Five manufacturing companies quoted on the Nigerian Stock Exchange (NSE) were among the big losers in the 2017 financial year, which presented operational challenges to the sector, as they lost more than N10 billion.

The figures compiled by The Guardian showed that the hit came from naira devaluation, scarcity of foreign exchange (forex), high cost of borrowing and low consumer spending.

The problem persisted during the financial year, despite measures by the government to reduce some of the effects on the manufacturing sector, including the difficulty in accessing foreign exchange, which were adjudged inadequate.

Specifically, the results of UAC of Nigeria Plc, Vitafoam Plc, CAP Plc, FTN Cocoa Processing Plc and Lafarge WAPCO Plc were examples of the net effects of difficult operating environment.
  While UACN’s Profit After Tax (PAT) declined from N5.6 billion in 2016 to N963 million during the period under review, representing a loss of 83 per cent, Vitafoam’s PAT stood at N190 million, from N412 million achieved in the corresponding period of 2016.  
 CAP Plc posted PAT of N1.4 billion, down from N1.6 billion in 2016, while Lafarge Africa recorded 37 per cent decline from N12.4 billion to N7. 9 billion.

Also, FTN Cocoa also posted PAT of N263.35 million, representing 59.38 per cent loss when compared to N419.73 million achieved in the comparable period of 2016.

The Chairman of UACN,  Dan Agbor, described the firm’s 2017 performance as “disappointing”, attributing the poor performance to compressions in the margins of the company’s operating subsidiaries.
  “Our company’s performance in 2017, was disappointing, with tepid growth, declining margins and resulted to poor share price performance. Our real estate segment (UAC Property Development Company Plc) has been struggling for several years and in 2017, continued to be affected by very high financing costs.
  “The animal feeds category, on the other hand, had to deal with the depletion of the poultry population, which in part was due to farms being closed as a result of increase in feeds costs,” he said.

Also speaking, the Chairman of Vitafoam Plc, Bamidele Makanjuola, explained that the company’s 2017 performance was severely constrained by adverse socio-economic conditions.

According to him, the company operated below installed capacity due to disruptions to raw materials’ inflow and foreign exchange scarcity in the first half of the financial year.
  He pointed out that while forex availability in the latter part of the year offered some respite, banks’ lendings to finance letters of credit and forward contracts came at prohibitive interest rates.

This, according to him, was further aggravated by illiquidity and a stringent regulatory regime in the banking industry.

“Because more than 80 per cent of our raw materials are imported, the free fall of the Naira, officially by 55 per cent and 83 per cent in the parallel market window, resulted in the technical depletion of available working capital to run the business, thus necessitating increased borrowing to finance our operations,” he said.

Commenting on the current state of the manufacturing sector in Nigeria, an economist, Johnson Chukwu, in a telephone interview with The Guardian, explained that the major factors inhibiting the growth of the manufacturing sector is access to fund and cost of fund.
 ”The cost of fund is high and the interest cost in Nigerian environment can only be borne by companies that have very short assets conversion cycle. For the manufacturing sector, the assets conversion cycle is long and burden of high interest rate cost is heavier on the sector.
 “Again the cost of doing business in Nigeria is another issue. 20 per cent of operating costs of business in Nigeria is related to energy and manufacturing do not involve very huge margin.
 “If 20 per cent of it is energy cost, it leaves them with difficulty to be profitable. We need to address cost of doing business in Nigeria, access to capital and cost of capital for them to rebound to profitability,” he added.
 The Managing Director of Berger Paints Plc, Peter Folikwe, said the manufacturing sector has not recovered from the recession. 
 “There is no gainsay that the manufacturing sector is the major employer of labour in the country. I praise investors in this sector for their selfless service to humanity.

Unfortunately, government seems to be a bit insensitive to their plights. 
 “Government’s promise of foreign exchange availability to manufacturers has not been fulfilled as most depend on importation of raw materials. The official CBN rate of N305/$ has remained an illusion. Since 2015 up until now, Berger paints has never bought dollar at N305 for its letters of credit transactions.  
 “I do not really see it happening for now. Even when you bid through the forex windows, it will take the grace of God to be allocated in a bid. This, invariably affects our operations, as local suppliers who mostly buy forex at the parallel market, offer the raw materials at premium. Yet, we cannot pass the excess cost to the customer,” he said.
 He stressed the need for federal government to review its policies that are inimical to the growth of the manufacturing industry.
 “Government must have clear understanding that it is not the portfolio investors that grow an economy, as it keeps saying ‘we are trying to encourage investors.’

It is the government’s ability to create enabling environment that can make companies to operate optimally, make profits and ultimately become attractive to both indigenous and foreign investors.
 “The Ghanaian government made a deliberate decision to grow its manufacturing sector in the region by deliberately enacting policies that will achieve that purpose. Nigeria needs to take a a clue from them. Government can give land free and grant tax holiday among others to encourage investors. 
 “The second thing, which I think the government should address as a matter of urgency is to evolve a policy that would help create a value chain for crude oil, instead of exporting it only in its primary state to the developed world, which then processes and sells back to us as raw materials/petrochemicals,” he said.
 The former General Secretary of Independent Shareholders Association, Adebayo Adeleke, stressed the need for government at all levels to focus on alternative means of income generation.
 He added that government should assist manufacturers by establishing companies that would serve as intermediaries for manufacturers in accessing foreign exchange.