The recent foreign exchange reforms initiated by President Bola Tinubu have wreaked havoc on Nigerian businesses. The naira has plummeted, exchanging for N747.87 per dollar, a significant drop from its previous rate of N463.38.
This has led to a surge in the cost of production, affecting businesses of all sizes, particularly those that rely on imported raw materials.
The Impact of the Naira Fall on Manufacturing
Manufacturers are feeling the pinch as the cost of raw materials has soared by more than 20-25%.
This surge has led to a decline in production capacity and a further decrease in consumer demand.
The Lagos Chamber of Commerce and Industry notes that businesses are struggling to sell their products, leading to larger inventories of unsold goods.
Furthermore, a recent survey by the Manufacturers Association of Nigeria (MAN) noted that “Only 14.7 per cent of manufacturers enumerated claimed that the rate at which forex was sourced improved in the second quarter of 2023; 66 per cent disagreed while 19.3 per cent were not sure if forex sourcing had improved in the quarter under review.”
The association added that “Despite the recent reform to unify all forex windows, the exorbitant premium that persists between the official and parallel exchange rates has further stalled manufacturing operations.”
Energy Costs Skyrocket
Also, the dollar-naira imbalance has had a domino effect on energy costs.
Businesses in the textile industry, for example, have seen their gas expenses nearly double.
This has given rise to talks of downsizing or even shutting down operations, as the cost of energy, priced in dollars, becomes increasingly unaffordable.
Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said,
“This is the worst period in history for businesses. Things have gone from bad to worse. The economy is not improving, poverty has worsened and unemployment is increasing.”
“Manufacturers particularly are either closing shops or relocating to other countries, so it has been very bad. The government promised to hit the ground running immediately they get into power but that has not been the case,” he added.
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