This reading fell significantly from 63 to 52. The decrease was seen across all company sizes (to a larger extent in medium-sized companies). The largest number of respondents (42%) reported no change in output. We note that in May there were several OMO auctions by the CBN which mopped up liquidity of about N234bn. As liquidity tightens cost of borrowing becomes more expensive for manufacturers, thereby affecting their ability to secure substantial raw material for production. Based on recent data released by the National Bureau of Statistics (NBS), the allocation of credit to the manufacturing sector in Q4 2016 totalled N2.2trn (representing 15% of credit to the private sector.) The fragility of the macroeconomic environment and growing concerns around non-performing loans suggest that loan growth from commercial banks will be at best subdued in the near term.
On a brighter note, the Development Bank of Nigeria (DBN) has received a licence for wholesale development finance from the CBN. The bank will be able to draw from funding pledges totaling US$1.3bn from the World Bank, the African Development Bank, and German and French state development funds. The DBN will provide loans at lower rates to all sectors of the economy, including manufacturing.
In late February the CBN announced a change in direction in its exchange-rate policy with two circulars. They stated that the CBN would make additional fx available for invisible transactions (school, medical and personal travel): currently the CBN sells to the banks at N357 per US dollar, and the banks to retail at N360. Additionally, the CBN has since injected about US$3.3bn through forward transactions for importers. Given that most manufacturers depend upon a blended fx mix to secure their import needs, this greater fx liquidity and the naira appreciation on the parallel market bode well for them. It is unclear whether this naira appreciation is sustainable and we still see a weaker naira on the interbank market by end-year.
The output readings should be more consistent whenever the turnaround of the power sector gains greater momentum. According to one of several industry estimates in circulation, an annual investment of US$15bn for three years is required to lift generation to 8,000 megawatts (MW). The largest allocation for capital spending in the FGN’s budget proposals for 2017 is N529bn for power, works and housing but it nonetheless accounts for little more than 10% of the identified annual investment requirement.