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By Merit Ibe, [email protected]
The Manufacturers Association of Nigeria (MAN) has disclosed that real manufacturing output declined by 1.66 per cent year-on-year in H1 2024, falling to N1.34 trillion from N1.36 trillion in H1 2023.”
Nigeria’s manufacturing sector is navigating a challenging landscape in 2024, with a modest decline in real output and capacity utilization, according to a report from the association.
With pressures from inflation, foreign exchange constraints and sluggish consumer demand, manufacturers are increasingly shifting to locally sourced raw materials to mitigate import challenges.
The report paints a picture of a sector under strain, facing high operational costs, waning consumer demand and mounting inflation.
President of the association, Francis Meshioye, revealed that capacity utilization—a critical indicator of manufacturing health dipped marginally to 56.4% in H1 2024 from 56.5% in the same period last year.
The sector faced significant challenges, including high energy costs due to a 200 percent increase in electricity tariffs, forex scarcity, and declining consumer demand. These factors collectively resulted in elevated operational costs and a difficult business environment for manufacturers.
Nevertheless, the sector saw a slight recovery from the second half of 2023, with a 2.8% increase in capacity utilization, hinting of gradual stabilization despite broader economic challenges.
According to the MAN president, “Real manufacturing output in Nigeria declined by 1.66 per cent year-on-year in H1 2024, falling to N1.34 trillion from N1.36 trillion in H1 2023.
“In spite of this decline in real manufacturing output, the sector saw a 9.97 per cent increase compared to H2 2023, driven by a baseline effect.
“In nominal terms, the manufacturing sector’s output in Nigeria increased by 30.38 per cent year-on-year, reaching N5.34 trillion in H1 2024.”
This drop in real output is indicative of the sector’s struggles to maintain production levels in the face of escalating costs and challenging market conditions.
However, compared to H2 2023, the sector experienced a 9.97% boost, largely due to a baseline effect, which softened the overall decline.
While real output declined, nominal manufacturing output saw a considerable surge, up 30.38% year-on-year to N5.34 trillion in H1 2024.
Meshioye attributed this sharp increase to the rapid rise in domestic prices, with the Consumer Price Index (CPI) soaring to 34.19% as of June 2024, driven by inflationary pressures.
On a positive note, local raw material sourcing improved slightly, increasing to 56.03% in H1 2024 from 55.4% in H1 2023. MAN credited this shift to the increasing difficulties manufacturers face in obtaining foreign exchange, pushing companies to explore local sourcing options.
However, the change has not been consistent across sub-sectors.
Non-metallic mineral products and textile, apparel, and footwear, for example, saw declines in local sourcing due to reliance on imported raw materials, underscoring the challenges of reducing import dependency.
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 H1 2024.
The surge in unsold finished products points to a slowdown in consumer purchasing power as inflation, subsidy removal, and the weakening naira continue to impact the average Nigerian’s disposable income.
This rising stockpile signals the need for targeted interventions to stimulate demand and improve the sector’s performance.
Investment is up, but primarily due to the Naira depreciation. Manufacturing investment rose by 29.63% year-on-year to N250.13 billion in H1 2024.
However, this increase was largely influenced by the depreciation of the naira, which inflated the cost of importing machinery and essential assets.
Meshioye explained that manufacturers remain focused on maintaining existing production levels rather than expanding, given the challenging economic environment. In real terms, investment spending hasn’t necessarily increased, highlighting the constraints on growth within the sector.
