Despite the country’s challenging operating business environment in 2023, investments in Nigeria’s production sector rose by 67 percent, data from the Capital Importation Report shows.
The report shows that foreign direct investment into the manufacturing industry increased to $1.59 trillion in 2023 from $948 million in 2022, up 67 percent year-on-year.
On a quarter-on-quarter basis, it increased by 14.7 percent to $450 million in the fourth quarter of 2023 from $393 million in the same period of 2022.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said the investment numbers into the sector might have surged 67 percent owing to the opportunities in the consumer goods sector which is still attractive to investors.
“The Nigerian market is big, especially for manufacturers producing consumer goods. So, some investors would look at the opportunity and decide to invest despite the economic challenges,” he said.
He also said the investment decision in 2023 might predate the economic challenges, noting that investors might have decided to invest in the manufacturing sector two or three years earlier.
“The investment decision might predate the challenges. It might have been decided two years earlier, so the investors still went ahead to invest especially if it is in sectors that do not have high foreign exchange exposure but with high backward integration and local sourcing of inputs,” Yusuf said.
The worsening challenging macroeconomic issues have continued to impact the manufacturing sector as its growth rate slowed to 1.40 percent in 2023 from 2.45 percent in 2022.
Since the President Tinubu administration implemented the foreign exchange reforms in June 2023, the naira has lost 69.5 percent of its value, according to data from the FMDQ Securities and Exchange.
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.
A top manufacturer who does not want to be quoted questioned the data, saying that no evidence supports the data of higher investments last year.
He noted that manufacturing activities in the country are declining and those in operations are not operating at full capacity and declaring losses. “So, where are the investments coming from,” he asked.
“There are many factors militating against manufacturing activities in the country such as higher energy costs, security issues as trucks are kidnapped and ransom is more than the business turnover and foreign exchange volatility which is the chief of all,” he added.
