Nigeria’s manufacturing sector continues to face significant difficulties despite a reported rise in the Purchasing Managers’ Index (PMI) to 50.5 percent in September 2024.
This growth, while seemingly positive, obscures deeper structural problems that plague the sector. According to recent data published by the Central Bank of Nigeria (CBN), industrial activity in the sector contracted for the ninth consecutive month in 2024, with a PMI of 49.7, just below the growth threshold.
The marginal improvement, according to analysts, dwarfs the severe challenges faced by manufacturers in the country, which include infrastructure deficits, high production costs, an unstable power supply and a volatile foreign exchange market.
Despite the PMI rise, key indicators such as new orders and employment in the sector have fallen, reflecting a broader slowdown in industrial activities. Manufacturing experts caution that without comprehensive policy reforms, the sector will continue to struggle, limiting its contribution to economic diversification and growth. The sector’s contraction, particularly in manufacturing, has been evident since January 2024 and shows no signs of reversing soon.
In contrast, the CBN’s PMI report highlighted expansions in Nigeria’s services and agricultural sectors for the fourth and second consecutive months, respectively. However, the industrial sector’s continued contraction, albeit reduced compared to August, underscores the persistent difficulties that manufacturers face.
While subsectors such as mining, quarrying, electricity, gas and water supply have seen some growth, the manufacturing subsector remains in decline.
Reacting to the development, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, urged the CBN to adjust its market-oriented monetary policy to protect the real sector of the economy.
He argued that the current policy framework appears to penalise producers by imposing high borrowing costs. While investments in bonds and treasury bills are tax-free, manufacturers face multiple taxes, leading to a challenging business environment.
The interest rate on loans has soared above 32 percent and currency depreciation has worsened with the naira falling from around N500 per dollar in June 2023 to over N1,600 per dollar in 2024, he lamented.
To the founder and Chief Consultant at B. Adedipe Associates Ltd. Dr Abiodun Adedipe, Nigeria will attract more manufacturing companies from across the globe if the naira becomes stable.
He said: “My first pick is manufacturing for the good reason that manufacturing thrives when the exchange value of the naira is stable.
“A stable naira enables manufacturers to plan and of course, it means that if the rate is also stabilised at let’s say between N1,050 and N1,250, then there is the possibility for manufacturers to be able to plan. So, I expect a lot of traction in manufacturing.”
Adding to these difficulties, the removal of fuel subsidies and the unification of foreign exchange windows have further driven up production costs, reducing capacity utilisation in many firms to below 30 percent.
These cost pressures were emphasised at the 38th Annual General Meeting (AGM) of the Edo/Delta branch of the Manufacturers Association of Nigeria (MAN).
MAN’s Edo/Delta Chairman, Mr Ehizogie Osadolor, pointed out that government policies, particularly the floating of the naira and increased interest rates, have led to a drastic reduction in capacity utilisation. Manufacturers are finding it increasingly difficult to import raw materials due to high exchange rates, leading to operational inefficiencies.
The situation has been further exacerbated by the exit of multinational companies from Nigeria. In the last three years, around 15 international firms, including Diageo, have left the country due to the worsening economic environment.
The mass exodus has resulted in the loss of millions of jobs. For example, the chemical and non-metallic products sector alone has seen over 100,000 workers laid off as companies collapse or operate at minimal capacities.
The Chemical and Non-Metallic Products Employers Federation (CANMPEF), which once represented over 100 companies employing about 350,000 workers, now sees more than 50 companies closed, with 80 percent of the remaining ones operating at reduced capacities.
The unemployment crisis in Nigeria continues to worsen as evidenced by the National Labour Force Survey (NLFS) published by the National Bureau of Statistics (NBS). According to the report, 1.2 million Nigerians gave up looking for jobs between January and March 2024, a significant increase from the 3.1 percent recorded in the third quarter of 2023.
Moreover, in the first half of 2024, over 14,000 Retirement Savings Account (RSA) holders withdrew 25 percent of their pension savings to support themselves and their families, amounting to N23.4 billion. These figures reflect the severe financial strain on workers who have lost their jobs in the manufacturing sector.
Notable companies like GlaxoSmithKline, Procter & Gamble and Mega Plastic have shut down, while others like Unilever and PZ Industries are teetering on the edge of collapse. Kimberly-Clark, which invested $100 million in a factory in Ikorodu, Lagos, is struggling to stay afloat due to high energy costs, raw material shortages and dwindling consumer demand.
The high cost of energy remains one of the biggest challenges for manufacturers, with energy expenses accounting for 30-40 percent of total expenditures. The removal of fuel subsidies in 2023 has further inflated production costs, pushing many firms to the brink of collapse.
The depreciation of the naira has also driven up the cost of imported raw materials and equipment, making it harder for Nigerian firms to compete with cheaper foreign goods. The lack of access to foreign exchange (forex) has crippled manufacturers who rely on imported machinery and materials. This problem is compounded by erratic power and gas supplies, which disrupt production and drive up costs.
To address these issues, experts have called for immediate government intervention. One key recommendation is for the CBN to provide manufacturers with easier access to foreign exchange so they can purchase the raw materials and machinery needed for production. Additionally, the government must reduce energy costs by improving the reliability of the power supply and cutting tariffs. Improving road infrastructure would also reduce transportation costs and enhance the ease of doing business in the sector.
The economic distortions caused by these challenges have significantly reduced the capacity utilisation of manufacturing firms, with many operating at just 20 to 25 percent of their potential. This has led to widespread job losses, affecting not only factory employees but also suppliers, distributors, and other workers in the supply chain. The high cost of living and inflation have further worsened the situation, with workers demanding higher wages that companies cannot afford to pay, leading to industrial disputes and strained employer-employee relations.
In response, the Bank of Industry announced plans to offer loans of up to N1 billion to 140 manufacturing companies under the Federal Government’s N75 billion Manufacturing Sector Fund. These loans, offered at single-digit interest rates, are aimed at boosting production and encouraging economic growth.
Despite these efforts, the manufacturing sector’s contribution to Nigeria’s economy remains under threat. In the second quarter of 2024, the sector paid N405.86 billion in taxes, representing an 84.1 percent increase from the previous quarter. However, unless significant reforms are made to stabilise the economy, the sector’s growth and the jobs it provides will remain at risk.
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