YEMISI IZUORA, in this analysis looks at blistering and stifling economic headwinds and claggy fiscal conditions and policies that has limited the growth of Nigeria’s manufacturing sector.
The Nigeria’s manufacturing sector should have by now recorded exponential growth in leaps and bounds but steadily it fights recession and depression occasioned by consistent fuggy and suffocating policies.
It suffers multiple layers of crises ranging from sabotage due to large scale import of substandard goods, penchant for imported products, multiple taxation, underutilization of capacity and regulatory constraints.
Yet in Africa, it holds the ace as industrial giant among its peers in Africa.
Consider that in Africa, Egypt, Nigeria and South Africa are the leading industrial giants, with manufacturing value-added of $59 billion, $55.9 billion and $49.3 billion respectively; collectively contributing 49.2 per cent of the continent’s manufacturing output.
When you narrow it down, in Nigeria, the manufacturing sector is a vital engine of economic growth, contributing significantly to value added Gross Domestic Product (GDP), employment, government revenue, foreign exchange inflow and technological advancement.
According to available data, the manufacturing sector in 2024, registered a remarkable market value of ₦37.49 trillion, representing 13.9 per cent of the country’s market size and accounting for 8.64 per cent of real GDP.
It generously raised employment estimated at 12.7 million people, contributing 12.5 per cent to total employment, generating significant tax revenue, with manufacturers paying over ₦578.39 billion and ₦626.42 billion in local Non-Import VAT and CIT respectively in 2023.
The sector’s linkages with agriculture, construction and services are expressively evident.
The sector has demonstrated enviable resilience even in the face of hostile macroeconomic environment and the persistent depreciation of the Naira, the sector still generated over $6.72 billion through manufactured exports in 2019, above $1.51 billion export earnings in 2024 and attracted $1.59 billion of foreign investment in 2023.
Record shared by the nations statistics agency, the Nigerian Bureau of Statistics (NBS) in 2024 confirms all these.
Intentional efforts at scaling these critical contributions to Forex inflow are vital for the stability of the local currency, upscaling employment generation and enhancement of economic growth.
In a more brazing way the sector earned $2.2 billion from the export of medium and high-tech manufactured products in 2022 due to the slow but steady processes of adopting new technologies that support improved productivity. Undoubtedly, these contributions underscore the sector’s critical role in driving currency stability, employment generation and economic growth.
Yet, despite its importance, the full potential of the manufacturing sector remains untapped, operating below its capacity due to macroeconomic headwinds; deficient infrastructure facilities and inadequacy of supportive government policies and incentives.
The Nigeria Manufacturing Sector undoubtedly is the engine of Nigeria’s industrialization, yet its current performance is sub-optimal.
Its performance had remained lacklustre due to numerous familiar binding constraints like unstable exchange rate, inadequate power supply/ high cost of energy, high inflation, insecurity, multiplicity of regulatory agencies and high regulation costs, high interest rate & poor access to credit, deficient infrastructure, high logistics cost, unfavourable trade policies and low patronage.
World Bank Assessment Of The Sector
The World Bank on its fair assessment of the sector, highlights the importance of the Nigerian manufacturing sector for economic growth, emphasizing its potential to drive innovation, create jobs, and promote shared prosperity.
While Nigeria is transitioning to a service-led economy, a strong industrial base, particularly in manufacturing, is crucial for sustainable development.
The World Bank emphasizes that a robust manufacturing sector is essential for Nigeria to achieve inclusive economic growth and reduce poverty.
Highlighting benefits of the sector, the World Bank argues that manufacturing drives innovation, creates jobs, and fosters productivity, contributing to a more equitable distribution of wealth.
The World Bank further advocates for addressing infrastructure deficiencies, particularly in electricity and transportation, to support manufacturing growth and supports a private sector-led, public sector-facilitated growth strategy, promoting competition and improving the business environment.
The Bank has consistently encouraged policies that enhance access to finance for businesses, improve policies in key sectors, and foster a conducive environment for manufacturing.
plummeting Capacity Utilization
At a business forum in Lagos, the Director General (DG);of the MAN, Segun Ajayi-Kadir, shared data showing that manufacturing capacity utilization plummeted from 73.3 per cent in 1981 to 57 per cent in 2024 and contribution to the economy has shrunk from 29.9 per cent to 8.6 per cent over the same period.
Real growth also decelerated from 14.7 per cent in 2014 to 1.38 per cent in 2024, while non-oil export contributions have nose-dived from 82.37 per cent in 2019 to 25.13 per cent in 2024.
As at 2023, 767 manufacturing companies have shut down operations and over 18,000 jobs were lost in 2024 alone due to the hostile business environment. This is evident in the country’s ranking of 97th in the Global Competitive Industrial Performance Index; an uninspiring 44 places below South Africa, Ajayi-Kadiri said.
The DG, told a meeting expectant to hear cheering news of economic growth as claimed by the present administration that the sector is worse hit by the prevailing economic downturn and now facing the combined storm of Forex losses, rising raw material costs, high energy prices, multiple taxation, escalated borrowing costs, infrastructural deficits and policy uncertainties.
Credible data revealed that in last year alone, the exchange rate depreciated by 53 per cent and the cost of imported raw materials surged by 118 per cent to ₦6.64 trillion.
In the same year, documented forex losses of manufacturers within MAN increased from ₦983 billion in 2023 to ₦1.62 trillion due to Naira depreciation as well as the non-settlement of the $2.4 billion worth of Forex forward contract by the Central Bank of Nigeria (CBN) a total contradiction of claims of improved economic environment.
In addition the SMI cadre is particularly impacted by the cost of alternative energy which skyrocketed from ₦781.7 billion in 2023 to ₦1.1 trillion in 2024, consequent upon the 240 per cent increase in electricity tariff. In addition, Finance costs jumped by over 44 percent to ₦2.06 trillion in the 2024 from ₦1.43 trillion in 2023, while multiplicity of taxes and excessive regulation have further stifled manufacturing growth.
The DG, went further to state, that market access and integration remain limited due to inadequate trading information and infrastructure deficits, while the poor transport system escalated logistics costs, making Nigerian manufacturers less competitive. Insecurity has elevated business risks, increased costs and made the investment environment uncertain. Agro-allied industrial activities have remained challenged by insurgent activities and farmer-herder clashes.
From the highlights, it became evident especially among those in the function room, that the business-operating environment is constraining Nigeria’s industrialization.
IMF Supports Reform Path To Restore Nigeria’s Macroeconomic Stability
On April 29, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Nigeria.
Though the present administration, has set out on an ambitious reform path to restore macroeconomic stability and support inclusive growth. The authorities reformed the fuel price subsidies, unified official foreign exchange windows, and are focused on revenue mobilization, governance, and enhancing the monetary and exchange rate policy frameworks, as well as strengthening social safety nets.
The IMF recalls that in the last decade, limited reforms, security challenges, weak growth and now high inflation have worsened poverty and food insecurity. While Nigeria swiftly exited the Covid-19 recession, per-capita income has stagnated.
Real GDP growth slowed to 2.9 per cent in 2023, with weak agriculture and trade, and despite the improvement in oil production and financial services. Growth was projected at 3.3 per cent for 2024 as both oil and agriculture outputs are expected to improve with better security.
The financial sector has remained stable, despite heightened risks. Determined and well-sequenced implementation of the authorities’ policy intentions would pave the way for faster, more inclusive, resilient growth.
Inflation reached 32 per cent year-on-year in February 2024, driven mainly by food price inflation 38 per cent and loose financial conditions. With continued monetary tightening, inflation was projected to gradually decline to 24 per cent year-on-year at end-2024.
The fiscal position though strengthened in 2023, revenues benefited from naira depreciation and enhanced revenue administration, while expenditure rationalization and restraint allowed for a one-off wage increase to mitigate the impact of high inflation for public officials.
The social cash transfer system has been strengthened and initial payments have been made.
Gross international reserves declined in 2023 amid persistent capital outflow pressures. The naira depreciated sharply after the unification of the official foreign exchange windows in June 2023.
Following monetary policy tightening in February and March 2024 and a resumption of FX interventions, the naira has started to stabilize.
Near-term risks are tilted to the downside, but determined and well-sequenced implementation of the authorities’ policy intentions would pave the way for faster, more inclusive and resilient growth.
Food insecurity could worsen with further adverse shocks to agriculture or global food prices. Adverse shocks to oil production or prices would hit growth, the fiscal and external position, and exacerbate inflationary and exchange rate pressures.
MAN Seeks Urgent Action
Despite celebrated interventions and seeming reforms, the Manufacturers are eagerly asking for swift and actionable reforms.
The Association wants urgent action to address these challenges and unlock the growth potential of the manufacturing sector. The current administration’s commendable efforts at improving production capacity and reforming the operating environment need to be accelerated and effectively coordinated, says Ajayi-Kadiri.
He says that inadequate transportation networks and poor logistics services, particularly around major ports and industrial corridors, create bottlenecks in the supply chain, making the operating environment inconducive for manufacturers.
Citing a recent report, he said that with a land mass of 923,768 square kilometres and a population of over 230 million, Nigeria has a road network of only 200,000km, and only 37 per cent of the roads are in good condition, impacting logistics and market access.
This situation makes it difficult for manufacturers to produce competitively and export efficiently.
The state of insecurity in Nigeria remains deeply worrisome, inspite of government’s evident efforts at bringing it under control.
The persistent activities of terrorists groups continued to force manufacturers out of business.
Quite a number of MAN members have reportedly shut down operations, especially in the Northeast. The operations of these groups, along with rising inter-communal violence, put manufacturing operations and investments at serious risk.
High burden of multiple charges and checkpoints around major transportation and trade corridors are another set of impediments.
For example, while it has been noted that about 53 checkpoints exist between Mile 2 and Seme border, the 20km Seme to Badagry route has a total of 34 checkpoints. This makes movement of goods and trading difficult.
Also, dumped and smuggled goods captured significant market share in sectors like textiles and electronics in 2024, undercutting local prices and causing revenue loss for manufacturers. The flood of substandard, second-hand products threatens local manufacturers.
Unfortunately, policy instability continues to undermine the sector, while financing remains a hurdle, with long-term funds scarce and average borrowing costs from commercial banks in 2024 increased to 35.5 per cent, up from 28.06 per cent in 2023, compared to 8 per cent in South Africa.
Electricity costs and accessibility remained a major concern. Inadequate energy supply significantly impacts industrial operations, with an increased percentage of industry energy consumption now produced off-grid.
In 2024, industrial electricity users on Band A witnessed an increased tariff by over 240 per cent.
Manufacturers’ spending on alternative energy sources such as diesel, other fuels, and generators rose sharply in the year. Total expenditure hit N1.11 trillion in 2024, a 42.3 per cent increase from N781.68 billion in 2023.
This challenge raises manufacturers’ operational costs and reduces competitiveness.
Nigeria’s Manufacturing Hub Spends N14 Trillion On Alternative Energy
Ajayi-Kadiri’s assertion corroborates revelation, that Lagos residents and industries spend an estimated N14 trillion annually on fueling generators. This is according to the Lagos State Commissioner for Energy and Mineral Resources, Biodun Ogunleye.
Ogunleye made the revelation during the opening of the Lagos Energy Summit themed “The Journey to Energy for All,”.
The commissioner described the summit as a platform to reflect on the state’s energy challenges and renew commitment to sustainable energy access.
He said a recent Energy Access Diagnostic Study conducted by the ministry in partnership with SEforALL uncovered the staggering extent of Lagosians’ reliance on self-generated electricity.
“Lagos has an estimated 4.5 million generators spread across residential homes, market clusters, and MSMEs,” Ogunleye said.
“These generators consume 16 billion litres of fuel annually, costing Lagosians about N14 trillion at today’s average price of N900 per litre,” he added.
The environmental cost, he noted, is equally alarming, with the generators emitting 38 million tonnes of carbon monoxide annually a figure that dwarfs the emissions of entire countries like Togo (9.8m), Rwanda (10.6m), and Gabon (10.2m).
He further revealed that these generators collectively produce about 21,000 megawatts of electricity privately, inefficiently, and expensively.
The study found that 72 per cent of households in Lagos own at least one generator, 94 per cent of small businesses rely on gensets, and 76 per cent of market clusters cannot function without them.
The Association noted that due to the high and volatile foreign exchange rate and high import duties, the cost of importing needed raw materials has risen astronomically. Sadly, while most of these raw materials are not available locally, those that are available are scarce and becoming limited in supply. The present inflation rate, interest rate, and exchange rate are all detrimental to business operations, driving up manufacturing production costs. High borrowing costs, the escalating cost of inputs, and a depreciating exchange rate are particularly burdensome for manufacturers.
Poor infrastructure, including inadequate power supply, poor road networks, and inefficient port facilities, is a serious impediment to the growth of the manufacturing sector.
The cumulative impact of these challenges on the manufacturing sector is substantial, as evidenced by a 35.3 per cent decline in investment in the sector in 2024, according to the MAN survey.
Also, there was a significant rise in unsold goods. The inventory of unsold finished goods increased by 87.5 per cent to N2.14 trillion in 2024.
This was due to low consumer purchasing power, high inflation and rising production costs. It is not surprising that the manufacturing sector growth has been on a decline for years, falling to 1.40 per cent in 2023 and further dropping to 1.38 per cent in 2024. The sector’s quarter-on-quarter growth reflects a similarly negative trend.
To unlock manufacturing potential and foster sustainable economic growth, individual stakeholders have a role, says MAN.
Turning to the media, the DG, says the media industry has a crucial role to play in redefining the manufacturing trajectory for improved economic performance in the country.
According to him, the media must leverage its influence to promote the manufacturing sector, work with MAN to champion the reforms necessary for the sector’s survival and sustainable growth.
In particular, the media should serve as a powerful tool to project MAN’s policy priorities and ensure manufacturers’ concerns are put in the forefront of public and government discourse.
The media must consistently track, analyse, and report on the implementation of industrial, trade, and investment policies to ensure the government delivers on its responsibilities to the manufacturing sector.
Media can bring sustained attention to challenges such as erratic power supply, forex instability, port inefficiencies, high operational costs, and regulatory bottlenecks that impede growth. You have been doing this, but I am convinced that you can do more.
He emphasized that the media’s engagement at this strategic platform is critical for shaping the national industrial agenda, amplifying stakeholder perspectives, and reinforcing accountability and by telling its success stories and showcasing opportunities, the media will help to build investor confidence, highlight the sector’s resilience and potential, and attract capital into the sector.
In addition it can advocate for policies that prioritise local sourcing of inputs. This will help to reduce dependency on imports and strengthen Nigeria’s manufacturing base, facilitate industry roundtables and conferences to enable inclusive dialogue and collaboration between government, private sector, and development partners.
Journalistic coverage backed by data strengthens MAN’s position in calling for reforms that support productivity, competitiveness, and investment in the manufacturing sector.
The Role Of Government
The Nigerian government holds the primary responsibility for creating an enabling environment to unlock the manufacturing sector’s potential, a task that requires strategic interventions across infrastructure, fiscal policy, and regional integration issues.
The Association commended the Federal Government for the passage of the four tax reform bills aimed at restructuring, streamlining and establishing unified tax processes and for pronouncement of the Nigeria First Initiative.
The nation anxiously awaits the expedited consummation of these initiatives and effective implementation.
Government should create structured platforms for regular consultation with manufacturers to ensure policies are inclusive, practical, and aligned with industry needs.
The Association further wants the Gazette of the “Nigeria First Policy”.
It should make the Nigeria First Policy a binding law, and punitive measures should be put in place for violators as this is critical to give the policy legal standing, ensuring transparency, public awareness, and enforceability across government institutions and the private sector.
Furthermore, Government should establish systems to gather and share timely, relevant export data through embassies, trade attachés, and agencies, to support manufacturers in accessing and competing in global markets and there should be consistent and transparent policies for investor confidence, long-term planning, and industrial growth.
Government should urgently improve infrastructure and logistics networks by investing heavily in critical transport infrastructure, particularly roads, ports, and industrial corridors, to reduce logistics bottlenecks.
The Association laments that with only about 37 per of roads in good condition, manufacturers still face delayed access to markets and increased transportation costs, making local products uncompetitive both locally and internationally.
A more robust step should be taken to fast track the Ajaokuta-Kaduna-Kano (AKK) gas pipeline.
The project, which is targeted for completion in 2025, is poised to add 3.6 gigawatts (GW) to the national power supply. This boost could reduce the current reliance on diesel generators among manufacturers and improve capacity utilization.
Stronger enforcement against smuggling, dumping, and counterfeit goods will safeguard local manufacturers and level the playing field and government must prioritize national security, especially around manufacturing hubs affected by terrorism, banditry, and inter-communal violence. The rise of insecurity poses direct threats to factories, workers, and raw material sourcing.
Support local content and value chain development has become imperative as incentivizing backwards integration and enforcing local content policies will boost domestic sourcing and deepen industrial linkages.
With the significant gap between loan applications and fund allocation, coupled with average interest rates exceeding 30 per cent, manufacturers are deprived of affordable, long-term financing.
To demonstrate commitment to industrial growth and reduce the mounting cost pressures on manufacturers, the government should adopt a comprehensive policy framework that guides industrial development, fosters growth and propels us towards a brighter economic future.
Adopting the report of 2024 Manufacturers Summit on Rethinking the Nigeria Manufacturing Sector and MAN Blueprint 2.0 as working documents will Fasttrack the process.
The CBN should Prioritize Forex sales to manufacturers, honour the unsettled $2.4 billion Forex forward contract and restrain commercial banks from harassing manufacturers on matters relating to outstanding forex forwards. This will restore manufacturers’ confidence in the market and peg the exchange rate for calculating customs duty on raw materials, spare parts and machinery that are not available locally.
The “Nigeria First” Policy must quickly move from initiation to government policy, lest it suffers the same fate as the Executive Orders 003 and 005. Nigeria must seize this moment to transform its manufacturing sector by prioritizing the patronage of local products.
Government should cut the benchmark interest rates and actively deploy moral suasion for commercial banks to prioritize lending to manufacturers at single-digit concessionary interest rates and leverage on the country’s partnership with BRICS to further diversify its export markets and products and reduce dependence on the US market, Fastrack the deployment of the National Single Window Platform, strengthens inter-agency collaborations at this crucial period of tariff war in order to safeguard the economy against possible aggravated smuggling and dumping.
There is also urgent need to inject life into the manufacturing sector by implementing the ₦1 trillion stabilization fund and facilitate the increase the capital base of the Bank of Industry to meet the credit demand of industries, remove the 4 per cent FOB levy permanently and address the concerns of importers who already paid the levy before the suspension.
The 4 per cent Freight on Board (FOB) surcharge on exports is an avoidable burden that confronts governments fiscal incentives and compromises the competitiveness of made in Nigeria products.
Eliminating it will directly avert the looming price escalation of goods in the face of dwindling disposable income of the average Nigerian, enhance the viability of Nigerian exports and promote non-oil revenue generation. Manufacturers who already paid the levy should either be refunded or allowed to use the sum to settle future payments.