The outlook for Nigeria’s manufacturing sector in the fourth quarter of 2024 is grim, as noted by Segun Ajayi-Kadir, the Director General of the Manufacturing Association of Nigeria (MAN). In a recent interview with The PUNCH, he highlighted the persistent challenges that manufacturers face, including escalating production costs and declining sales. Despite expectations that the second half of 2024 would show improvement, the reality has been a continuation of economic depression. Ajayi-Kadir pointed out that the manufacturing sector’s contribution to Nigeria’s real GDP has seen a decline from 9.98 percent in Q1 2024 to 8.46 percent in Q2 2024, indicating an overall downturn worsened by rising interest rates, high diesel prices, and increased electricity tariffs.
The continuous rise in interest rates poses a significant threat to manufacturers, as the Central Bank of Nigeria (CBN) has increased the rate five times this year to curb inflation, pushing it to 27.25 percent. This dramatic shift creates a difficult environment for businesses trying to manage their operational costs while facing stagnant demand. Ajayi-Kadir indicated that the recent corporate experiences of MAN members reflect no signs of an impending recovery. Nevertheless, he acknowledged that recent initiatives—such as the naira-for-crude sales agreement between the Nigerian National Petroleum Company and Dangote Refinery—could potentially relieve some pressure by improving foreign exchange availability within the domestic economy.
Energy costs remain a core concern for the manufacturing sector, particularly diesel prices, which have proven burdensome even with slight reductions linked to the operations of the Dangote refinery. Ajayi-Kadir acknowledged that while these improvements are encouraging, they are insufficient to change the broader challenges manufacturers face. He emphasized the need for stability in supply prices and a broader approach to managing logistics costs effectively to enhance manufacturing performance. The outlook for Q4 appears bleak as ongoing inflationary pressures, coupled with uncertainties in energy pricing, create a challenging situation for manufacturers.
Muda Yusuf, the Director of the Centre for Promotion of Private Enterprise, emphasized that fluctuations in the foreign exchange market significantly hamper manufacturing in Nigeria. Manufacturers heavily rely on imported raw materials and machinery, making them highly sensitive to changes in the forex market. Yusuf articulated the dire need for government intervention to stabilize forex rates, arguing that without such measures, manufacturers would continue to face subdued prospects going into Q4 and beyond. He also stressed the critical role that energy prices play in the larger economic framework, indicating that a systemic response is necessary to tackle issues arising from fluctuating forex and energy costs.
The recent hike in petrol prices to N1,030 per liter has sparked backlash from various stakeholders, including MAN and the Nigerian Labour Congress, who are demanding a reduction. Yusuf has urged the government to act quickly in addressing forex market volatility as a pathway to improving manufacturers’ conditions. He expressed cautious optimism about the government’s proposed economic stabilization plan, which is currently in the National Assembly. If implemented effectively, this plan could offer significant relief to manufacturers facing entrenched economic difficulties.
In conclusion, the manufacturing sector in Nigeria is at a crossroads, grappling with rising costs and unfavorable economic conditions. The continued impact of heightened interest and energy prices, compounded by challenges in the forex market, portray a bleak picture for manufacturers heading into the final quarter of 2024. There is hope that government interventions, including stabilization policies and the effective operation of domestic refineries, could help improve the situation by reducing the pressures that manufacturers face. The focus now shifts to how effectively these measures can be implemented and their potential to revive the dwindling fortunes of Nigeria’s manufacturing sector.
