The Nigerian manufacturing sector faced a significant energy crisis in 2024, forcing businesses to spend a staggering N1.11 trillion on alternative power sources. This represented a 42.3% increase compared to the N781.68 billion expenditure in 2023, highlighting the persistent power supply challenges plaguing the nation. The Manufacturers Association of Nigeria (MAN) attributed this surge in energy costs to frequent grid collapses and escalating prices of diesel and petrol, the primary fuels for alternative power generation. This heavy reliance on alternative energy significantly hampered the sector’s competitiveness and profitability. The escalating energy costs were further exacerbated by a 75% jump in expenditure between the first and second halves of 2024, rising from N404.80 billion to N708.07 billion, respectively. This indicates a worsening power supply situation during the latter half of the year, placing further strain on manufacturers.
The impact of the energy crisis varied across different manufacturing sub-sectors. The Food, Beverage, and Tobacco sector bore the brunt of the crisis, spending N229.41 billion on alternative power, a substantial increase from N182.76 billion in 2023. The Chemical & Pharmaceutical sector also witnessed a doubling of its energy expenditure, reaching N208.68 billion. The Non-Metallic Mineral Products industry allocated N118.49 billion to alternative power, a 33.7% rise. Meanwhile, the Textile, Apparel, and Footwear sector experienced a dramatic fourfold increase in energy costs, soaring from N6.97 billion in 2023 to N26.45 billion in 2024. This widespread impact across diverse sectors underscored the pervasive nature of the energy crisis and its crippling effect on Nigerian manufacturing.
While the average daily electricity supply from the national grid saw a marginal improvement in the second half of 2024, rising from 11.4 hours to 15.2 hours, this came at the steep cost of a 200% tariff hike for Band A consumers, a category that includes many manufacturers. Despite the increased supply, frequent outages and the 12 recorded national grid collapses throughout the year continued to disrupt production and inflate operational costs. Even with an overall average daily supply increase to 13.3 hours in 2024 from 10.6 hours in 2023, the unreliability of the grid forced manufacturers to maintain their dependence on expensive alternative energy sources. This precarious dependence undermined the benefits of the marginal improvement in grid supply, making it a costly and unreliable solution for the sector.
The challenges facing the manufacturing sector extended beyond energy woes. The confluence of soaring energy costs, inflationary pressures, and exchange rate volatility created a highly challenging operating environment. These combined factors compelled many manufacturers to scale back investments and contend with suppressed consumer demand. The MAN report highlighted the significant hurdles encountered by manufacturers in 2024, including high inflation, forex volatility, surging production costs, and declining consumer demand, painting a bleak picture of the sector’s struggles. The report warned that unless macroeconomic stability was restored and energy reliability significantly improved, industrial growth and productivity would likely remain subdued, further hindering economic progress.
Stakeholders voiced their concerns about the debilitating impact of the energy crisis on Nigeria’s economic growth, with many manufacturers resorting to self-generation through gas and solar power to circumvent the unreliable national grid. Experts like Professor Segun Ajibola, former President of the Chartered Institute of Bankers of Nigeria (CIBN), lamented the government’s repeated failures in addressing the energy challenge, which had become a seemingly intractable obstacle to economic development. He emphasized the urgent need for a complete overhaul of the power sector, questioning the country’s lagging performance compared to other African nations like South Africa and Egypt, which boasted significantly higher electricity generation and distribution capacities. He called for a thorough investigation into the root causes of Nigeria’s energy woes and a reassessment of the country’s approach to power generation and distribution.
Ajibola further criticized Nigeria’s reliance on thermal power sources and its slow adoption of advanced technologies. He advocated for a comprehensive feasibility review to learn from the successes of other countries and identify the missing ingredients in Nigeria’s approach. He called for a paradigm shift in the management of Nigeria’s energy sector, emphasizing the need for a “new mindset” and a total overhaul of the Ministry of Power. His criticism highlighted the systemic issues plaguing the sector and the urgent need for transformative change to address the chronic energy deficit. In addition to energy concerns, the MAN report revealed that manufacturers faced high finance costs of N1.3 trillion in 2024, driven by elevated interest rates reaching 35.5% following the Central Bank of Nigeria’s decision to hike the Monetary Policy Rate to 27.50%. Despite these challenges, local sourcing of raw materials improved to 57.1% from 52.0% in 2023, attributed to high import costs and government incentives. The MAN DG reiterated the urgent need for reforms to improve access to affordable financing and reliable energy, crucial for sustaining growth and enhancing productivity in the beleaguered manufacturing sector.
