the private sector. In addition, CBN should update manufacturers regularly with status reports on the implementation of the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMED), N300 billion Real Sector Support Facility (RSSF) and the N1 Trillion COVID-19 stimulus to further encourage operators to take advantage of the window.
According to the report, another serious problem of the manufacturers in the country is the menacing activities of regulatory agencies in the country. Reponses from manufacturers show that over-regulation of the manufacturing sector by Government agencies still persisted in the quarter under review.
Majority of respondent, 95% agreed that multiple and over regulation by government agencies have depressing effect on manufacturing productivity. 3% of respondents are not sure while the remain 2% simply disagreed as shown in Figure ‘v’. Manufacturers suffer multiple regulation on a single manufacturing process occasioned by the agencies of the Federal, State and Local Governments.
In the same vein, 95% of manufacturing CEOs enumerated agreed that multiple taxes and levies charged by government agencies have depressing effect on manufacturing production. 4% of the respondents are not sure of the implication on the sector while only 1% disagreed. Apart from the approved list of taxes and levies to be charged to companies as compiled by the Joint Tax Board (JTB), there are a large number of outside taxes, levies and fees that are charged to manufacturers by the revenue generating agencies of the government.
It is therefore important for the government to publish the list of taxes and levies compiled by the JTB and ensure that all charges to the manufacturing sector are legal.
MCCI is an index created by the Manufacturers Association of Nigeria to gauge the change in quarterly pulsation of manufacturing activities to changes in the macroeconomic ambience and Government policies. MCCI is therefore barometer used by MAN to garner the perceptions of CEOs of manufacturing companies on changes in the economy.

The imperative diffusion factors considered in the MCCI 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 also gauges changes in key macroeconomic indicators including sector specific factors that represent Government activities and policy measures in the economy. Consequently, the effects of movements in Foreign Exchange, Lending Rate, Credit to the manufacturing sector and Capital Expenditure of the Government were also measured. In addition, it gauges the outcome of changes in business operating environment factors which include Over-regulation, Multiple taxes/levies, Access to seaports, Local raw-material sourcing, Government patronage of Nigerian manufactured goods and Inventory of unsold manufactured products.
The instrument of data collection for MCCI is a structured questionnaire administered on the Chief Executive Officers (CEOs) of MAN member-companies across the six geo-political zones and Sectoral Groups of the Association through MAN’s branch networks. Since the first edition, MCCI has consistently provided experiential bases that are critical to strengthening the evidence advocacy dogma of the Association.
To generate the data for this report, MCCI survey covered 400 Chief Executive Officers of MAN member-companies. They provided data on the afore-mentioned Diffusion factors, macroeconomic indicators and business operating environment variables which were analysed descriptively using tables, simple percentage and charts. In addition, data provided by the CEOs on the Diffusion Factors were used to compute the Index (MCCI) which it the weighted average of percentage response (1=Positive, 0.5=Neutral and 0=Negative) of responses to the Diffusion Factors.
MCCI has a baseline index of 50 points which suggests a stationary point in the economy. Therefore, any index point above 50 points indicates that manufacturers have confidence in the economy and improvement in manufacturing performance, while any index point below 50 points indicate otherwise. By the design of the Diffusion Index, the more index point tends to 100 points the higher the level of confidence in the economy and improvement in manufacturing activity.
Recognizing the various challenges identified in this report and need to adequately address them so as to sustain the little improvement made in the sector in the last two quarter of 2021, we recommend as follows:
i. Poor access to forex
In view of the new CBN policy that stopped allocation of forex to the BDC segment of the foreign exchange market for operational incongruities further increased the responsibilities of Commercials Bank in handling forex sales and applications in the economy. It is therefore important to encourage the Banks to build more capacities through designate desks for handling the streaming applications and Form M to ensure seamless and timely processing of forex application by manufacturers.
Granting concessional forex allocation at the official forex market to manufactures for importation of productive inputs that are not locally available;
Unify the various forex windows in the country;
Allocate all available forex productively
ii. High cost of Electricity/Power
The Eligible Customer initiative is a novelty among the recent electricity regulations in the country. MAN believes that the regulation is capable of addressing to a large extent the current electricity challenge of the manufacturing sector. Unfortunately, the Distribution Companies and their cohorts are doing everything within their powers to frustrate the initiatives. This may have in one way or the other been responsible for the recent call for the cancellation of the project. Therefore, we encourage the Government to continue with the plan and create a platform where all stakeholders within NESI will deliberate on the implementation of the regulation and resolve all pending issues that have affected the seamless running of the Eligible Customer initiative.
Reviewing the current increment in electricity tariff;
Encourage investment in the electricity value chain, Generation, Transmission and Distribution
iii. Multiple taxes and Levies
Publish the list of approved of the harmonized taxes and levies for the manufacturing sector by the Tax Joint Board (JTB)
Commence implementation of the harmonized taxes and levies project which should be monitored and enforced strictly by the Joint Tax Board (JTB);
iv. Over- Regulation
There has been unbridled double regulation of Chemical materials by the Standards Organization of Nigeria (SON) and the National Agency for Food and Drug Administration and Control. We encourage the Government to streamline NAFDAC with the control of only for related chemical materials, while SON oversees non-food related ones.
Manufacturers also suffer unwarranted invitations on account of unverifiable accusations by the police. Recently, the Police Authorities have been harassing manufacturers on issues such as debt owed to DisCos, CO2 Emission and others that are completely out of the scope of their mandate, for rent seeking purposes. We encourage Government to explore established means of addressing industry related issues and desist from using unorthodox means that is susceptible to excessive use of initiatives and subject to abuse.
Fully implement the report of the Steve Orasanye Committee on the Restructuring and Rationalization of the Federal Government Agencies, parastatal and Commissions.
Direct all Regulatory Agencies, especially the National Agency for Food and Drugs Administration & Control (NAFDAC) to reduce the administrative charges to manufacturing companies by 50%.
v. Ports Challenges
Improving on the time taken to clear container/cargoes clearance at the ports;
Installing sound trade facilitation equipment at the ports such as scanners, etc.;
Reducing the various port charges and removing demurrage for undue delayed clearance;
Resuscitating available rail tracks and constructing new ones and linking them to industrial hubs;
vi. Poor access to Funds
Recapitalization of Bank of Industry (BOI) and Bank of Agriculture (BOA) to adequately meet the industry credit need at single digit interest rate;
Providing a Credit guarantee for industrial loans from commercial banks;
Direct intervention from the CBN Governor to ensure that MAN members access the funds, particularly the N1trillion COVID-19 Stimulus Package;
Update Manufacturers with the current feasibility of the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMED) and N300 billion Real Sector Support Facility (RSSF) and how they can be accessed.
vii. Unavailability of Raw- Materials
Selecting strategic product for Backward integration and further driving the resource-based industrialization agenda;
Encourage investment in the development of machines; iron and steel; petrochemical sectors to support manufacturing;
viii. Low sales/patronage
Reverse the Value Added Tax Rate back to the pre 2020 Finance Act rate to improve the disposable income of Nigerian workers, stimulate consumption, promote an upsurge in demand and increase production output
Monitor, evaluate and enforce the implementation of the Executive Order 003 to ensure compliance by MDAs
In the second quarter of 2021, the normalcy and tranquility seen in the economy in the first quarter of the year was sustained as business activities increasingly rebounded from the hangover of COVID-19 pandemic. This is corroborated by the increase in MCCI scores for the second quarter of the year to 52.9 points from 49.1 points recorded in the first quarter. The index score of 52.9 points in the quarter under review was the first it stayed above the 50 neutral point since the first quarter of 2020.
Consequently, the index performance underpinned the improvement in the confidence of manufacturers on the economy, although much is still required to ensure that the current momentum in the economy is sustained and improved upon. Therefore, this report provided critical recommendations that addressed the various challenges of the manufacturing sector as identified by manufacturers in the quarter under review. We believe that with the ardent implementation of the recommendations, there would be significant positive change in the business operating environment in the country.
.