‘The sector faced mounting pressure from high inflation, a depreciating Naira, rising interest rates, escalating electricity tariffs, record low sales, multiplicity of taxes and levies and militating security concerns.’
Siaka MOMOH
Manufacturers Association of Nigeria (MAN) president, Otunba Francis Meshioye, has reeled out the challenges manufacturers were confronted with in 2024.
Meshioye who spoke at the 2025 edition of the MAN Media Personality of the Year Award/Presidential Media Luncheon held Wednesday January 22, 2025 at man house, Ikeja, Lagos, said Nigeria’s manufacturing sector encountered a myriad of macroeconomic and infrastructural challenges that severely impacted its performance.
According to him, “The sector faced mounting pressure from high inflation, a depreciating Naira, rising interest rates, escalating electricity tariffs, record low sales, multiplicity of taxes and levies and militating security concerns. These factors collectively strained the sector’s profitability and curtailed its contribution to the nation’s GDP.
Inflation
“Inflation in Nigeria reached an alarming 34.6% by November 2024, diminishing consumers’ purchasing power and causing a decline in demand for manufactured goods. This inflationary burden also led to an accumulation of unsold inventory, which rose to N1.4trillion across the manufacturing industries.
Exchange rate
“At the same time, the floating of the exchange rate resulted in a steep depreciation of the Naira, which fell from ₦666/$ in mid-2023 to over ₦1700/$ by mid-2024. This depreciation inflated the costs of imported raw materials and machinery, worsening the already strained profitability of manufacturers.”
Interest rates
Otunba Meshioye added: “Interest rates reached unprecedented levels, climbing to 27.7% by November 2024. This increase substantially raised borrowing costs, making it harder for manufacturers to access financing for expansion and modernization. The rising interest rates, combined with inflation, severely limited the potential for investment in the sector, impeding long-term growth prospects.
Electricity tariffs
“Additionally, manufacturers were hit hard with a drastic rise in electricity tariffs, with rates increasing by over 250%. This surge in energy costs became one of the highest operating expenses for businesses in the sector in 2024. As a result, many manufacturers sought alternative energy sources, further straining their financial resources and complicating their ability to remain competitive.”
Contraction in economic activity
He said consequently, “it cannot be far-fetched that the sector’s struggles were reflected in its decreasing contribution to Nigeria’s GDP”.
He explained: “Manufacturing’s share of the economy dropped significantly from 16.04% in Q4 2023 to 12.68% in Q2 2024, indicating a contraction in economic activity within the sector. The combination of high operational costs, reduced consumer demand, and limited access to finance contributed majorly to this decline.
2025 Outlook
“Looking ahead to 2025, Nigeria’s overall economic growth is projected to be around 4%, a modest recovery compared to previous years, though still lower than the average growth rate for sub-Saharan Africa. We should expect that interest rate will begin to ease, as its continued hike by the CBN has failed to curb inflation and has instead stifled investment and business expansion. Only a favorable interest rate environment would help manufacturers access the necessary financing to reinvest in their operations and drive productivity.
“Regarding the exchange rate, the Naira is predicted to hover between ₦1500 and ₦1650 to 1 dollar in the first quarter of 2025. This projection assumes effective management of the Electronic Foreign Exchange Matching System (EFEMS) introduced by the Central Bank of Nigeria (CBN) in November 2024, which, if properly implemented, could help stabilize the exchange rate.
He held that the outlook for the manufacturing sector in 2025 largely depends on the success of ongoing economic reforms, which include: the implementation of the proposed tax reforms, stabilization of critical macroeconomic indicators, and targeted investments in infrastructure and technology.
For him, considering the series of ongoing fiscal and monetary reforms of the present administration, the contraction of economy is expected to ease and experience some growth this year with stability in the exchange rate regime in 2025.
Artificial Intelligence (AI)
He added: “Similarly, the efficient adoption Artificial Intelligence (AI) will be a game changer for the manufacturing sector in 2025 and the nearest future. This is expected to help in engendering enhanced production and productivity, improved capacity utilization, innovative product development, improved inventory system, efficient logistics operations etc.
“It is projected that technology adoption through research and development will fast-track the emergence of the much-awaited transformational growth of the real sector of the economy. And as manufacturers, we are gearing up and ready to embark on this interesting journey on the path of growth.
“For the sector to regain its momentum, efforts to improve productivity and enhance competitiveness must be sustained as this is crucial in helping Nigerian manufacturers navigate the challenges they face.
“There is no gainsaying the fact that manufacturing is pivotal to galvanizing and sustaining the economic growth and development of Nigeria. We seek the government’s alignment with our conviction that a win for the manufacturing sector is a win for the economy and by extension, a better life for the citizenry.”
Recommendations
He recommended the following to government as solutions to the manufacturing sector’s problems:
– Timely passage of the 4 tax bill before the National Assembly.
– Implementation of the patronage of made-in-Nigeria products policy.
– Taming inflation.
– Ensuring food security and promoting local sourcing of Raw-Materials
– Addressing policy inconsistency
– Upgrading infrastructure (roads and railways)
– Promoting energy security and downward review of electricity tarrifs
– Prompt Clearance of backlog of Forex foreword by the CBN
– And lastly, Ensuring affordable lending rate and increased access to credit
Siaka Momoh,
Publisher/editor, enterprisethrob.com;
ex-Industry Editor/Member,Editorial Board,
BusinessDay,Lagos
Cell: +2348061396410,+2348023033988.
E-mail: isaacmomoh717@gmail.com