Nigeria’s manufacturing sector faces a bleak outlook for 2024 as the persistent instability of the naira and the rising cost of production hamper its growth prospects. Experts warn that unless the government takes urgent steps to stabilize the currency and address the security challenges, many manufacturers may be forced to cut down on production or exit the market.
The naira has lost nearly half of its value against the dollar in 2023 at the Nigerian Autonomous Foreign Exchange Market, data compiled by BusinessDay from the FMDQ indicated. This has made it difficult for manufacturers to import raw materials and machinery, as well as to plan and budget their inputs and outputs.
Sola Obadimu, director-general of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, said the 2024 manufacturing outlook remains dim as long as the government fails to stabilize the naira and deal with security issues.
“Consumer demand level is elastic, so you cannot just increase prices anytime you want to because their wages are also declining,” he said in a response to questions.
The worsening FX volatility is not only affecting Nigeria but also other emerging markets that rely on foreign capital inflows and commodity exports. According to the International Monetary Fund, the global economy is expected to grow by 4.9% in 2024, down from 5.9% in 2023, amid rising inflation, interest rates, and geopolitical tensions.
The IMF also projected that Nigeria’s economy would grow by 2.6% in 2024, lower than the 3.3% recorded in 2023, and below the population growth rate of 2.8%. This means that the country’s per capita income would continue to decline, reducing the purchasing power of consumers and the profitability of businesses.
The high inflation rate, which peaked at a two-decade high of 28.2% in November 2023, according to the National Bureau of Statistics, has also eroded the value of the naira and the income of households and firms. The Central Bank of Nigeria raised the policy rate to 16.5% in November 2023 from 11.5% at the start of the year, to curb inflation and attract foreign investors. However, this has also increased the cost of borrowing for manufacturers and other sectors.
Segun Ajayi-Kadir, director-general of the Manufacturing Association of Nigeria (MAN), said in a statement that the period would be challenging, with a subtle possibility of recovery from the third quarter.
“The envisaged recovery is highly dependent on the deployment of policy stimulus supported with a synthesis of domestic growth-driven, export-focused, and offensive trade strategies,” he said.
Apart from FX volatility and inflation, Nigeria’s manufacturing sector also suffers from inadequate infrastructure, especially in the areas of power, transport, and security. Manufacturers spend 40% of their total production cost on generating energy for their businesses, according to MAN. The annual economic loss caused by poor power supply is estimated at N10 trillion, accounting for almost 2% of the country’s GDP.
The poor state of roads and railways also hampers the movement of goods and services across the country, increasing the cost of logistics and distribution. The insecurity and violence in some parts of the country, especially in the northeast and north-west, have also disrupted the supply chains and markets of many manufacturers, forcing some of them to relocate or shut down.
Despite these challenges, some manufacturers are optimistic that 2024 will bring some opportunities for growth and innovation. They point to the implementation of the African Continental Free Trade Area (AfCFTA), which aims to create a single market for goods and services across the continent, as a potential boost for their exports and competitiveness.
They also cite the ongoing efforts by the government and the private sector to improve the business environment and the ease of doing business in the country. Some of these efforts include the launch of an Energy Transition Plan to promote renewable energy sources, the enactment of a Climate Change Act to foster environmental sustainability, and the issuance of guidelines on sustainable finance by the Securities and Exchange Commission.
The manufacturing sector is a vital component of Nigeria’s economy, accounting for about 9% of its GDP and employing millions of people. It also contributes to the diversification and industrialization of the economy, which are essential for reducing the dependence on oil and achieving the Sustainable Development Goals.
Therefore, the government and other stakeholders must work together to address the challenges facing the sector and create an enabling environment for its growth and development in 2024 and beyond.
Source: BusinessDay
