Though the latest GDP growth numbers showed a dip to 2.25 per cent in the third quarter of 2022, from 3.54 per cent in the second quarter, reflecting the diverse headwinds that have been bedeviling the Nigerian economy, there are concerns that the overwhelming effect on the manufacturing sector may linger, with implications for higher inflation.
Indeed, data from the National Bureau of Statistics (NBS) showed that Nigeria’s industrial sector shrank to its lowest value in terms of contribution to GDP in seven years.
A striking feature of the GDP Q3 report was the contraction of the manufacturing sector which shrunk by 1.91 per cent. This is the first quarterly contraction of the manufacturing sector since 2020 when the economy slipped into recession.
Of greater concern was the slump in the food and beverage sector which contracted by 4.05 per cent. This is the first contraction of the sector since the recession of the second quarter of 2020.
Nigeria’s industrial sector includes the mining and quarrying sector (oil and gas included), the manufacturing sector, electricity (including gas, steam, and air-conditioning), the construction sector, water sewage, and waste management.
This is also the sixth consecutive quarterly recession having recorded another contraction in the third quarter of 2022. Data from the NBS also revealed Nigeria’s Industrial sector reported a GDP contraction of -8% in the third quarter of 2022.
According to stakeholders, the food and beverage sector remains the flagship of the Nigerian manufacturing sector and even the toast of investors in the stock market. The sector contributed N2.2 trillion to GDP in the third quarter of 2022.
The Nigerian economy appears to favour service-based businesses as they rely less on the country’s road network to increase output.
As inflation continues to rise and the Central Bank of Nigeria (CBN) reacts with contractionary monetary policy measures, stakeholders expect the industrial sector to shrink further in the near term.
They noted that the continued decline of the sector reflects a major setback for the Nigerian manufacturing sector which calls for an emergency response by the government.
Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf stated that the plunge in the manufacturing sector performance has profound implications for food inflation, food security and employment, adding that the food processing sector has the biggest impact on jobs because of the strong backward integration content and high multiplier effect in the agriculture value chain.
According to him, to fix the economy and address sectors that are in recession, sectors that slowed and those that have contracted, there is a need to put in place reforms and intervention measures.
Some of the measures, according to Yusuf includes, fixing the macroeconomic headwinds of high inflation and currency volatility, addressing the structural impediments to production and other economic activities, reforming the foreign exchange market to inspire investors’ confidence, addressing the challenges of insecurity and logistics, taking urgent steps to tame inflation and boost purchasing power of the citizens and deploying fiscal reforms which prioritize infrastructural development and transparency in the budgetary process.
The Manufacturers Association of Nigeria (MAN) through its Director-General, Segun Ajayi-Kadir had urged the FG to address the foreign exchange and energy issues that contribute to unfavorable movements in manufacturing indicators.
He noted how challenges of inadequate foreign exchange and the energy crisis dipped the manufacturing growth output from 5.8% in the first quarter of 2022 to 3.0% in the second quarter, citing that these negatively affected manufacturers that were already dealing with poor operating conditions caused by COVID-19 and Russia invasion of Ukraine.
He warned that increase in energy costs, due to global inflation, affected the cost of importation across the world, including Nigeria, citing manufacturing indicators such as capacity utilisation, contribution to real Gross Domestic Product (GDP), investment, employment, cost of production, competitiveness among others were also negatively impacted.