The lamentation by manufacturers and small and medium enterprises (SMEs) in the country that their “businesses are on life support” is a grim but true picture of the mounting challenges facing the two critical sectors. This is despite their significant contributions to the economy and the recent improvement in the Purchasing Managers Index, a key indicator that reflects the health and direction of the country’s manufacturing sector. The Director-General of the Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadiri, says the sector faces a break future that could worsen the present dire state of the economy unless urgent measures are taken to save the imminent collapse of the sector. Among the challenges raised by MAN include policy inconsistencies, exorbitant cost of production that have affected backward integration, research development and innovation necessary for economic growth, and high cost of borrowing from banks.
Other complaints listed by MAN are multiple taxation, high cost of alternative energy, high exchange rate and interest rate, foreign exchange scarcity, over-regulation, low access to credit by Small and Medium size Enterprises(SMEs), poor road infrastructure, soaring inflation, insecurity, high cost of logistics, political uncertainty, dwindling consumer demands and declining purchasing power.
According to available data, while SMEs provide over 86 per cent of the Nigerian workforce and form a key part of the private sector, the manufacturing sector contributes about 16 per cent of Nigeria’s total annual Gross Domestic Product (GDP) and over 80 per cent employment opportunities in the country. This is, however, considered very low compared to other economies around the world. According to recent data from the Central Bank of Nigeria (CBN), as a result of the challenges confronting manufacturers and SMEs, industrial activity in the sector contracted for nine consecutive months in 2024, with the PMI dropping to 49.7 per cent.
This is below the economic growth threshold. The manufacturing investment also dropped by 1.2 per cent in Q4 2024 from 3.5 per cent contraction recorded in Q3 2024. Statistics from MAN indicate that the sector is currently producing at far low capacity as the operators struggle economic headwinds, as the capacity utilisation plummeted to 57 per cent in 2024 from 73.3 per cent three decades ago. Consequently, the contribution of the sector has shrunk to 8.6 per cent last year from 30 per cent recorded over the same period.
Real growth has also declined from 14.7 per cent in 2014 to 1.38 per cent in 2024. The non-oil sector contribution has also declined to 25.13 percent last year from 82.37 per cent recorded in 2019. All of this is evident as Nigeria is now ranked 97th in the recent Global Competitive Industrial Performance Index, 44 places below South Africa. Besides, data from the World Trade Organisation (WTO) showed that Nigeria is far behind South Africa in export manufactured goods, valued at $46billion in 2022, compared to Nigeria’s $3 billion within the same period. This is about 15 times bigger than Nigeria’s export value.
The decline in global demand for Nigeria’s products, according to data from the National Bureau of Statistics NBS), attributed to near-neglect of the manufacturing sector, showed 166 per cent decline of Nigeria’s exports from a record N2.07 billion in 2019 to N778.4 billion in 2023. According to Nigeria Economic Summit Group’s (NESG) Q3 2024 Foreign Trade Alert, Nigeria’s import bill rose to N14.7 trillion in the third Quarter 2024 from N9trillion in the same period in 2023, representing 63 per cent. The cost of imported raw materials surged by 118 per cent, while spending on alternative energy reached all-time high of N1.1trillion in 2024. The sharp rise in import of raw materials underscores Nigeria’s dependence on foreign goods amid stalled local production efforts. This represents the worst period experienced by manufacturers in the country in decades.
In all, there is urgent need for a comprehensive policy framework that will guide industrial development, foster growth and projects the economy towards a brighter future. The starting point is to create a conducive business climate that will make businesses thrive and bring foreign investment inflows. Investors are reluctant to put their money in an economy where there are policy inconsistencies and unpredictable interest rates, foreign exchange volatility and high alternative energy cost. Government policies must be intentional.
It must address rising inflation and weak purchasing power of the people. The recently launched ‘Nigeria First’ Policy must move from paperwork to a concrete programme of action, with government officials patronising Made-in-Nigeria products. That is one of the sure ways to address the challenges of the manufacturing sector and small businesses in the country.