In 2020, Nigerian manufacturers were hit by acute dollar scarcity and supply chain disruptions primarily due to the outbreak of the coronavirus (COVID-19) pandemic. Rising poverty among the consumers also ensured that most of the products made by local manufacturers were left in the shelves.
Lockdowns, travel restrictions and closure of bars and eateries impacted brewers and manufacturers of social items across the nation, leading to job losses and low capacity utilisation.
“Lingering foreign exchange crisis was perhaps the most significant challenge
for the sector in the outgoing year as most industry players found it increasingly difficult to access FX meant for importation of critical factor inputs,” the Lagos Chamber of Commerce and Industry (LCCI) said in a 2020 economic review and 2021 outlook signed by Muda Yusuf, its director-general.
“Moreover, increased pressure on consumer purchasing power threatened the earnings performance of manufacturers in the FMCG space, which propelled them to
‘sachetise’ their product portfolio in a bid to boost patronage.”
According to the GDP report released by the National Bureau of Statistics (NBS), in the first quarter (Q1) of the year before the pandemic, activities in the manufacturing sector recorded a performance of 0.43 percent growth which experts tied to the slow resumption of activities following the new year. However, in the second quarter (Q2) of the year, in the heat of the COVID-19 pandemic which disrupted economic activities, the sector contracted by 8.78 percent signifying the struggle many manufacturers encountered during the period.
During the Q2, governments across various countries enforced lockdowns to curb the spread of the virus. Consequentially, some manufacturing firms were forced to suspend operations and in extreme cases shut down operations, as they struggled with productivity and sales volumes on the back of supply cut and decline in purchase.
Drug makers, however, were able to experience an increase in revenue despite the impact of the pandemic as people took extra efforts to remain healthy and prevent any kind of illness. In its half year financial performance for 2020, Fidson healthcare recorded a 12 percent increase in its revenue which grew to N8.2 billion from N7.3 billion in 2019. Similarly, Glaxosmithkline (GSK) in H1 2020 grew its revenue by five percent, moving from N9.9 billion in 2019 to N10.4 billion in 2020.
The food makers were also a part of the wins as Honeywell Flour Mills, between April and June which was during the peak of the pandemic, grew its revenue by 39 percent to N26 billion from N18 billion in 2019. Similarly, Flour Mills of Nigeria during that period grew its revenue by 15 percent from N134 billion in 2019 to N154 billion in 2020.
Some other manufacturers like the brewers had it tough. Nigerian Breweries had an 11 percent decline in revenue to N151 billion in H1 2020 from N170 billion in the same period of 2019.
Following the gradual resumption of activities in the third quarter, the sector performed better but could not avoid a recession as it contracted again by 1.51 percent, performing poorly in comparison with 2019.
The continued border closure exercise also put a strain on the inter-country trade activities, availability of raw materials and necessary manpower. In addition, the FX scarcity and volatility also hindered activities of manufacturers who source some raw materials from abroad. One dollar exchanged with naira at N360 at the beginning of the year, but shot up to N500 in early December before reverting to N475.
The pandemic cut crude oil sales and prices, leading to low FX inflows into Nigeria. Nigeria depends on crude for 75 percent of revenue and 90 percent of dollar needs.
In 2020, there was good news as Nutricima’s dairy business was acquired by Friesland Campina, the Dutch-owned multinational dairy production company at an undisclosed amount.
According to the Nigeria Centre for Disease Control (NCDC), Nigeria has almost 80,000 COVID-19 cases confirmed and over 1,000 deaths, worldwide.
Anthony Ajulo, executive director, Colton Group of companies, in a telephone conversation with BusinessDay, said although the year was tough for the business environment, his company managed to stay afloat.
“We expect that 2021 will be much better than this year and we are already seeing more opportunities of expansion with the commencement of the African Continental Free Trade Area and the gradual reopening of the border,” Ajulo said.
According to the Q3 GDP report, the high flyer in the sector which improved its activities were the Fast Moving Consumer Goods (FMCG) companies, cement makers the chemical and pharmaceutical subsectors, which emerged winners amid the pandemic.
Jide Babatope, a Lagos-based economic analyst, said prior to 2020, the manufacturing sector had already been struggling with FX scarcity, weak consumer demand, escalated cost of production, Apapa gridlock, perennial bottlenecks at the ports, regulatory uncertainties, and poor trade infrastructure before the COVID-19 disruption which simply intensified the challenges. He added that the CBN’s intervention fund had minimal impact due to low accessibility.
“In the event of another COVID-19 disruption, the challenges will be intensified and the impact will be more profound on manufacturing SMEs,”Babatope further said.