Business

Manufacturers In Dire Straits As Unsold Goods Hit N470bn

Published

12 months ago

May 22, 2023

Editor

The Nigerian manufacturing sector is struggling with rising levels of unsold goods with inventory stockpile up 22 per cent to N469.66 billion in 2022 from N384.58 billion in the preceding year. Also, industry operators are saying the situation is worsening.

A report from the bi-annual economic review of the Manufacturers Association of Nigeria (MAN), the umbrella body of manufacturers in Nigeria, attributed the rise in inventory to a drop in the purchasing power of Nigerians occasioned by sustained inflationary pressures and worsened by the cash crunch that hit the economy in the first quarter of 2023, Q1’23, in the wake of the Naira Redesign policy. Analysis of the report shows that the rise in inventory is despite a 9.7 percent decrease in the manufacturing sector factory output to N6.67 trillion in 2022 from N7.39 trillion in 2021.

Commenting on the development, Director General, MAN, Segun Ajayi-Kadir, stated: “Inventory of unsold goods in the sector totalled N469.66 billion in 2022 as against N384.58 billion recorded in 2021. The high inventory recorded in the period is attributed to low purchasing power in the economy due to the declining real income of households following the continuous increase in inflationary pressures in the country.

“This is worsened by the Naira Redesign policy which began in the last quarter of 2022. The withdrawal of a large amount of the ‘old Naira’ without commensurate replacement with the ‘new notes’ resulted in a cash crunch in the economy with very limited means of purchasing items by households across the country.

“Inventory of unsold finished products in the manufacturing sector increased to N282.56 billion in the second half of 2022 up from N169.75 billion recorded in the corresponding half of 2021; thus, indicating N112.81 billion or 66 percent increase over the period. It also increased by N85.46 billion or 51 percent when compared with N187.1 billion recorded in the first half of the year.

“In the second half of 2022 as the cost of wheat and other food inputs increased; prices of fuels, particularly diesel rose by over 50 percent; cost of transportation logistics including shipping escalated even as the effect of COVID-19 pandemic is yet to fully die down. In addition to these challenges was the CBN policy on Redesigning the Naira.

“The CBN policy created a cash crunch that debilitated economic activities in the last quarter of 2022. This particularly affected the manufacturing sector adversely as it was extremely difficult to sell most of the Fast-Moving consumer Goods (FMCG) and other commodities by the sector in the period.” He called on the government to formulate and implement a national policy that would address the current high inflation in the country.

Factories closure imminent

Also speaking on the situation, MAN President, Francis Meshioye said: “The manufacturing sector has been struggling with crashing sales, mainly attributable to the sustained naira scarcity. A continuing decline in sale volumes will necessitate production cuts and a reevaluation of investments in the sector.

“Specifically, if sales proceeds can no longer sustain business overheads and operating expenses, businesses will be forced to scale down their operations which would result in factory closures, job losses, a decline in exports and much more.”

FMCGs kick on excessive taxation

Meanwhile, operators in the Fast Moving Consumer Goods (FMCG) industry have urged national and sub-national governments in Nigeria to stop making the sub-sector the target of their revenue mobilisation drive; which has led to the slow pace of growth in the sector.

Director, Corporate Affairs & Sustainability, Coca Cola Hellenic Bottling Company, Mr. Ekuma Eze, who made the plea at a recent event, said the FMCG sector has borne the brunt of such revenue mobilisation drives.

According to him, the FMCGs, which form the largest chunk of the manufacturing sector in Nigeria, and the fourth largest sector of the nation’s economy sector, are overburdened with taxes and levies, compared with their counterparts in other countries.

Eze said the introduction of, and increase in taxes, in recent times, bore eloquent testimony that companies in the nation’s FMCG remain the target of the government’s revenue drive.

Company income tax rate in Nigeria is 30 percent for companies with gross turnover greater than N100 million, compared to an Africa average of 23.5% and a worldwide average of 23.4 percent.

He stated further: “Tertiary Education Tax is now 3 percent going by the Finance Bill 2022.

“There’s been a consistent increase in excise tax for beer and tobacco companies while N10/1 excise tax was introduced in June 2022.

“The introduction of this new tax regime, due to price elasticity of demand, which is high among lower income consumers, who are major consumers of the products, has led to reduction in sales and a revenue decline of 16 percent between June 1 and December 2022.” He also lamented the negative impact of the recent Naira Redesign Policy on the sector, noting that the policy had succeeded in significantly reducing sales between February and March, this year, by between 20 percent and 60 percent.

According to him, the fallout of this is the re-organisation option being contemplated by some companies; a development, he noted, may further compound the nation’s unemployment issue.

Significant sales drop

“Many FMCGs reported significant sales decreases in February and March by between 20 to 60%. Many of these businesses are planning to restructure, which will worsen the unemployment problem,” Eze added.

Recall that MAN had issued a statement on May 2, 2023 condemning the recently released 2023 Fiscal Policy Measures, FPM, by the Federal Ministry of Finance, Budget and National Planning, saying that it would lead to industry recession, capacity under-utilisation, and layoffs of workers.

“We are again emphasising the fact that the proposed increase in the recently released 2023 guidelines i.e., on Beer, Wines and Spirits, Tobacco, has the potential to trigger unprecedented distortions in the affected industries as well as the entire manufacturing sector. “The policy is capable of producing a negative effect on investments with a huge consequence on job retention in these industries,” MAN had stated.

Inflationary pressure

Also commenting, Dr Chinyere Almona, Director General, Lagos Chamber of Commerce and Industry (LCCI), lamented that the rising inflationary pressure has significant and worrisome impacts on both the household and business sectors.
Her words: “Since February 2016 to date, the country has recorded a double-digit monthly inflation rate, with an adverse effect on the size of its middle class.

“Apart from eroding purchasing power, it has led to inventory stockpiles. If left unchecked, the high inflation may further constrain production, lead to a steeper rise in poverty figures, frustrate economic growth, and lead to higher unemployment and non-competitive exports, especially in the sub-region. LCCI is concerned that despite consistent monetary policy rate hikes, taming the inflation trend has remained futile.

“We, however, appeal to the government to implement fiscal measures, such as reducing/ removing taxes on staple food items to protect the most vulnerable as well as spur demand-side growth.”
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Business

BREAKIN: NDIC Increases Maximum Deposit Insurance Coverage

Published

6 hours ago

May 2, 2024

Editor

The Nigeria Deposit Insurance Corporation (NDIC) on Thursday increased the maximum deposit insurance coverage levels for Deposit Money Banks from N500,000 to N5 million.

The Managing Director of NDIC, Bello Hassan, announced this in Abuja at a press conference, stating that it takes effect immediately.

He said, “For Deposit Money Banks, the increase of the maximum deposit insurance coverage from N500,000 to N5,000,000, would provide full coverage of 98.98% of the total depositors compared with the current cover of 89.20%.

“In terms of the value of deposit covered, the revised coverage would increase the value of deposits covered by deposit insurance to 25.37% compared with the current cover of 6.31% of total value of deposits.

“The increase of the maximum deposit insurance coverage from N200,000 to N2,000,000, would provide full coverage of 99.27% of the total depositors compared with the current level of 98.76% and would increase the value of deposits covered by deposit insurance to 34.43% compared with 14.38% of total value of deposit, currently covered.

“The increase of the maximum deposit insurance coverage from N500,000 to N2,000,000 would provide full coverage of 99.34% of the total depositors compared with the current 97.98% and would increase the value of deposits covered by deposit insurance to 21.04% compared with 10.77% of total value of deposit, currently covered.”

Hassan also stated that raising the maximum deposit insurance coverage for primary mortgage banks from N500,000 to N2,000,000 would provide full coverage for 99.99% of total depositors and increase the value of deposits covered by deposit insurance to 43.10% of the total deposit value, up from the current 40.60% cover.

The Corporation has also raised the maximum pass-through deposit insurance coverage for subscribers of Mobile Money Operators from N500,000 to N5,000,000 per subscriber.

Business

Dangote Speaks On Devaluation Of Naira

Published

21 hours ago

May 1, 2024

Editor

Chairman of Dangote Industries Limited, Aliko Dangote has said that the devaluation of Naira created the biggest mess for the company in 2023.

Speaking at the annual general meeting of Dangote Sugar Refinery, Dangote said this affected lots of companies in the country.

He said: “We are doing whatever it takes to make sure that at the end of the day, we will be paying dividends because if you look at our dividends last year, it was almost 50 percent more so we will try and get out of the mess.

“The biggest mess created was actually the devaluation of the naira from N460 to N1,400. You can see almost 97 percent of the companies, especially in food and beverages businesses, none of them will pay dividends this year for sure but, we will try and get out of it as soon as possible.

“We want to see that at the end of the day, no matter how small, we will be able to pay some dividends, especially if there is a rebound of the naira.”

Business

Customers Panic As CBN Bans Opay, Palmpay, Others’ New Accounts

Published

2 days ago

April 30, 2024

Editor

Some bank customers have expressed panic as the Central Bank of Nigeria bans mobile money operators including fintech firms from onboarding new customers.

However, the Bank Customers Association of Nigeria backed the CBN directive.

The new directive will affect fintech companies such as OPay, Palmpay, Kuda Bank, and Moniepoint, from opening new accounts until further notice.

Reliable sources from three major fintechs who requested not to be mentioned as they were not permitted to speak, confirmed the development to The PUNCH on Monday.

The CBN’s move was linked to an ongoing audit of the Know-Your-Customer process of the fintechs, which have been under scrutiny in recent months over concerns around money laundering and terrorism financing.

It was gathered that the CBN had summoned some of the heads of fintechs to Abuja to discuss issues around KYC last week.

The CBN has not yet publicly commented on the directive to the fintech firms. The PUNCH’s attempts to reach the apex bank for comment were unsuccessful.

Several calls made to the telephone line of the CBN spokesperson, Hakama Ali Sidi, were not responded to as of the time of filing this report.

Also, the directive coincided with the court order that the Economic and Financial Crimes Commission (EFCC) obtained to freeze at least 1,146 bank accounts owned by various individuals and companies allegedly involved in illegal foreign exchange transactions.

The 85-page court order (document), which listed the bank account details suspected to be involved in illicit activities, was obtained by The PUNCH on Monday.

Justice Emeka Nwite, in a ruling on the ex-parte motion, moved by counsel for the anti-graft agency, Ekele Iheanacho, also granted the commission’s application to conclude the investigation within 90 days.

Part of the court document read, “That the applicant’s (EFCC) application is hereby granted as prayed.

“That an order of this honorable court is hereby made freezing the bank accounts stated in the schedule below, which accounts are owned by various individuals who are currently being investigated in a case involving the offenses of unauthorised dealing in foreign exchange, money laundering, and terrorism financing, to the extent that the investigation will be for a period of 90 (ninety) days.”

The EFCC, in the motion marked FHC/ABJ/CS/543/2024 dated and filed April 24 by Iheanacho, was heard by the judge the same day in the interest of national interest.

“The motion was brought pursuant to Section 44(2) and (K) of the 1999 Constitution; Section 34 of the EFCC Establishment Act 2004; Section 7(8) of the Money Laundering Prevention and Prohibition Act, 2022; and under the inherent jurisdiction of the court.”

The President of the Bank Customers Association of Nigeria, Uju Ogubunka, backed the CBN’s move to suspend new account opening on the affected platforms.

He told The PUNCH that the strict regulations that govern deposit money banks must apply to fintechs, and microfinance banks in order to ensure the integrity of the financial institutions.

He said, “Anything that can disrupt the system should not be permitted. If the platforms are being used for things that are against the regulations, I think the CBN decision is OK. I don’t see anything wrong with that. It behoves on the companies now to get their KYC right.

“Let them do what they are supposed to do. KYC applies to banks and other financial institutions that deposit money. It should also apply to them so that the regulators can understand what is going on and hold them accountable.”

On the other hand, Emmanuel Odunsi on X (formerly Twitter) welcomed the move, citing the need for better KYC processes to prevent scams and fraudulent activities.

“Their KYC isn’t that great. Lots of scammers are using their apps to defraud people.

“Most of the accounts were created by mining phone numbers, with subscribers’ permission. Almost every phone number has been linked to an account,” Odunsi said.

In October 2023, Fidelity Bank blocked transfers to OPay, Palmpay, Kuda, and Moniepoint due to concerns around KYC processes.

In response, the CBN introduced new KYC rules for all financial institutions in November 2023, which appeared to target fintech startups.

A source from Moniepoint said the company had complied with the directive, effectively halting new account creation on their platform. However, the source denied having anything to do with KYC.

“It’s just a regulation from the CBN, and we’ve complied. The real question is, why are fintechs always targeted,” he source argued.

“It has nothing to do with KYC; I am aware that the CBN communicated, but this particular issue dwells on accounts related to cryptocurrency transactions,” the source revealed.

The CBN has an ambitious target to increase overall financial inclusion to 95 per cent of the adult population by 2024.

With the new order, the target may be affected, as the company processes about 100 new accounts every day.

The source argued that fintechs had played significant roles in deepening financial inclusion in the country.

The company had deployed robust and reliable digital payment infrastructure that has facilitated an average monthly transaction value of $12bn for about 1.6 million businesses, it said last year.

A senior employee of PalmPay confirmed to The PUNCH that there was a CBN directive for fintechs to reassess their KYC processes.

This is causing a temporary pause in onboarding new customers, the source stated.

She clarified that the KYC review was a collaborative effort with the CBN, and fintechs were awaiting further instructions without a specified timeline for resolution.

Another source at OPay, who also declined to be named, said they were following the CBN’s directive and could not comment further.

“We don’t really have anything to say. It’s just a directive that we are following. The CBN has issued their directive.“

Fintech companies have faced increased regulatory scrutiny over their account opening processes.

Customers worry

However, some customers have also used social media, both on X (formerly Twitter) and Facebook, to express their worries and opinions on the matter.

Some customers are anxious about the safety of their funds, with Warisenibo Jumbo suggesting it’s best to transfer their money out of Opay.

Oye Niran wondered if their Moniepoint account was safe, stating, “Hope my Moniepoint account is safe.”

Larry Leanz questioned the rationale for keeping money on these platforms.

“But is it still safe to keep money there?, Leanz questioned.