Nigerian manufacturers are battling a triple threat of soaring operating costs, weak consumer spending, and volatile foreign exchange markets, threatening to stall the sector’s growth and drown profits in unsold products.
Inventory of unsold goods in the manufacturing sector rose to a staggering N272 billion in the first half of 2023, a stark increase from N187.1 billion in the same period of 2022, according to the Manufacturer Association of Nigeria’s half-yearly review report.
Gabriel Idahosa, president of the Lagos Chamber of Commerce and Industry, paints a grim picture of the situation. “Decelerating and low growth in manufacturing and trade…reflect the high energy cost, exchange rate volatility, continuous rise in interest rate, high inflation, and weak consumer demand,” he stated in a recent address.
Fuel prices have skyrocketed by over 200% since January, crippling businesses that rely heavily on diesel-powered generators due to Nigeria’s unreliable grid electricity. Transportation costs have also doubled since the removal of petrol subsidies, adding further pressure to already strained bottom lines.
The foreign exchange situation presents another major hurdle. Obtaining dollars from the Central Bank of Nigeria (CBN) is a herculean task, with the official rate pegged at N1,080 per dollar compared to the black market’s staggering N1,300. This unfavorable exchange rate significantly inflates production costs, as 40% or more of raw materials, machines, and other inputs are imported using FX.
Insecurity adds another layer of complexity to the equation. Edobong Akpabio, former head of agribusiness at the Lagos Chamber of Commerce and Industry, estimates a 60% decline in food production in key-producing states due to rising insecurity. “Farmers are afraid to cultivate in their usual areas due to the high rate of insecurity,” she explains, highlighting the ripple effect on food prices and consumer spending.
Nigeria’s double-digit inflation, which has plagued the country since 2016 and reached a staggering 28.9% in December 2023, further dampens consumer demand and puts additional pressure on manufacturers’ margins.
The manufacturing sector’s growth slowed to a sluggish 0.48% in Q3 2023, a significant drop from the 2.2% recorded in the previous quarter. Experts fear this downward trend could persist in the short term due to ongoing challenges.
Despite the bleak outlook, manufacturers are exploring innovative solutions to navigate the turbulent waters. Increased local sourcing, improved logistics and supply chain management, and adoption of energy-efficient technologies are some potential strategies being considered.
The government and policymakers are also urged to take urgent action to address the FX crisis, stabilize fuel prices, and tackle insecurity to create a more enabling environment for Nigerian manufacturers to thrive.
As Nigeria’s manufacturing sector braces for a challenging future, the question remains: will it weather the storm and emerge stronger, or will the rising costs, weak demand, and volatile FX markets prove too much to bear? Only time will tell.
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