Nigeria’s Manufacturing Sector Faces Mounting Challenges Amid Calls for Urgent Reform
Nigeria’s manufacturing sector, long heralded as pivotal to the nation’s economic diversification, is struggling under the weight of entrenched challenges. Stakeholders warn that without immediate reforms, the sector’s potential to drive industrialisation and reduce dependence on imports could remain unrealised.
Policy Paralysis and Investment Barriers
The sector’s growth is being stifled by inconsistent industrial policies, weak regulatory frameworks, and frequent policy reversals. These factors deter long-term investments and undermine confidence among manufacturers. Access to affordable credit remains elusive, with high interest rates and stringent lending conditions compounding the difficulties for businesses.
The financial strain on manufacturers has been further highlighted by a sharp rise in unsold inventory. Recent data shows that the value of unsold finished goods rose by 42.93% in the first half of 2024, reaching ₦1.24tn—an increase of ₦370.63bn compared to the previous year.
“This inventory buildup reflects deeper issues such as reduced consumer demand and supply chain inefficiencies,” said economist Musa Adeyemi. “Without coherent policies, we are left with short-term fixes that fail to address the root causes.”
Energy Woes Drive Production Costs Higher
A reliable power supply remains elusive, forcing manufacturers to rely on costly diesel generators. Energy costs now account for over 40% of production expenses, according to the Manufacturers Association of Nigeria (MAN).
“The power sector is a bottleneck,” said Segun Akande, a factory owner in Ikotun. “Without affordable and consistent electricity, our goods cannot compete with imports, and industrial growth will remain a distant dream.”
The reliance on diesel generators not only inflates production costs but also discourages investment, both local and foreign. Stakeholders argue that prioritising energy reforms, such as investments in renewable energy and grid expansion, is essential for reducing costs and fostering a competitive manufacturing sector.
Inflation and Currency Depreciation Add to Woes
The depreciation of the naira has exacerbated the sector’s struggles, making imported machinery and raw materials prohibitively expensive. Factories are operating below capacity, and efforts to boost local production have faltered.
“The naira’s decline has undermined manufacturing competitiveness,” said Samson Gbadamosi, Deputy Executive of the Nigerian Association of Small and Medium Enterprises. “We need targeted reforms to stabilise the currency and address inflation.”
A Call for Targeted Interventions
The Director-General of MAN, Segun Ajayi-Kadir, pointed to recent government reforms—including the removal of fuel subsidies, exchange rate policies, and rising monetary policy rates—as contributors to the sector’s difficulties.
“These measures have severely hindered growth,” Ajayi-Kadir remarked. “We need proactive steps to combat inflation, reduce logistics costs, and better align fiscal and monetary policies.”
Experts and stakeholders are calling for clear, consistent incentives for manufacturers, alongside investments in infrastructure and energy solutions to ease operational challenges.
Manufacturing’s Critical Role in Economic Growth
Currently contributing less than 10% to Nigeria’s GDP, the manufacturing sector holds immense potential for job creation, economic diversification, and import substitution.
“Nigeria can become a manufacturing hub in Africa, but only with decisive government action,” Gbadamosi noted. “The time to prioritise industrialisation as a cornerstone of economic growth is now.”
With coordinated efforts from the public and private sectors, stakeholders believe Nigeria can unlock the potential of its manufacturing industry and chart a path toward sustained economic prosperity.
