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Raw materials shortage hits manufacturing companies

Table water factory

Manufacturers are facing severe raw materials shortages resulting from foreign exchange scarcity which is hurting production activities in the sector.

Manufacturers who spoke with The PUNCH lamented the difficulty in accessing foreign exchange at the parallel market due to the clampdown on activities of bureau de change operators, noting that many of them could go out of business.

According to the Chief Executive Officer of Coleman Technical Industries, George Onafowokan, the weakness of naira, particularly at the parallel market where the vast majority of manufacturers source foreign exchange, had greatly disrupted production activities.

Onafowokan further expressed optimism that the price hikes, which followed naira’s dramatic slide, would fizzle out if the currency maintained its current momentum.

He said, “The volatility of the 36 per cent increase in one week or so was not to anybody’s benefit. It distorted the markets. Manufacturers kept repositioning, and eventually the whole manufacturing sector almost went into comatose. Some companies had to stop selling, stop production, because there was no way they could replace their stock.

He said manufacturers were dealing with the dictates of the black market, which was not healthy for the economy.

“Whether you’re buying raw materials or machinery, you’re still dependent on the black market, unfortunately,” he said.

A manufacturer of chemicals and Chief Executive Officer of MD Company Limited, Ike Ibeabuchi, said he was experiencing severe raw materials shortages owing to the forex scarcity.

“My raw materials were depleted two months ago, but I have not been able to replenish them because I cannot find dollars. Also, the dollar rate is also making it almost impossible for many of us to continue in the manufacturing business,” he said.

The Chief Executive Officer of Kenfrancis Farms, Ifeanyi Okereke, told The Punch that his company had shut down due to the foreign exchange crisis bedevilling the industrial sector.

He said,” We started in 2016, believing in Nigeria and hoping that we could process agro products and exports. But getting raw materials to carry out this objective became

a problem. Our cost of production skyrocketed and, at a point, it became clearly impossible to continue operations. We suffered severe shortages before we closed down,” he said.

 The President of the Premium BreadMakers Association of Nigeria, Emmanuel Onuora, said the bakers were still hard hit by the dollar crunch, triggering significant increases in the prices of baking materials.

 Onuorah said, “It’s affecting us adversely. Prices of materials have gone up. Flour prices have increased. We don’t have in-country capacity to produce the raw materials we use. The price of flour just went up by about N2,300. The prices of calcium and preservatives have gone up by N4000. There is also an increase in the price of baking ingredients.”

 The PBAN president further stated that the development had seriously eroded the profit margins of bakers who had to resort to survival measures to stay in business.

“We’re not making profits. Everybody is just surviving. We are not even talking about profitability now. We are looking for ways to produce, maintain quality and at the end of the day, be able to pay for materials and run overhead. Profitability is out of the question for now,” he added.

Also speaking, the immediate past Chairman of Nigerian Association of Small Scale Industrialists, Segun Kuti-George, described the recent rebound of the naira as a welcome development.

“The appreciation of the naira is a welcome development. This is the kind of thing that will help businesses to grow as it would reduce the cost on importation because we import most of our materials. Seventy to 80 per cent of raw materials we use in Nigeria are imported. So, price will come down and people will make more money and when they do, they will generate more profit and employment,” he said.

However, Kuti-George noted that the new development was being taken with a pinch of salt.

He also noted that the dollar was not available to manufacturers because of scarcity, adding that the situation would get worse in the new year due to the new directive by CBN for banks to source forex on their own.

The Director General of National Association of Chambers of Commerce, Industry, Mines and Agriculture, Olusola Obadimu told The PUNCH that the effect of the naira appreciation would not directly impact the market till it reached a level of stability.

“There are many ways to look at it. First, whatever relief people are getting now cannot have any impact. The naira has to stabilise first, because in business growth is not determined in one day. It is over a period of time.

“Also, the gap between the parallel market rate and the official rate is too wide. That way, the CBN is not encouraging production, because I can sit in my house and buy at the official rate and then sell at the parallel market rate and make money. It gives too much power to those who have access to dollar.

Speaking on the sustainability of the current rise in value of naira, Obadimu noted that the only way to boost a currency was through production and export.

“The reason behind the incessant hike in dollar to naira is the problem of demand and supply. There is little forex available because Nigeria imports almost everything. You can’t strengthen a currency if you don’t produce and export.”

Obadimu cited insecurity and oil theft as factors affecting currency and the economy.

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