The constraints of manufacturing sector

Two and a half years into the present administration’s economic reforms, the manufacturing sector is yet to reap the benefits of the reforms. Despite its modest average contribution of 10 per cent to the Gross Domestic Product (GDP), and about 13 per cent in formal employment, the sector is still groaning.  Latest data from the National Bureau of Statistics (NBS) showed that the sector recorded successive quarterly decline of 1.25 per cent in real growth, even though recent statistics have shown a little improvement in the Purchasing Managers Index, a key indicator that reflects the health and direction of the manufacturing sector.

The other day, the Director General of the Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadiri, decried the constraints confronting the sector. The challenges facing the sector include policy flip-flops, exorbitant cost of production, rising cost of borrowing, foreign exchange scarcity, and unfair competition from cheap imports from Asian countries. Others are multiple taxes, high cost of alternative energy, over-regulation, low access to credit by Small and Medium size Enterprises (SMEs), weak consumer purchasing power, poor road infrastructure, soaring inflation, insecurity, high cost of logistics and political uncertainty.

The constraints limit the capacity of the manufacturing sector to create more employment opportunities. While SMEs provide over 86 per cent of the Nigerian workforce and form a key part of the private sector, they face many economic issues that hamper their growth. Their contributions to economic development are considered low compared to other economies around the world. As a result of the challenges confronting manufacturers and SMEs, the CBN noted that industrial activity in the sector declined significantly in 2024-2025, with the PMI dropping to 49.7 per cent.

This is below the growth threshold. The manufacturing investment also contracted by 1.2 per cent in Q4 2024 and 3.5 per cent recorded in Q3 2025.  Statistics from MAN indicate that the sector is currently producing far below its capacity as the operators struggle with economic headwinds. This led to the decline of 57 per cent in capacity utilisation in 2024. The poor performance may be worse when details of 2025 figures are released. Though the sector recorded a real year-on-year growth of 1.60 per cent in Q2 2025, and 1.25 per cent in Q3 2025, the rate of growth declined from the previous quarter in each case.  Real growth also slowed from 14.7 per cent in 2014 to 1.38 per cent in 2025. The non-oil sector contribution also dropped to about 25.13 per cent last year from 82.37 per cent recorded in 2024. This made Nigeria to drop to the 97th position in last year’s Global Competitive Industrial Performance Index. This is 44 places below South Africa.  Data from the World Trade Organisation (WTO) showed that Nigeria is far behind South Africa in export of manufactured goods, valued at $46billion in 2022, compared to Nigeria’s $3billion within the same period. This is about 15 times bigger than Nigeria’s export value.

The decline in global demand for Nigeria’s products was attributed to the neglect of the manufacturing sector, representing 166 per cent decline of Nigeria’s exports from a record N2.07billion in 2019 to N778.4billion 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 same period in 2023, representing 63 per cent. Cost of imported raw materials surged by 118 per cent, while spending on alternative energy reached N1.1 trillion in 2024.

The sharp rise 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 review that will guide industrial development, foster growth and move the economy towards a brighter 2026. For the manufacturing sector to reach the projected 3.1 per cent growth and 10.2 per cent GDP in 2026, the government must create a conducive business climate that will stimulate growth.  There is need for sustained coordination between fiscal and monetary policies that should ease interest rate as well as the deceleration of inflation below the 15 per cent promised by President Tinubu in his 2026 New Year message. The manufacturing sector needs a special attention through improved security, power supply, and infrastructure.

While the Nigerian ports need an overhaul, there is need to use Public-Private Partnership (PPP) to reduce the cost of doing business and boost competition. Investors are reluctant to put their money in an economy where there are policy inconsistencies. Government policies must be intentional. Manufacturers expect a transparent implementation of the Tax Reform Law that became effective on 1st January, this year. This has become necessary to simplify compliance, reduce the burden on productive enterprises and broaden the nation’s tax base without stifling growth.

For the manufacturing sector to ramp up the needed growth that will drive the economy in 2026, government must avoid policy reversals. It should strengthen gas supply and distribution. Government should empower Development Finance institutions such as the Bank of Industry (BoI) to provide lower cost funds, long-tenured financing that will protect domestic manufacturers without hurting consumers’ welfare.