Nigeria’s Manufacturing Sector Faces Turmoil Amid Economic Challenges

The Manufacturers Association of Nigeria (MAN) has revealed that the nation’s manufacturing sector experienced significant setbacks in the first quarter of the year, with companies forced to reduce production and cut jobs in response to persistent macroeconomic headwinds. This was disclosed by Oluwasegun Osidipe, MAN’s Director of Research and Advocacy, during the presentation of the Manufacturers CEOs Confidence Index at a press conference in Lagos on Thursday.

The report indicated a slight optimism with the MCCI points showing a marginal increase above the 50 points confidence threshold. However, the current business conditions and employment levels remained worryingly low, both falling below the 50 points mark.

MAN attributed these difficulties to ongoing issues such as rising inflation, escalated energy prices, exchange rate instability, and high Customs duty rates. According to the report, production and distribution costs surged by 20 percent in the first quarter of 2024, while capacity utilisation declined by 9.7 percent.

“The volume of production slid further by 10.14 percent in Q1 2024 from a contraction of 4.6 percent recorded in the previous quarter,” the report noted. “Manufacturing employment further declined by 5.27 percent in Q1, from the 4.46 percent contraction recorded in the preceding quarter.” Sales volume also fell by 7.16 percent in the first quarter, compared to a 1.6 percent decline in the previous quarter.

Francis Meshioye, President of MAN, commented on the report, highlighting the negative impact of forex, inflation, and energy crises on the manufacturing sector. He lamented the decline in production levels, which has reduced the sector’s competitiveness, and called on the government to address the cost-push factors driving inflation and to expedite the recapitalisation of banks.

“Undoubtedly, the manufacturing sector remains the most sustainable driver of steady economic growth, inflow of foreign exchange, and enduring shared prosperity,” Meshioye asserted. “MAN is therefore expectant that the Government will intentionally prioritise the manufacturing sector by implementing the sector-specific recommendations contained in this report and providing the required policy support and incentives. This is the surest way of revamping the sector and repositioning the economy towards sustainable growth and development.”

Meshioye explained that capacity utilisation—a measure of how much of a factory’s production capacity is currently being utilised—was suboptimal, implying that parts of the workforce were idle as factories struggled to operate at full strength.

Amidst these challenges, MAN has petitioned the Nigerian Electricity Regulatory Commission (NERC) to halt the hike in tariffs for power users under the Band A category. The association also questioned the monthly tariff review methodology implemented by NERC, arguing that the recent hike in electricity tariffs would further harm manufacturing firms in Nigeria.

Defending its petition against the April 2024 Multi-Year Tariff Order during a public hearing at NERC’s headquarters in Abuja, MAN pointed out that the tariff increase had raised the cost for Band A customers from about N68/kWh to N225/kWh. MAN’s Director-General, Segun Kadiri, told a panel led by NERC Vice Chairman Musiliu Oseni that the high cost of electricity was unsustainable for manufacturers.

“Power to a manufacturer is like blood to a human being. It represents anywhere between 28 to 40 percent of our cost structure depending on how power intensive your manufacturing process is,” Kadiri explained. “We operate in an environment where this increase comes on top of challenges like exchange rate instability, petrol subsidy removal, increased import duties, and multiple taxation.”

Kadiri stressed that the tariff increase has made the Nigerian manufacturing industry uncompetitive and urged that it be reversed to prevent further damage. “If you add the cost of electricity to our existing burdens, we are not going to make a profit. More than 36 companies have already been disconnected.”

The vice chairman of NERC questioned MAN’s directive to its members not to pay the new tariff, suggesting it amounted to self-help, but acknowledged the association’s formal appeal process. The distribution companies, however, insisted on compliance with the new rates and threatened disconnections for non-compliance.

As Nigeria’s manufacturing sector grapples with these multifaceted challenges, industry leaders continue to advocate for targeted government interventions to foster a more stable and supportive economic environment.