Bleak Outlook for Nigeria’s Manufacturing Sector as Q4 2024 Approaches

The outlook for Nigeria’s manufacturing sector in the fourth quarter of 2024 remains grim, according to the Manufacturing Association of Nigeria (MAN). Rising production costs, compounded by surging interest rates and energy prices, are stifling the sector’s recovery efforts, according to the association’s Director General, Segun Ajayi-Kadir.

Reflecting on the sector’s performance in the third quarter, Ajayi-Kadir expressed concerns about the continued economic challenges facing manufacturers. “Earlier in the year, we imagined that the second half would be better,” he noted. “But rather than experience an upswing, we have continued to see a depression.”

The sector’s contribution to Nigeria’s GDP has been steadily weakening. It accounted for 8.46% of the real GDP growth in the second quarter of 2024, a decline from 8.62% in the same period last year and down from 9.98% in Q1 2024. Rising interest rates, high diesel prices, and electricity tariff hikes have all been cited as major obstacles. Last month, the Central Bank of Nigeria raised its interest rate by 50 basis points to 27.25%, the fifth hike this year in a bid to curb inflation.

Ajayi-Kadir highlighted that despite a slight reduction in diesel prices—due in part to the Dangote Refinery—the overall energy costs remain a heavy burden on manufacturers. “We have seen an improvement, but the cost is still high,” he added.

While some hope exists, including the nascent naira-for-crude oil sale deal between the Nigerian National Petroleum Company and the Dangote Refinery, Ajayi-Kadir cautioned that it is too early to predict its impact. “The sale of crude oil in naira only began recently, so we will have to wait and see. But this should reduce pressure on foreign exchange,” he said.

Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise (CPPE), also painted a bleak picture, noting that the volatile foreign exchange market has left manufacturers, who heavily depend on imported raw materials, particularly vulnerable. “Our manufacturing sector is highly exposed and sensitive to developments in the foreign exchange markets,” he said, pointing to the depreciation of the naira as a key driver of rising production costs.

The recent spike in petrol prices to N1,030 has only exacerbated the sector’s woes. MAN, CPPE, and the Nigerian LabourCongress have all called for a reversal. Yusuf urged the government to act swiftly, particularly in addressing the volatility in the foreign exchange market, as a way to ease pressures on manufacturers in the final quarter of the year.

However, Yusuf struck a more optimistic tone when discussing the proposed economic stabilisation plan currently before the National Assembly. If implemented effectively, he believes the plan could provide much-needed relief to the sector. Additionally, if Nigeria’s refineries, particularly the Dangote Refinery, can ramp up production, it could help reduce the country’s reliance on imported petroleum products and, in turn, ease foreign exchange pressures.

“If we reduce the importation of petroleum products, the pressure on our forex will reduce,” Yusuf concluded, though he warned that international crude prices could still undermine domestic gains.

As the manufacturing sector continues to struggle with the country’s challenging economic conditions, the prospect of improvement remains uncertain, hinging on both domestic policy shifts and global energy markets.