The Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, has lamented the rise in the prices of petroleum products, saying the implications for members are immediate, severe and multifaceted.

He said because they rely heavily on gas and diesel to power operations, the global energy shock is driving domestic pump and depot prices upward, wiping out any operating margins.

In a position paper made available to The Guardian,  Ajayi-Kadir reckoned that while the geopolitical crisis is unfolding thousands of miles away, its economic shrapnel threatens to tear the heart of the Nigerian economy through disruptions to global shipping routes, volatile energy markets and supply chain bottlenecks that present an imminent threat to domestic production.

Noting that the intensification of hostilities in the Middle East has fundamentally altered the global energy and logistics landscape, he pointed out that the Strait of Hormuz is facing severe disruptions and that global markets have panicked.

“Brent crude has rapidly surged past the $84.50 per barrel mark, while global freight and war-risk insurance premiums have skyrocketed as vessels reroute away from the Red Sea corridor. For us, global geopolitics is not a television spectacle; it is a direct tax on the cost of production,” he said.

The DG noted that a spike in global oil prices should be a fiscal windfall for Nigeria, boosting the country’s FX reserves and stabilising the naira.

“However, reality presents a stark macroeconomic paradox. As domestic crude production remains severely suboptimal (hovering around 1.3 to 1.4 million barrels per day due to persistent structural deficits), Nigeria captures only the price gains while missing out entirely on the volume gains.

“The U.S. remains one of our most vital bilateral trading partners. According to recent data, Nigeria’s total exports to the U.S. in 2024 stood at $5.91 billion, accounting for 9.3 per cent of our $63.6 billion total exports. Conversely, our imports from the U.S. totaled $4.33 billion in the same period. The current conflict severely threatens this bilateral trade flow.

“We anticipate immediate spikes in global freight forwarding costs, prolonged lead times for imported raw materials and an imported inflation surge. With the Middle Eastern transit corridors severely compromised, the cost of securing inputs for Nigerian factories will inevitably rise, threatening to erode the already fragile purchasing power of the Nigerian consumer. Also, the global flight to safe-haven assets has strengthened the U.S. dollar, applying renewed depreciation pressure on our currency. The adverse ripple effects of these could arrive squarely on our factory floors sooner rather than later,” he said.

Regretting that, besides the escalating energy costs choking manufacturers, he said extended transit times and multiplied shipping costs are making raw material procurement prohibitively expensive.

“Also, as the cost of staple goods rises, consumer purchasing power collapses, and we now face the dual threat of soaring production costs and rapidly accumulating unsold inventories, jeopardising our target of achieving a 3.1 per cent real growth rate for the sector in 2026.”

While the entire real sector will feel the pinch, he said, specific sectoral groups within MAN face existential headwinds, especially the chemical and pharmaceutical sectors.

“This group is at the highest risk. In 2023, out of the $154,107,280 total Nigerian-manufactured exports to the US, chemical products alone accounted for a staggering $136,446,180 (approximately 88 per cent). Petrochemical derivatives are highly sensitive to crude oil price shocks. Any disruption in global petroleum markets will immediately inflate the cost of active pharmaceutical ingredients (APIs) and chemical base materials, squeezing margins and threatening the export dominance of operators within the Sectoral Group.”

“Another sector is the basic metal, iron and steel sector. This heavily energy-dependent sector relies on stable domestic gas and diesel pricing. Should the global crisis trigger local energy price surges, the operational expenditure for these manufacturers will become unsustainable. Also, the food, beverage and tobacco sector is at risk because it is highly dependent on imported grains and packaging materials and will suffer severe imported inflation. Escalating freight costs will force price hikes, directly impacting the Nigerian consumer’s daily survival,” he warned.

Drawing on past experience, he said during the US-Iraq war, the effect on Nigeria’s manufacturing sector was devastating as total manufacturing exports plummeted from $901.35 million in 2002 to a dismal $496.87 million in 2003.

“Manufacturing GDP Growth suffered a violent contraction, collapsing from a robust 17.74 per cent in 2002 to -10.8 per cent in 2003. The sector’s contribution to the national GDP consequently dropped from 11.68 per cent to 9.7 per cent within that same one-year window,” he said.

“We cannot control the geopolitics of the Gulf, but we can and must, control our domestic policy responses. The window for reactive measures is closed; the time for proactive manufacturing fortification is now. We can either follow the failed path of early 2000s, where we squandered an oil boom while our factories rotted, or we can use this crisis as a catalyst for genuine manufacturing autonomy,” he said.

To insulate the economy and prevent widespread factory closures, he urged the Federal Government to immediately scale and subsidise the Presidential CNG (Compressed Natural Gas) initiative specifically tailored for manufacturing hubs and heavy-duty logistics to break the sector’s reliance on imported diesel and guarantee FX for critical inputs through the Central Bank of Nigeria (CBN).

“Also, the government must enforce a framework that compels domestic mega-refineries to prioritise the sale of refined fuels and petrochemicals to local manufacturers at discounted, non-import-parity rates and finally, to buffer the shock of rising transportation costs, all levels of government must enact an immediate, six-month moratorium on discretionary highway levies, haulage taxes and multiple transit tolls that currently burden the distribution of manufactured goods,” he said.