‘Worsening Energy Prices Will Increase Inflation’ — Manufacturing Firms Groan

Manufacturing firms in Nigeria are currently groaning and bedevilled by worsening energy prices characterized by diesel price hike that has significantly spiked production costs amid inflationary pressure on the economy.

Worsening Energy Prices Will Increase Inflation
Worsening Energy Prices Will Increase Inflation

Over the past six months, manufacturing companies have faced challenges with regard to their energy needs. An increasingly inconsistent supply of power, coupled with a significant spike in the price of diesel, has produced far-reaching consequences in relation to production costs.

For most industry players and analysts, this challenge has pushed several industries to the brink, more so because it has been worsened by the Russia-Ukraine war which has triggered a global energy crisis that reverberated like a ripple across a pond.

Manufacturers have often raised the alarm over lack of access to forex, excessive taxation, high electricity tariff, and harsh operating environment, among others.

But energy costs and foreign exchange crises take precedence over the majority of challenges facing manufacturers in Nigeria today.

On Friday, July 8, 2022, the Manufacturers Association of Nigeria, warned that a shutdown of manufacturing activities was imminent if nothing was done to address the soaring cost of energy bedevilling the sector.

Top 15 Countries With The Highest Inflation Rate Globally
Worsening Energy Prices Will Increase Inflation

In a statement, the Director-General of the association, Segun Ajayi-Kadiri, said over the years, the manufacturing sector had been battered by numerous challenges which had reduced the number of industries in Nigeria and converted industrial hubs in many parts of the country into warehouses of imported goods and event centres.

The statement also noted that manufacturers were heavy users of electricity in Nigeria, which naturally necessitated their keen interest in electricity and alternative energies supply-related discourse and development.

The MAN also asked for a policy that would urgently allow companies and airlines to import diesel and aviation fuel respectively from the Republic of Niger and Chad.

It further said that by immediately opening up border posts in that axis for this purpose, the effect of high diesel and aviation fuel prices would be cushioned on the economy.

According to the association, there is an urgent need to save the remaining manufacturing companies from closing down as a result of challenges arising from the inadequate electricity supply, inaccessible foreign exchange, and a rise in the cost of diesel.

Globally, prices started to rise in mid-2020 when businesses shut down due to the COVID-19 pandemic, straining supply chains. While it was projected that the price system would resolve itself in the succeeding years, an unpredictable element – the Russia-Ukraine war – came into the mix and exacerbated an already snarled supply chain.

Again, in Nigeria, as in many parts of the world including the United States, inflationary pressure started building since the beginning of the year, and the country’s working public has had to grapple with the harsh reality of seeing their wages pay for fewer goods and services.

According to the Nigerian Living Standards Survey report published by the NBS in 2020, the number of poor Nigerians stood at an estimated figure of 82.9 million. What this implied was that about 40.1 per cent of Nigerians were living below the breadline.

Also, according to the National Bureau of Statistics, on average, four out of 10 individuals in Nigeria have real per capita expenditures below N137,430 per year, which translates to N376.5 per day.

Furthermore, in March 2022, the World Bank said that the number of poor Nigerians was projected to hit 95.1m in 2022.

In its poverty assessment report titled, “A Better Future for All Nigerians: 2022 Nigeria Poverty Assessment,” the Washington-based bank said that the COVID-19 crisis was driving up Nigeria’s poverty rate, pushing more than five million additional people into poverty by 2022.

In the light of real per capita GDP growth showing negative trends in all sectors in 2020, the bank said the country’s poor masses now had to grapple with a deepened level of poverty, while those households that were just above the poverty line prior to the COVID-19 crisis would be likely to fall into poverty.

“Were the crisis not to have hit (the counterfactual scenario), the poverty headcount rate would be forecast to remain virtually unchanged, with the number of poor people set to rise from 82.9 million in 2018/19 to 85.2 million in 2020 and 90.0 million in 2022, due largely to natural population growth,” the bank said.

“Given the effects of the crisis, however, the poverty headcount rate is instead projected to jump from 40.1 per cent in 2018/19 to 42.0 per cent in 2020 and 42.6 per cent in 2022, implying that the number of poor people was 89.0 million in 2020 and would be 95.1 million in 2022. Taking the difference between these two scenarios, the crisis alone is projected to have driven an additional 3.8 million Nigerians into poverty in 2020, with an additional 5.1 million living in poverty by 2022.”

Meanwhile, Nigeria’s unemployment rate as of the end of 2020 rose to 33.3 per cent from 27.1 per cent recorded as of Q2 2020, indicating that about 23,187,389 (23.2 million) Nigerians were unemployed.

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