Growth in Nigeria’s manufacturing sector slowed to 1.49 percent in the first quarter of 2024 owing to worsening foreign exchange scarcity amid shrinking consumer spending and high borrowing costs.
Data from the GDP report shows that growth in the sector saw a marginal decline of 0.12 percent on a year-on-year basis from a 1.61 percent growth rate recorded in the first quarter of 2023 to 1.49 percent in the corresponding period of 2024.
On a quarter-on-quarter basis, the sector recorded a marginal increase of 0.12 percent from 1.38 percent in the fourth quarter of 2023 to 1.49 percent in the first quarter of 2024.
Experts in the sector had in January projected that the country’s manufacturing will maintain weak growth in the first quarter owing to the worsening challenges that have continued to impact growth negatively.
“The Nigerian economy has encountered significant challenges in recent years, including foreign exchange volatility, escalating energy costs, and food insecurity,” Francis Meshioye, president of the Manufacturers Association of Nigeria said in a May 23 note.
“These challenges have intensified inflationary pressures, adversely impacting consumers’ purchasing power and impeding the growth of the manufacturing sector,” Meshioye said.
“Consequently, production levels have declined, leading to reduced competitiveness within the industry,” he added.
Nigerian manufacturers need regular electricity, accessible roads, functional railways, new technology and incentives, all are crucial in driving growth and competitiveness in the 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.
It is impossible to talk about infrastructure without discussing power. 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.
According to the Manufacturers Association of Nigeria (MAN), manufacturers spend 40 percent of their total production cost on generating energy for their businesses.
In a June 2023 statement, the association put the annual economic loss caused by the inadequate power supply at N10 trillion, accounting for almost two percent of the country’s Gross Domestic Product.
Capacity utilisation in the manufacturing sector is 56.5 percent, as against 57.9 percent in 2022.
The naira has lost 69 percent of its value against the dollar since the country’s FX reforms at the Nigeria Autonomous Foreign Exchange Market (NAFEM), data compiled by BusinessDay from the FMDQ indicated.
The worsening FX volatility is inflicting more pain on businesses as the cost of production doubled amid low demand from cash-strapped consumers dealing with inflationary pressures.
Also, the sector contribution to gross domestic products (GDP) in the first quarter of 2024 slowed to 9.98 percent, lower than the 10.13 percent recorded in the same period of 2023 and higher than the 8. 23 percent in the fourth quarter of 2023.
