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Naira devaluation: Manufacturers consider price hike

By on December 20, 2014

Manufacturers in the country who are currently battling to come to terms with the devaluation of the naira, say the cost of production has risen and will impact on the cost of goods and services in the coming year.

Some of them who spoke with our correspondent said the devaluation was already taking a toll on production cost.

Local manufacturers largely depend on imported raw materials for their products and, according to them, the depreciating value of the naira as well as the hitherto high cost of manufacturing in the country are affecting productivity.

“For all the manufacturers in the country, the devaluation is going to have a huge effect especially because it is happening at the end of the year. The major effect will be felt next year though, but manufacturers are already feeling it,” the Group Executive Director, Tower Aluminium Nigeria Plc, Mr. Devendu Bajpai said.

Bajpai added that it would also take some time for the market to absorb new prices which would constitute another challenge for manufacturers.

“The effect on sales of products will come later but it will hit the bottom line faster,” he said.

A source at DN Meyer Plc, manufacturers of paints and allied products, stated that suppliers of raw materials were already complaining that their prices would increase in January as most of the raw materials were imported.

“Suppliers are already saying they can no longer fly with the old price because of the exchange rate, which also means that the cost of production will increase on our side. But it will be difficult to pass it to the consumers because the purchasing power will be low at that end,” the source told our correspondent,

The source stated that the cost of production would eventually affect prices of commodities but not immediately adding that “manufacturers will undergo strategic thinking but it is inevitable that prices of both production and cost of goods will rise because interest rates are even high at the banks as the CBN has mopped up the liquid assets.”

Although our correspondent could not get manufacturers in the Fast Moving Consumer Goods to comment on the development, reports indicate that they are currently reviewing prices while the banks have also increased their interest rates from 25 to 26 per cent.

Meanwhile, the Manufacturers Association of Nigeria said it had gone into a strategy meeting on how to deal with the current situation and mitigate the consequences of the pending economic gloom.

“As a monolithic economy, Nigeria crude oil is not just the principal export commodity of the country; every aspect of the country’s life revolves around the commodity, hence yearly budget is predicated on the price of crude in the international market.

“Nigerian manufacturers depend largely on imported raw materials and the naira fast depreciating against the dollars makes it undeniable for prices of goods and services to go up,” MAN noted in a statement.

MAN said it had hurriedly summoned an emergency meeting of its Economic Policy Committee in Lagos to discuss the issues and the way forward as members had lamented the severe impact of the erosion of the naira’s purchasing value on their business and the attendant increase in prices of their raw materials machinery, spare parts and all other import-dependent procurements.

According to the statement, the meeting reviewed the present scenario and concluded that it had led to a significant increase in the cost of production, making local products less competitive especially in the face of the impending implementation of the ECOWAS Common External Tariff in January 2015.

The ECOWAS CET is expected to allow goods move from other parts of West Africa into Nigeria without the imposition of any form of tax, import duty or levy.

The statement noted that MAN had resolved that its members would be forced to raise the prices of products because of production cost which had gone up significantly due to the devalued naira.

“Our customers have been affected by the downturn in the economy and may now be unable to buy up these products, leading to increased inventory in our factories and then all the attendant problems,” the association was quoted to have said.

It added that MAN had made medium and long term recommendations to the Federal Government at the end of the meeting to save their businesses, stating that they expected volatility in the interbank market which would lead to instability and unpredictability in procurement planning by the industrial operators as a result of the crisis.

MAN cautioned that there was likely to be the occurrence of cost-push inflation which might lead to resistance by consumers thereby creating depressed demand and the resultant high level of inventory of finished products by manufacturers.

“The high inventory of finished goods will result to cut in production, lay-off of workers, massive unemployment and the consequent factory closures and escalation of poverty contrary to the Transformation Agenda of the present administration. Reduced capacity that would arise from the above will further increase dumping and smuggling of imported finished products to the country,” the statement added.

 

[Punch]