The declining growth of the Nigerian economy has far-reaching implications for the manufacturing sector and the national economy, the Manufacturers Association of Nigeria (MAN) has said.
Reacting to the recent report by the National Bureau of Statistics (NBS), which revealed that year-on-year real Gross Domestic Product (GDP) growth of the Nigerian economy stood at 2.25 per cent in the third quarter of 2022, MAN said such slow growth could further worsen Nigeria’s credit rating.
In a statement yesterday, MAN stated that the slowdown in Nigeria’s GDP growth would further hurt her credit rating, as high economic growth is one of the indictors of sustainable debt. Besides, in recent time, MAN said Moody’s and Fitsch had downgraded the country’s credit rating.
“It is expected that the credit rating will further worsen and significantly limit the country’s chances in sourcing for external development funds. This will inevitably slow down the pace of developmental projects,” the statement, which was signed by MAN Director Segun Ajayi-Kadir, said.
The NBS had in its recent report revealed that year-on-year real GDP growth of the Nigerian economy stood at 2.25 per cent in the third quarter of 2022. At a real GDP value of N18.96 trillion, the latest performance signified a shortfall of 1.78 per cent point from 4.03 per cent real GDP growth recorded in the third quarter of the previous year.
It also indicated 1.29 per cent point decline from the value of economic activities recorded in the second quarter of 2022. The nominal GDP of N52.26 trillion recorded in the third quarter represented a year-on-year increase of 15.83 per cent from the value of N45.11 trillion recorded in the same quarter of the preceding year.
The latest nominal growth rate exceeded the 15.03 per cent and 15.41 per cent respectively witnessed in the preceding quarter and the corresponding quarter of 2021.
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Reacting to the NBS’s data, MAN lamented what it termed far-reaching implications of Nigeria’s declining economic growth for the national economy and the manufacturing sector, noting, for instance, that it was an indication of lower production and lower employment.
According to MAN, “the continuous downturn of the economy has further validated the urgent need to release an updated unemployment rate that corresponds with the current economic situation.”
The association, while pointing out that the last published unemployment figure was in December 2020, at 33.33 per cent, added that analysts had projected that the country’s rate of unemployment was well above the 40 per cent mark.
MAN also said the declining GDP growth rate was a setback on the fight against poverty. “In an economy with an average population growth rate of 2.6 per cent, the recent real GDP growth of 2.25 per cent implies that real GDP per capita growth has depreciated by 0.35 per cent.
“This is a clear indication that more Nigerians have been thrown into the poverty trap and will also result in the country being downgraded from a middle-income to a low-income economy,” Ajayi-Kadi said in the statement made available to The Nation.
He also said the slowdown in GDP growth was an indication of the nation’s sub-optimal revenue generating capacity.
The MAN DG further said the fact that the sectoral contribution was skewed in favour of the non-oil sector gave a clear indication that the Nigerian government has not been able to fully optimize the country’s revenue potential especially for the fact that majority of the operators in the informal segment are in the service sector.
Data provided by the NBS report showed that Food, Beverage & Tobacco (48.8%), Textile, Apparels and Footwear (18.6%) and Cement (11.72%) were the top three contributors of the manufacturing sector in the third quarter of 2022, although only the cement industry recorded a higher contribution than the figure in the preceding quarter.
In terms of a year-on-year real growth performance, the top three leading sub-sectors included Chemical and Pharmaceutical Products (11.09%), Cement (4.13%) and Non-Metallic Products (4.00%). On the other hand, Chemical and Pharmaceutical Products, Wood & Wood Product and Basic Metal Iron & Steel were the top three improved sub-sectors in the period under review.
However, the manufacturing sector accounted for 8.59 per cent of real GDP in the third quarter of 2022 which is marginally lower than the 8.96 per cent recorded in same quarter of 2021 and 8.6 per cent recorded in the preceding quarter of 2022.
On a year-on-year basis, the sector grew by -1.91 per cent in the third quarter of 2022 compared to 4.29 per cent in the third quarter of 2021 and three (3) per cent recorded in the second quarter of 2022.
This represented a -6.2-percentage point and -4.91 percent point decline from the growth witnessed in 2021 Q3 and 2022 Q2 respectively. “The overall decline in both aggregate and sectoral performances could have far-reaching adverse effects on manufacturers,” Ajayi-Kadi said.
One of such adverse effects, according to him, is lower manufacturing turnover. The GDP growth slowdown will most likely result in higher unemployment rate.
“Coupled with high inflation rate, the economy is likely to face higher misery index that worsens the poverty level and further shifts consumers away from elastic manufactured goods. This will eventually result in drastic reduction of patronage and lower sales turnover,” he said.
Ajayi-Kadi also said there will be heightened forex challenges. While pointing out that the slag in the diversification drive implies further dependence on imported raw materials and machinery, he said the forex crisis bedeviling the manufacturing sector is not likely to be resolved anytime soon.
He further stated that the situation will result in slow infrastructural development and reduction in credit intervention
“Considering that the revenue generating capacity of the government is hampered by high unemployment, the limited funds will slow down the provision of infrastructure and credit facilities necessary to boost productivity of the manufacturing companies. Otherwise, the government will resort into more borrowings and put the country in debt peonage,” the MAN DG said.
He also stated that there will be fall in manufacturing investment. According to him, “The negative growth of the sector’s GDP sends a strong signal to potential investors in the sector. The impending result is negative investors’ sentiments and pessimism against provision of critical raw materials, technology and technical know-how required to promote the industry.”