Foreign direct investments into the manufacturing and production sector fell to the lowest in three years as worsening macroeconomic challenges hurt businesses.
The report shows that foreign direct investment into the manufacturing industry decreased 25 percent to $191.9 billion in the first quarter of 2024 from $256.12 million in the corresponding period of 2023.
On a quarter-on-quarter basis, it decreased by 134.5 percent to $191.9 million in the first quarter of 2024 from $450 million in the fourth quarter of 2023.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said the investment numbers are declining owing to the worsening macroeconomic challenges facing manufacturing in the country.
“The country’s worsening economic challenges have a negative implication for employment and the country’s perception as an investment destination,” Yusuf added.
“The foreign exchange trend has been raising production costs for manufacturers because of their dependence on imported raw materials and export is about competitiveness. If you are not competitive, there is no way you can make progress in terms of export,” he said.
“Also, our cost of production is too high for us to make an impact as far as manufactured exports are concerned and this has made primary product exports dominate,” Yusuf added.
The worsening challenging macroeconomic issues have continued to impact the manufacturing sector as its growth rate slowed to 1.49 percent in the first quarter of 2024 from 1.61 percent in the corresponding period in 2023.
Since the President Tinubu administration implemented the foreign exchange reforms in June 2023, the naira has lost over half of its value, according to data from the FMDQ Securities and Exchange.
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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.
The availability of adequate infrastructure 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.
Manufacturers spend 40 percent of their total production cost on generating energy for their businesses, according to MAN.
Segun Ajayi-Kadir, director general of the Manufacturers Association of Nigeria, said that the rising energy costs, FX volatility, accelerating inflation and worsening insecurity are hurting manufacturers in the country and hampering their growth.
He said that the issue for manufacturers is further compounded by the uncleared forward of the Central Bank of Nigeria that has made several operators lose billions of naira.
He noted that the various sub-sectors under the manufacturing sector are highly vulnerable to the negative impact of these challenges, noting that most businesses are struggling to survive.
“The escalating costs of power, low consumer spending and low access to competitive credit and high rate of unplanned inventory and depreciation of the naira is hurting the country’s manufacturing capacity,” Ajayi-Kadir said.
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