Nigeria’s manufacturing sector faces a challenging outlook in 2024, with a modest decline in actual production and capacity utilization, according to the latest report by the Manufacturers Association of Nigeria (MAN).

Despite inflationary pressures, currency restrictions and weak consumer demand, manufacturers are increasingly turning to locally sourced raw materials to mitigate import challenges.

The report paints a picture of a sector under pressure, facing high operating costs, waning consumer demand and rising inflation.

what they are saying

The report, presented by MAN Chairman, Otunba Francis Meshioye, revealed that capacity utilization, a critical indicator of manufacturing health, fell marginally to 56.4% in the first half of 2024 from 56.5 % in the same period last year.

However, the sector has seen a slight recovery since the second half of 2023, with a 2.8% increase in capacity utilization, suggesting gradual stabilization despite broader economic challenges.

According to the president of MAN, “Real manufacturing output in Nigeria decreased by 1.66 percent year-on-year in the first half of 2024, falling to N1.34 trillion from N1.36 trillion in the first half of 2023.”

• “Despite this decline, the sector saw an increase of 9.97 percent compared to the second half of 2023, driven by a baseline effect.
• “In nominal terms, manufacturing sector output in Nigeria increased by 30.38 percent year-on-year, reaching N5.34 trillion in the first half of 2024.

Key Highlights

In terms of real output, the manufacturing sector saw a year-on-year decline of 1.66%, falling to N1.34 trillion from N1.36 trillion in the first half of 2023.

• This drop is indicative of the sector’s difficulties in maintaining production levels in the face of rising costs and challenging market conditions.
• However, compared to the second half of 2023, the sector saw an increase of 9.97%, largely due to a benchmark effect, which softened the overall decline.
• While real output declined, nominal manufacturing output saw a considerable increase, up 30.38% year-on-year to N5.34 trillion in the first half of 2024.

Meshioye attributed this sharp increase to the rapid rise in domestic prices, with the consumer price index (CPI) rising to 34.19% in June 2024, driven by inflationary pressures.

Shift to local raw materials faces challenges

On a positive note, local sourcing of raw materials improved slightly, increasing to 56.03% in the first half of 2024 from 55.4% in the first half of 2023. MAN attributes this change to the increasing difficulties faced by manufacturers to earn foreign currency, pushing companies to explore local sourcing options.

However, the change has not been consistent across all subsectors.

Non-metallic mineral products and textiles, clothing and footwear, for example, experienced declines in local sourcing due to dependence on imported raw materials, underscoring the challenges of reducing dependence on imports.

Increased inventory levels of unsold goods

The sector also faced rising inventory levels of unsold goods, which increased by a staggering 357.57% year-on-year to N1.24 trillion in the first half of 2024.

• The rise in unsold finished goods points to a slowdown in consumer purchasing power as inflation, the removal of subsidies and the weakening of the naira continue to impact the disposable income of the average Nigerian.

• This growing reserve indicates the need for targeted interventions to stimulate demand and improve the sector’s performance.

Investment has increased but mainly due to the depreciation of the Naira

Manufacturing investment increased by 29.63% year-on-year to N250.13 billion in the first half of 2024.

• However, this increase was largely influenced by the depreciation of the naira, which inflated the cost of importing essential machinery and assets.
• Meshioye explained that manufacturers remain focused on maintaining existing production levels rather than expanding them, given the difficult economic environment.
• In real terms, investment spending has not necessarily increased, highlighting limitations to growth within the sector.

Energy costs and supply challenges persist

Electricity supply to the sector showed some improvement, with average hours of daily supply increasing to 11.28 hours per day in the first half of 2024.

• However, the cost of alternative energy sources continues to rise, with manufacturers spending N238.31 billion on energy alternatives, an increase of 7.69% from the second half of 2023.
• High prices for diesel, gas and other fuels, coupled with persistent instability in the national grid, have forced many manufacturers to bear the financial burden of self-generation of power.

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