Recent data has revealed a concerning trend for Nigeria’s manufacturing sector, with its contribution to the country’s non-oil exports witnessing a significant decline of 62 per cent over the past four years. This drop comes as operators grapple with escalating expenses amidst high borrowing costs and subdued consumer spending.
According to the most recent foreign trade report, the share of manufacturing exports to total exports plummeted from N2.1 trillion in 2019 to N778.4 billion in 2023. Industry stakeholders attribute this decline to several factors, including the persistent surge in production costs and the deteriorating business environment, squeezing profits and rendering local products less competitive.
Manufacturers point to challenges such as poor infrastructure, high energy costs, logistical inefficiencies, policy inconsistencies, multiple taxes, and skills shortages as crucial impediments to competitiveness.
Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, highlights the sector’s growing dependency on domestic markets due to rising production costs and declining competitiveness.
“The foreign exchange trend has been raising production costs for manufacturers because of their dependence on imported raw materials, and export is about competitiveness. If you are not competitive, there is no way you can progress in exports,” Yusuf explained.
Energy costs, a critical component of the production process, have soared due to Nigeria’s energy supply challenges. Businesses heavily reliant on diesel-powered generators have seen prices surge by 380 per cent since January 2022, significantly inflating production expenses and undermining their ability to compete globally.
Sola Obadimu, Director General of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, highlighted the compounding effects of rising energy costs, foreign exchange volatility, accelerating inflation, and worsening insecurity on manufacturers. He warned that without intervention, the sector’s contribution to exports will continue to dwindle.
Comparatively, data from the World Trade Organization underscores Nigeria’s manufacturing export value lagging far behind South Africa’s, with the latter’s export value in 2022 exceeding Nigeria’s by over 15 times. Experts attribute this discrepancy to South Africa’s relatively lower manufacturing costs.
Stakeholders stress the urgent need for policy interventions and structural reforms to address the underlying issues hindering the growth and competitiveness of Nigeria’s manufacturing sector, thereby revitalizing its contribution to the country’s export landscape.
Recall that the Manufacturing Association of Nigeria (MAN) recently released a concerning report indicating challenges within the manufacturing sector.
According to MAN, in 2023, approximately 767 manufacturing companies closed operations, and 335 faced distress, leading to an inventory of unsold goods valued at about N350 billion.
The report attributes the difficulties to various economic factors, including exchange rate volatility, rising inflation, and a deteriorating investment climate.