In light of sustained pressures in the foreign exchange market and escalating production costs, the Manufacturers Association of Nigeria (MAN) has raised concerns over the mounting inventory of unsold goods. This trend is now posing a significant threat to the survival of companies operating within the production sector, with potential repercussions including widespread job losses.
Recent investigations conducted by Financial Vanguard have revealed a staggering 254% plunge in the value of the naira against foreign currencies since the Central Bank of Nigeria (CBN) floated the currency in June 2023. Before the currency floatation, the naira traded at N471 per dollar in the official Investors and Exporters (I&E) market.
However, as of February 23, 2024, the exchange rate had plummeted to N1,665.50 per dollar on the Nigerian Foreign Exchange Market (NAFEM), marking a depreciation of over 253.6% within eight months. This foreign exchange crisis, coupled with soaring inflation rates and escalating energy costs, has severely eroded purchasing power, leading to a drastic decline in consumer demand for goods.
Director General of MAN, Segun Ajayi-Kadir, highlighted the dire consequences of these economic challenges on the manufacturing sector. He emphasized reports indicating that numerous warehouses and manufacturing plants across the country are inundated with unsold inventory from the previous year. This overstocking predicament stems from a combination of factors, including the exchange rate crisis, inflationary pressures, the proliferation of counterfeit goods, smuggling activities, and other macroeconomic challenges.
Ajayi-Kadir cautioned that many manufacturers are now compelled to curtail production activities as they monitor developments closely, awaiting signs of improvement in sales to facilitate the clearance of existing inventory before embarking on fresh production cycles. He underscored the possibility of workforce downsizing and production halts if manufacturers continue to face operational constraints, such as dwindling access to foreign exchange and heightened exchange rate volatility.
Despite efforts by manufacturing companies to adopt alternative strategies, such as backward integration to source raw materials locally, the prevailing economic conditions have compelled many businesses to consider scaling down operations or suspending activities altogether. Nigerian Breweries (NB) Plc, for instance, recently issued a price review notification to its customers in the West Zone, attributing the adjustment to rising input costs and the need to mitigate the impact of the ongoing economic challenges.
In light of projections by the International Monetary Fund (IMF) warning of further depreciation of the naira and a potential peak inflation rate of 44% in 2024, the outlook for manufacturing companies remains uncertain.
With mounting pressures on profitability and sustainability, industry players are grappling with unprecedented challenges, navigating a landscape fraught with economic volatility and uncertainty.