Five events that shaped Nigeria’s manufacturing in 2024

Despite the potential to take millions of people out of poverty by way of providing job opportunities and wealth creation, Nigeria’s manufacturing sector is yet to spur growth and drive industrailisation in Africa’s biggest economy.

The sector faced a questionable 2024 owing to the persistent foreign exchange volatility, high interest rate, higher production costs that crippled manufacturing activities and low consumer purchasing power.

During the year, several foreign companies slashed investments and fled Africa’s most populous country altogether as doing business in the country got too complicated and unprofitable.

In no particular order, here are four critical issues that shaped Nigeria’s manufacturing in 2024.

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Foreign exchange

Dollar is scarce in Africa’s biggest economy with the naira exchanging at $1,538 on Friday at the Nigerian Foreign Exchange Market (NFEM), data from the CBN indicated.

The worsening FX volatility which is inflicting pain on businesses has been a stumbling block to the economy and the country’s industrialisation.

The naira has lost 70 percent of its value since the FX reforms in June 2023. This has made the cost of locally manufactured goods more expensive and unable to compete globally, experts say.

“The exchange rate volatility has taken its toll on investors. It has worsened uncertainty for investors, undermined their confidence, and heightened investment risks by making planning difficult,” Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE) said.

At least three multinationals exited Nigeria owing to a worsening foreign exchange crisis, a situation that reduces foreign investment inflows and dampens Nigeria’s $1 trillion gross domestic product (GDP) target.

Manufacturers attributed the continuous exit of multinationals to the country’s worsening business environment and insecurity that is crimping profits and wiping off shareholders’ funds.

“Naira needs to be stable for manufacturers to plan and budget their inputs and outputs,” said Sola Obadimu, director general of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA).

Obadimu noted that producers are being forced to produce at weaker capacity or shut down operations owing to the problem amid declining consumer wages.

Speaking at the recent MAN’s Annual General Meeting (AGM), George Onafowokan, managing director of Coleman Wires and Cables Industries Ltd, said foreign exchange volatility is negatively impacting the country’s manufacturing as the cost of importing essential raw materials and machinery has tripled.

Onafowokan said the foreign exchange scarcity has greatly hindered manufacturing sector operations, hence affecting business sustainability.

Interest rate

The country’s central bank has hiked interest rates six times in 2024 to rein in inflation. In its last MPC meeting for the year, the apex bank increased MPR to 27.50 percent from 27.25 percent.

Usually, banks respond to MPR changes, according to experts.

Currently, commercial banks charge rates between 28 and 35 percent, according to the Manufacturers Association of Nigeria.

With the excessively high rates at deposit money banks leading to higher borrowing costs, experts say more manufacturers may be strangulated.

“The continuous hikes in MPR have tightened financial conditions for the productive sector,” MAN said in its CEO’s Confidence Index report.

Inadequate power supply

The availability of adequate power is also a major determinant of the success of every country’s industrial sector; however, Nigeria does not have adequate infrastructure to grow businesses, especially developed transport systems such as roads and railways connected to the nation’s seaports.

Energy is a key element of the production process. Nigeria’s inability to supply and distribute sufficient electricity has left businesses at the mercy of generators powered by diesel and petrol, whose prices have surged in recent months.

This raises the production costs for manufacturers significantly and forecloses their chances of competing with international peers.

Local products are often more expensive than imported Chinese products because production costs in the country are significantly higher than China’s, especially when key issues such as taxes and regulations are factored in.

According to the Manufacturers Association of Nigeria (MAN), manufacturers spend 40 percent of their total production cost on generating energy for their businesses, even as national grid collapsed 12 times.

Read also: Regulatory barriers, poor infrastructure hindering Africa manufacturing growth  Report

Low consumer purchasing power

The worsening cost-of-living crisis has crippled consumers purchasing power and forced many to buy only essential items.

Manufacturers’ unsold finished goods surged by 357.6 percent in the first half of 2024.

Inventory of unsold products in the manufacturing sector rose to N1.24 trillion in the first half of 2024 from N272 billion in the same period of last year, according to MAN’s latest half-yearly report.

The manufacturers association attributed the rising number of unsold products mainly to low consumer spending.

“The high levels of unsold inventories reflect the challenges faced by consumers and the need for interventions to stimulate demand and improve the sector’s performance,” the report.