Nigeria

MAN: Some 2022 budget proposals may kill manufacturing sector

For the first time since the inception of his government in 2015, President Muhammadu Buhari yesterday acknowledged how much petroleum subsidy had eroded national revenues, making it impossible for the country to adequately fund its annual budget, despite significant appreciation in crude oil prices. Buhari made the revelations in Abuja while presenting a N16.39 trillion Appropriation Bill for the 2022 fiscal year to a joint session of the National Assembly.

The Manufacturers Association of Nigeria (MAN) on Sunday warned that some measures and policy initiatives in the 2022 budget proposals of the federal government presented by President Muhammadu Buhari to the National Assembly last Thursday may push some operators in the manufacturing sector over the edge.

Mr Segun Ajayi-Kadir, the Director-General of MAN said this in Abuja on Sunday while appraising the 2022 appropriation budget.

He listed the proposed excise duty on carbonated drinks, increased drive for collection of taxes and levies, and the highly ambitious assumption of a 13 per cent inflation rate as the factors that will have negative consequences on the manufacturing sector.

“All these mean further strangulation of the manufacturing sector that is already burdened with the multiplicity of taxes/levies and fees.

“The industries operating in this segment are already operating with extremely low margins, so the planned excise will push most of them over the edge.

“We risk an unprecedented build-up of unplanned inventory, downsizing of the labour force and factory closures.

“All these would vitiate the revenue expectations of government and therefore be counterproductive,” he said.

Ajayi-Kadir said that the budget’s implications for the manufacturing sector reflected the need to support its implementation with a more production centric monetary policy that would crash interest rate to guarantee positive results.

He said that the transmission mechanism of seamless access to long term funds at an affordable rate would naturally guarantee expansion in manufacturing investment.

“Additionally, it would ensure full utilization of idle capacities, increase capacity utilization, upscale manufacturing output and improve its contribution to the Gross Domestic Product (GDP),” he said.

Ajayi-Kadir said that the highs of the 2022 budget principally centre around the proposed aggregate capital expenditure of N5.35 trillion which is 32.64 per cent of the total expenditure.

He said this was against the N4.37tn and 32.2 per cent respectively of total expenditure in the 2021 budget.

The MAN director-general said that this meant that the sum allotted to capital expenditure would increase appreciably in 2022.

This, he said, was particularly for the building materials and construction segment that had higher multiplier effects on the manufacturing sector.

“No doubt, this buttresses the fact that government intends to continue to upscale the development of infrastructure across the country.

“This is a development that MAN considers laudable because it resonates with our annual advocacy submission to the government on the need to prioritise infrastructure development for sustainable economic growth.

“It will also increase production in the real sector of the economy,” Ajayi-Kadir said.

Ajayi-Kadir expressed optimism that the 2022 budgetary aspirations would be achieved considering the prevailing and foreseeable global, continental and national economic developments.

He, however, noted that some key assumptions of the 2022 budget such as the exchange rate of N410.15/US$ and growth rate of 4.2 per cent appeared theoretically good but realistically ambitious.

This, he noted, was judging from the uncertainty around the global economic ecosystem, including the resurgence of COVID-19 in many countries.

He commended the proposed increase in allocation to defence, infrastructure, health and education amongst others.
According to him, the increase indicates the government’s intention to further narrow the infrastructure gap.

He said it was also to secure the health of the populace, improve human capacity development and protect lives and property in the country.

“However, judging from the content of the address of the president and the presentation of the minister of finance, budget and national planning, the general character of the proposed 2022 budget suggests a huge fiscal deficit of N6.26 trillion.

“This translates to further increase in debt servicing responsibility, upscale in the drive for internally generated revenue, with moderate support for economic and productive activities, including manufacturing.

“It is therefore imperative for government to exercise caution in borrowing and work diligently to lower recurrent expenditure,” he said.

The MAN boss urged the government to give priority consideration to the full and timeous implementation of the 2022 budget when it became law.

He said the government should deliberately stimulate production through improved patronage of made-in-Nigeria products.

“Government must ensure synergy between monetary and fiscal policies to guarantee better economic performance and inclusive growth.

“It should prioritize the allocation of foreign exchange to the manufacturing sector for the importation of vital raw materials, machines and spares that are not available locally.

“Government must also reduce its recurrent expenditures to cut the fiscal deficit, borrowings and associated service charges.

“It should redouble efforts at addressing the insecurity situation in the country to improve food production and supply and ensure unfettered business activities.

“The above rest principally on our firm belief that the intentions and provisions of the proposed budget alone cannot guarantee success.

“In order to make sufficient and significant impact on the economy, they must be matched by supporting and complementary policies, effective and timeous implementation, and regular monitoring and performance evaluation,” he said.

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