‘High production costs hobble manufacturing, competitive edge’

Secretary-General of the Pan-African Manufacturers Association (PAMA), Segun Ajayi-Kadir, has identified the soaring cost of production, epileptic power supply, expensive logistics and fragmented markets as major obstacles to Africa’s manufacturing ambitions.

Ajayi-Kadir, who also serves as the Director-General of the Manufacturers Association of Nigeria (MAN), lamented that Nigeria’s industrial sector is particularly constrained by infrastructure and financing challenges.

Speaking on behalf of the association, he said Africa’s ability to build competitive manufacturing industries would depend not merely on expanding production capacity or attracting investments, but on addressing the structural weaknesses that make locally manufactured goods expensive and limit their access to regional and international markets.

He noted that although Africa has considerable natural resources, a growing consumer market and opportunities arising from the reorganisation of global supply chains, its manufacturing base remained relatively small compared with its population and economic potential.

He cited data from the African Development Bank’s Africa Industrialisation Index 2025, which puts the continent’s manufacturing value added at approximately $351 billion in 2025, up from $285 billion in 2020. Manufacturing, he said, accounted for about 10.8 per cent of Africa’s Gross Domestic Product (GDP).

However, Africa accounted for less than two per cent of global manufacturing output and 1.4 per cent of global manufacturing exports. Manufacturing value added per capita stood at $226.7 in 2025, below the $254.9 recorded in 2014.

He stressed that these figures underscore the need to move beyond policies that prioritise market creation towards building industries capable of producing competitively, adopting technology, developing local suppliers and participating in regional and global value chains.

He identified the high cost of production and weaknesses in the systems connecting factories to markets as critical challenges that African governments must address to achieve meaningful industrialisation.

“In Nigeria, these challenges have significant implications for manufacturers contending with extremely high electricity costs, limited access to affordable credit, transportation bottlenecks and FX pressures. Such constraints increase operating expenses, weaken capacity utilisation and make locally manufactured products less competitive against imports,” he said.

Also highlighting the importance of the African Continental Free Trade Area (AfCFTA) in creating a larger market for manufacturers, he noted that despite Africa’s substantial population, its markets remained fragmented by customs procedures, product standards, transport systems, payment arrangements, tax regimes and regulatory differences.

“The World Bank’s 2026 report, Integrating Africa: From Threads to Hubs, estimates that about 60 per cent of Africa’s trade costs arise behind national borders, including customs, logistics, regulation and infrastructure constraints. This means that tariff reductions alone cannot deliver the full benefits of continental trade integration when businesses still face high costs moving raw materials, intermediate goods and finished products across borders.

“Manufacturing requires significant investment in machinery, buildings, engineering, quality assurance, product development and management. These fixed costs can only be recovered when businesses achieve sufficient production volumes and market access,” he said.

He further pointed out that regional production networks could enable African countries specialise, combine industrial capabilities and attract investments in sectors that individual national markets may not support.

Potential areas, he said, include agro-processing, petrochemicals, minerals and metals, machinery, transport equipment, textiles, energy and industrial services.

For Nigeria, he revealed that the opportunity lies in leveraging the nation’s industrial base, consumer market and resource endowment to supply neighbouring countries and participate in continental production networks, rather than relying predominantly on its domestic market.

“However, this would require improvements in cross-border transportation, customs administration, standards, payments and trade financing,” he said.

Drawing attention to the importance of linking natural resources to domestic production capacity, he said the cement industry illustrates how sustained investment in local resources and manufacturing capacity can reduce import dependence and create export opportunities.

He revealed that investment in domestic limestone resources and production facilities has helped develop a substantial local cement industry, demonstrating how resource availability can translate into industrial value when supported by capital, infrastructure and access to markets.

This, he said, can be applied to other resource-based industries, particularly petrochemicals, metals, agricultural processing, and other manufacturing segments, where Nigeria has the potential to substitute for imports and develop export capacity.

Listing Morocco as an example of industrial upgrading, he said the country ranked first in the African Development Bank’s 2025 Industrialisation Index, reflecting improvements in productive capacity, export diversification and industrial development.

He further noted that the African Development Bank reported that 41 of the continent’s 54 countries improved their industrialisation scores between 2010 and 2024, although core manufacturing performance remained the weakest of the Index’s three dimensions.

He argued that resource availability and market size do not automatically create competitive industries but must be supported by reliable infrastructure, investment, technology, skilled labour and efficient supply chains.