Nigeria’s manufacturing sector is grappling with an unprecedented downturn, as its nominal year-on-year GDP growth nosedived by 90.11% in the third quarter of 2024.
The sector’s growth plummeted from 36.59% in Q3 2023 to a dismal 3.62% in Q3 2024, underlining the severity of challenges confronting manufacturers. This data, highlighted in the National Bureau of Statistics (NBS) latest Gross Domestic Product (GDP) report, underscores the sector’s struggle to navigate recent economic reforms introduced by President Bola Tinubu.
While the sector recorded a quarter-on-quarter growth of 31.67% in nominal terms, its contribution to nominal GDP declined to 14.30%, down from 16.18% in the same quarter of the previous year.
The report further noted that the nominal GDP growth in manufacturing, although marginally higher than the preceding quarter’s 1.91%, reflects systemic weaknesses in the sector. Real GDP growth in manufacturing was reported at 0.92%, slightly better than the 0.48% recorded in Q3 2023 but lower than the 1.27% achieved in Q2 2024.
The real contribution of manufacturing to GDP also showed a decline, standing at 8.21%, compared to 8.42% in Q3 2023 and 8.46% in Q2 2024.
The NBS data paints a bleak picture of the sector, which comprises thirteen key sub-sectors, including oil refining, cement, food, beverages and tobacco, textiles, chemicals, and motor vehicle assembly. These sub-sectors, traditionally viewed as engines of industrial growth, now face stagnation or decline. The food, beverages, and tobacco sub-sector, often a robust contributor to manufacturing output, showed limited momentum, exacerbating the sector’s overall weak performance.
The sharp decline in manufacturing GDP growth highlights the persistent and interconnected challenges undermining Nigeria’s industrial output. Limited access to foreign exchange is one of the critical issues, severely affecting manufacturers’ ability to import raw materials and maintain operations.
The shortage of forex, coupled with the naira devaluation, has led to skyrocketing production costs, making local goods less competitive both domestically and in export markets. Compounding these issues are infrastructural deficiencies, particularly in power supply. Many manufacturers rely on diesel generators due to unreliable electricity, significantly inflating production expenses.
The impact of these structural challenges is evident in industrial capacity utilization rates, which have steadily declined. This reduction has broader implications, including job losses and a stifling of export diversification efforts—two critical areas for Nigeria’s economic stability.
The sector’s struggles have been mirrored by the fate of several companies. According to the Manufacturers Association of Nigeria (MAN), 767 manufacturing companies shut down operations, while 335 others were classified as distressed in 2023.
The challenges facing the sector are not new, but their intensification in recent years has reached unprecedented levels. Odiri Erewa-Meggison, Chairman of the Export Promotion Group within MAN, described this period as the most challenging in the history of the manufacturing sector. Her remarks underline the sense of crisis among industry stakeholders.
The persistent inflationary pressures have not only eroded consumer purchasing power but also dampened demand for manufactured goods, creating a vicious cycle of reduced revenues and operational strain for manufacturers.
Earlier this year, MAN projected a tough start for the manufacturing sector in 2024, with expectations of improvement in the latter half of the year. However, the Q3 data indicates that these anticipated gains have yet to materialize, underpinning the need for urgent and effective policy interventions.
Segun Ajayi-Kadir, Director General of MAN, has stressed the importance of implementing policy stimuli and fostering domestic growth through export-oriented strategies. According to him, enhancing the sector’s resilience and ensuring steady growth requires a synthesis of targeted trade policies and infrastructure development.
Beyond the numbers, it is believed that the manufacturing sector’s plight illustrates the deep structural flaws in Nigeria’s economic framework. For instance, reliance on imported raw materials not only inflates costs but also exposes the sector to global supply chain disruptions. Similarly, the inadequacy of transport infrastructure hampers distribution networks, increasing the cost and inefficiency of moving goods to market.
Economists have advocated potential solutions, which require coordinated efforts from both the public and private sectors. They are as follows:
First, stabilizing the power supply is essential to reduce reliance on expensive alternatives like diesel generators. Power sector reforms that prioritize renewable energy and grid expansion could significantly lower production costs. Secondly, forex reforms are crucial to improving manufacturers’ access to foreign currency, allowing for smoother importation of raw materials. Enhancing export incentives and establishing trade agreements could also help manufacturers gain a foothold in international markets.
Furthermore, investing in infrastructure, such as transport and logistics networks, would ease the movement of goods and reduce production costs. On the policy front, reducing import dependency by promoting local sourcing of raw materials could create more resilient supply chains. Tax incentives and low-interest loans for manufacturers could provide much-needed financial relief, allowing them to scale operations and invest in technology.
