Manufacturers struggle as rising costs stall recovery despite eco...

Nigeria’s manufacturing sector is facing mounting pressure as soaring production costs, high borrowing rates and weak consumer demand continue to undermine recovery despite improving macroeconomic indicators, industry stakeholders have warned.

Although business activity showed marginal improvement in June, analysts said manufacturers remain trapped in a high-cost operating environment that is limiting output, investment and expansion.

According to the latest Purchasing Managers’ Index (PMI), the Manufacturing PMI edged up to 50.10 in June from 49.60 in May, signalling only a fragile improvement after months of weakness. The sector had expanded strongly between September 2025 and March 2026 before slipping into contraction in April, where it has largely remained.

Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, attributed the sector’s struggles primarily to escalating production costs, particularly energy expenses.

“I will put it down to the fact that the cost of operations has been increasing, especially since the Iran war started. The costs of energy products, diesel, gas, and others, have been rising significantly. Manufacturing is energy intensive, so rising energy costs will naturally affect performance,” Yusuf said.

He added that while foreign exchange liquidity has improved considerably, financing remains a major constraint.

“Many manufacturers are still grappling with high interest rates. Development finance institutions are unable to meet the growing demand for financing due to inadequate funding.

“Accessing forex is no longer a major issue because we now have liquidity in the market. Except for compliance challenges arising from documentation requirements, foreign exchange availability is no longer the problem,” he said.

President of the Association of Food and Agro-allied Processors of Nigeria, Kuteyi Duro, also blamed rising energy prices and raw material costs for the industry’s deteriorating fortunes.

“The cost of production is increasing daily. When diesel and petrol prices rise together, alongside raw material costs, it becomes difficult for industries to break even,” Duro said.

He also criticised the implementation of government fiscal policies, including taxation and import waivers, warning that the prevailing operating environment was forcing some manufacturers to contemplate shutting down.

Despite easing inflationary pressures, manufacturers continue to battle elevated operating costs. Headline inflation moderated slightly to 15.91 per cent in June from 15.93 per cent in May, while the Central Bank of Nigeria retained the Monetary Policy Rate at 26.50 per cent in July, keeping lending rates high for businesses dependent on bank financing.

According to the National Bureau of Statistics, manufacturing contributed 9.57 per cent to Nigeria’s real Gross Domestic Product in the first quarter of 2026, improving from 7.40 per cent recorded in the fourth quarter of 2025.

Economist Dr Almarouf Yusuf of the University of Abuja said recent improvements in foreign exchange liquidity and investor confidence had yet to translate into lower production costs.

He noted that high diesel prices, transportation costs, lending rates and multiple regulatory charges continued to constrain industrial activity.

Industry analysts warned that prolonged weakness in manufacturing could undermine Nigeria’s broader economic performance given the sector’s importance to employment, value addition and non-oil exports.

Although Nigeria’s external reserves have risen above $52 billion and exchange rate stability has improved, analysts argued that these gains alone are insufficient to restore manufacturing competitiveness.

They maintained that manufacturers continue to face prohibitive energy and financing costs, while weak household purchasing power is suppressing demand for locally produced goods.

Analysts said affordable credit, improved electricity supply, better transport infrastructure and stronger incentives for local sourcing would be critical to reviving industrial production.

Meanwhile, Nigeria’s broader private sector continued to expand for the fifth consecutive month in June, with the overall PMI easing slightly to 53.40 from 54.10 in May, remaining comfortably above the 50-point threshold that separates expansion from contraction.

However, analysts warned that unless production costs ease significantly, the manufacturing sector is likely to remain under pressure in the months ahead despite improving macroeconomic fundamentals.