Financial Energy Review
As the rising cost of diesel alongside poor electricity supply and lingering foreign exchange challenges takes a toll on the manufacturing sector, operators have raised the alarm about imminent collapse of the productive sector, if the government does not provide any form of intervention.
The Manufacturers Association of Nigeria (MAN), in reaction to the current increase in price of diesel recalled that over the years, the manufacturing sector has been battered by numerous challenges that have plummeted the number of industries in Nigeria and converted industrial hubs in many parts of the country to warehouses of imported goods and event centres.
The manufacturers noted the exertion of untold hardship on the manufacturing sector leading to the closure of many industries, reduction in capacity utilisation, further decline in GDP, large scale unemployment across 76 sub-sectors and increase in crime rate.
The association identified key challenges confronting the sector as a high operating cost environment occasioned largely by inadequate electricity supply and the high cost of alternative sources, excessive regulation and taxation, and inadequate supply of foreign exchange for importation of raw materials, spare parts and machinery that are locally available.
All these, they noted, have culminated into the lacklustre performance of the sector. Commenting on the rising cost of diesel, Segun Ajayi-Kadiri, Director General of MAN, called for immediate removal of Value Added Tax (VAT) on Automotive Gas Oil, AGO, also called diesel as instant stimulus for immediate reduction in price and expedite action in reactivating or privatising the petroleum products refineries in the country.
To remain in business the manufacturers demanded development of a National Response and Sustainability Strategy to address challenges emanating from the ongoing invasion of Ukraine by Russia and consistent support to manufacturing to accelerate the process of recovery from the aftermath of COVID-19 and previous bouts of recession to avert the complete shutdown of factories nationwide with multiplier effect on the employment.
Other demands include issuance of licences to manufacturing concerns and operators in the Aviation industry to import diesel and aviation fuel directly to avert the avoidable monumental paralysis of manufacturing activities arising from total shut down of production operations and movement of persons for business activities, and addressing the challenge of repeated collapse of the national grid (twice within a week), which is causing acute electricity shortage in the country, especially for manufacturers.
They called for policy to urgently allow manufacturers and independent petroleum products marketing companies to also import AGO from the Republic of Niger and Chad by immediately opening up border posts in that axis to cushion the effect of the supply gap driven high cost of AGO, restriction of the export of maize, cassava, wheat, food related products and other manufacturing inputs available in the country; and granting concessional forex allocation at the official rate to manufacturers for importation of productive inputs that are not locally available.
Ajayi-Kadiri observed that the current increase in prices of crude oil and other refined petroleum products such diesel is one of such disruptions occasioned by external shocks that confirms the interwovenness of economies in the world.
No doubt, he said that the recent short supply and over 200 per cent increase in the price of AGO are part of the backlashes from the ongoing invasion of Ukraine by Russia.
This resulted in numerous economic sanctions on Russia by the US and EU, which propped up the price of crude oil to $120 per barrel (now moderated to about $100) as Russia oil export is isolated.
He said the association is greatly concerned about the implications of the over 200 per cent increase in the price of AGO on the Nigerian economy and the manufacturing sector, adding, “More worrisome is the deafening silence from the public sector as regards the plight of manufacturers.
“Four obvious questions that readily come to mind that are seriously begging for answers are, what can we do as a nation to strengthen our economic absorbers from external shocks? Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange and now over 200% increase in price of diesel be advised to shut down operations? Should we fold our arms and allow the economy to slip into the valley of recession again? Is the nation well equipped to manage the resulting explosive inflation and unemployment rates?”
According to him, in the short term the disruption occasioned by the invasion of Ukraine by Russia will continue to heavily ruffle the global energy space and upset the supply of petroleum products thereby causing persistent increase in the price of refined petroleum products including AGO.
