March 17, 2022

The Manufacturers Association of Nigeria (MAN) on Thursday said feedback from its members indicated that production capacity utilisation was going down due to the unsustainable cost of running daily production on diesel.

Mr Segun Ajayi-Kadir, Director-General, MAN, made this known in an interview with the News Agency of Nigeria (NAN) in Lagos.

Ajayi-Kadir said that the rising price of Automotive Gas Fuel (AGO), otherwise known as diesel, had become very worrisome following its negative impact on businesses, especially the manufacturing sector of the economy.

He noted that the hike was due to the increase in price of crude oil at the international market which had gone above $110 per barrel following the ongoing war between Russia and Ukraine.

“Knowing also that diesel has been deregulated removes the question for a buffer to the cost.

“The law of demand and supply is at play here and since we have historically lacked local refining capability, we are left at the mercy of the vagaries of international price and the geopolitics of it.

“As long as the price of crude oil continues to go up, price of AGO will equally skyrocket.

“It is now said to be selling at N750 per litre, up from about N300 per litre two months ago.

“Unfortunately, manufacturers who largely rely on diesel to run their factories due to unreliable nature of the grid power supply, are contending with huge cost to sustain their production line.

“The direct implication of this trend, as many Nigerians are already feeling the heat, is the reflective high cost of goods in the market owing to the high cost of production,” he said.

The MAN director-general said that it was on record that manufacturers expended N100 billion yearly on alternative energy source which constituted between 30 to 40 per cent of their cost structure.

He said that the implication was that manufacturing cost structure was thrown overboard; working capital depleted and capacity utilisation nose-dived.

“Since the average Nigerian’s disposable income has been depleted, we can only expect that the resulting higher prices of goods will further constrain purchases and aggravate the poverty level.

“The solution is rather complex since we are dealing with a deregulated industry as I earlier mentioned.

“In the short term, we can only look at how to get more favourable prices from the marketers; seek to remove other costs that are in the country such as Value Added Tax on AGO.

“We will also work with government to reduce the pressure in other pain points for the manufacturers,” he said.

Ajayi-Kadir stressed the need to make the nation’s refineries work, incentivise the building of more refineries and generally ramping up the private sector players in the sector, including foreign ones.

“And of course the big elephant in the room is making electricity available to manufacturers.

“Government should deliberately prioritise supply to the sector in view of the multiplier effect it has on the economy and government revenue.

“The eligible customer scheme should be allowed to work without any hindrance, including the requirement of no-objection from the electricity distribution companies.

“The tariff structure that makes the maximum demand on customers to pay more should also be re-examined,” he said.(NAN)