Nigeria’s manufacturing crisis: Strategic framework for revival 

The Nigerian manufacturing sector stands at a critical inflexion point, with recent data revealing an alarming 20.95 per cent decline in GDP contribution during the first two quarters of 2024. As a financial sector expert with extensive experience in risk management and business process optimisation, I present an analytical framework addressing this crisis that threatens Nigeria’s industrial future.

One can see that the contribution of the manufacturing sector to GDP dropped from 16.04 per cent (Q4 2023) to 12.68 per cent (Q2 2024). Also, manufacturing production decreased approximately by 80 per cent between Q1 2023 and Q1 2024. Sadly manufacturing companies face up to 84 per cent increase in tax burden despite declining productivity while capacity utilisation in manufacturing facilities has fallen below 50 per cent.

One of the key challenges impacting manufacturing includes foreign exchange volatility. In October 2024, the naira depreciated to N1,710/$, increasing production costs and shrinking profit margins. There’s also limited access to forex for the importation of raw materials. Another challenge is infrastructure deficits. Erratic power supply continues to increase operational costs by up to 40 per cent. Logistical bottlenecks add approximately 25 per cent to production costs, and then there is limited access to industrial facilities outside urban hubs.

Financial constraints, a key challenge, have seen interest rates hovering above 20 per cent, limiting access to affordable capital. Inflation has also driven up operational costs, and there is a lack of sustainable long-term funding options.

There are potential consequences if these key challenges are not addressed. One of such consequences is the loss of jobs. Over 500,000 jobs, according to some reports, are at risk by 2025. These challenges will also negatively impact GDP; further declining the contribution of the manufacturing sector to GDP to 10 per cent. A decline in Foreign Investment within the manufacturing sector is bound to happen. Food Security is threatened through a diminished capacity in the food processing industry. Lastly, a growing reliance on imports further weakens the naira, resulting in a trade deficit.

A strategic framework for revitalisation will include financial innovation. This can be achieved by establishing a manufacturing sector intervention fund with risk-sharing mechanisms. Supply-chain financing can be introduced to ease working capital constraints, and there should be a provision for tailored forex hedging instruments for manufacturers.

Operational excellence is very key. Energy-efficient manufacturing practices that can cut costs by 30 per cent must be adopted while digital technologies must be leveraged to enhance productivity. The use of local raw materials to reduce forex dependence must be promoted.

Other policy recommendations include creating special manufacturing zones with dedicated infrastructure, offering tax incentives for local raw material development, and streamlining forex access for critical inputs.

The projected impact of the framework within the short term (between six and 12 months) will include reduced operational costs, improved capacity utilisation and

enhanced access to working capital. In the medium term (between one and two years), there’s bound to be increased manufacturing contribution to GDP, reduced forex dependency, and the creation of new manufacturing jobs. In the long-term (between three and five years), sustainable growth in the manufacturing sector is achieved, higher local raw material utilisation and enhanced global competitiveness.

During the implementation plan, a Manufacturing Sector Task Force must be formed to oversee execution. Also, Public-Private Partnership platforms must be built for collaboration, while quarterly monitoring mechanisms must be activated to track progress. Lastly, risk management frameworks for sustainability must be integrated.

By implementing these strategies, Nigeria’s manufacturing sector can recover from the current downturn, foster sustainable growth, and unlock new economic opportunities. This framework aims to restore the sector’s role as a key driver of GDP growth, reduce reliance on imports, and position Nigeria as a global manufacturing competitor.

Abidemi Owokoya is an expert in risk management and business process optimisation