Nigeria’s embattled manufacturing sector is groaning under the crushing weight of monstrous unplanned inventory. Unplanned inventory is the stock of manufactured goods that could not be sold.
The inventory is unplanned because manufacturers expect to sell what they produce. When the plan to sell all what is produced fails, the goods become a burden to the manufacturers because it not only occupy space in their ware houses but it also ties down their money.
Nigerian manufacturers’ unplanned inventory (stock of unsold goods) rose by 85.5 per cent to N2.14 trillion in 2024.
There are numerous reasons for the massive increase in unsold goods. One of the reasons is high cost of funds. Lending rates rose from 28 per cent in 2023 to 35.5 per cent in 2024.
The reason is the flawed fight against inflation staged by the Central Bank of Nigeria (CBN). The apex bank had enigmatically blamed excess liquidity for the nation’s spiraling inflation when it had confessed that 93 per cent of the currency in circulation was outside the banking system.
The consequence of the wrong diagnoses is that the CBN persistently hiked the monetary policy rate (MPR) and consequently pushed the benchmark lending rate from 18.5 per cent in 2023 to 27.5 per cent in 2024. That pushed the prime lending rate (the rate at which leading conglomerates access funds) to a minimum of 31 per cent.
Manufacturers paid through the nose to service their debts as a result of the high lending rates. They serviced their loans in 2024 at the outrageous cost of N1.3 trillion. That partially explains why Nigerian Breweries lost N52 billion in the first quarter of 2024.
The high cost of fund is eventually passed to consumers by way of price hikes that cumulatively priced goods out of the reach of millions of consumers.
The alarming cost of funds escalated production cost and constrained capital expansion and investment opportunities.
The second reason for the high unplanned inventory is the despicable depreciation of the naira. Depreciation is a double edged sword.
It raises the cost of imported raw materials which Nigerian manufacturers heavily depend upon. It also fuels inflation that depletes the purchasing power of the naira and torches off low demand for goods which is the major cause of unplanned inventory.
The high cost of power is the third reason for the alarmingly high unplanned inventory in 2024. Band A tariff rose by 200 per cent and escalated production cost.
Band ‘A’ tariff is an evil that even the presidency is now planning to circumvent. While those on Band C may get as much as 20 kilowatt hours of electricity for N1,000, those on Band A get a paltry 4 kilowatt hours for N1,000.
The deputy governor of Lagos state recently complained that power bill in his official residence has risen to eight digits. The presidency is equally worried about Band ‘A’ tariff.
It has allotted N10 billion in the 2025 budget for investment in solar energy. There are fears that the presidency may just be protecting itself from the evil of Band A tariff while the nation’s manufacturing sector groans under the agony of the plague.
The federal government can rescue the manufacturing sector from the plague of Band “A” tariff if it takes steps to reduce the cost of solar power equipment like battery and solar panels.
The solar battery that cost N75,000 in 2019 now cost N300,000. Consequently, many have abandoned their solar power facilities and grudgingly switch back to public power supply.
Manufacturers’ option to the epileptic public power supply is to generate power through millions of micro, small, medium and large generators.
That is another big burden. In 2024, the year that many Nigerians will not forget in a hurry because of the economic torments it brought about, manufacturers spent N1.1 trillion on diesel and petrol for powering generators. No one knows precisely which of the two, public power or private generators, is cheaper.
Ultimately, both manufacturers and consumers are paying the price of high cost of power in the economy. Manufacturers pay through the mountain of unplanned inventory emanating from low patronage as a result of low purchasing power of the naira.
Consumers pay through prohibitively high cost of products which many of them can no longer afford. The alarmingly high unplanned inventory is a calamity for the economy. It ties the hands of manufacturers from passing the high cost of production to consumers whose purchasing power can no longer carry the cost of products imposed on them by high lending rates, Band “A” power tariff, high cost of diesel and petrol for powering private generators and atrociously high cost of imported raw materials.
The result is low productivity and the consequent retrenchment of skilled personnel. In 2024 the mountain of unplanned inventory imposed on the economy forced the deletion of the names of 17,949 workers from the pay roll of various manufacturing companies.
That again is the cause of the low gross domestic product (GDP) which prevents Nigeria from joining the prestigious club of the world’s 20 largest economies. It is partially responsible for the nation’s low GDP which lingers around a paltry $200 billion. President Bola Ahmed Tinubu has set for his administration the unenviable target of making Nigeria a $1 trillion economy by 2030.
To attain that target, the president must do a hard fine fight against the mountain of manufacturers’ unplanned inventory. That means that the federal government must stimulate the appetite of Nigerian consumers.
That could only be done by making the manufacturers goods affordable. The despicable depreciation of the naira must be halted. The high lending rate is perhaps the cheapest target among the myriads of problems responsible for the prohibitive production cost in the economy.
CBN must be ordered to ease its grip on lending rates. Manufacturers must be given free hand to produce without being afraid of the monster known as unplanned inventory.