Nigeria's manufacturing sector witnessed a significant 34.9% jump in nominal output during the second half of 2024, reaching N33.43 trillion. This surge, however, was primarily attributed to the escalating inflationary pressures and the consequent rise in domestic prices, according to the Manufacturers Association of Nigeria (MAN).
The Director-General of MAN, Segun Ajayi-Kadir, unveiled these findings during the presentation of the association's "MAN Economic Review – Second Half 2024" in Lagos on Monday. He stated that the substantial increase in nominal output was largely a reflection of the prevailing economic climate characterized by rising costs.
The MAN report provided a comprehensive overview of the sector's performance, encompassing crucial metrics such as capacity utilization, production volume, inventory levels, the use of local raw materials, investment trends, energy expenditure, and employment dynamics.
Marginal Improvement in Capacity Utilization Amidst Fluctuations
Capacity utilization within the manufacturing sector saw a slight improvement, rising to 57.0% in 2024 from 55.1% in the preceding year. A half-on-half analysis revealed a modest 1.2 percentage point increase in the second half of 2024 compared to the first.
Modest Real Output Growth Masked by Half-Year Decline
In terms of real manufacturing output, the sector recorded a modest year-on-year growth of 1.7%, amounting to N7.78 trillion in 2024. This growth was largely propelled by increased activity in specific sub-sectors, including motor vehicles and miscellaneous assembly, non-metallic mineral products, and electrical and electronics.
However, a half-year comparison painted a less optimistic picture, revealing a 3.1% decline in real output between the first and second halves of 2024. This contraction underscores the persistent headwinds facing the sector, such as escalating production costs, subdued consumer demand, and ongoing price volatility.
Increased Local Sourcing Offset by Sharp Investment Decline
The report highlighted a positive trend in the local sourcing of raw materials, which increased from 52.0% in 2023 to 57.1% in 2024. This shift was largely driven by the persistent scarcity of foreign exchange, the high cost of imported inputs, and targeted government initiatives aimed at promoting the utilization of domestic resources. Notable progress was observed in sectors like wood and wood products, textiles and apparel, footwear, and pharmaceuticals. However, the electrical and electronics segment continued to lag due to its significant reliance on imported components.
Conversely, real manufacturing investment experienced a sharp year-on-year decline of 35.3%, falling to N658.81 billion. This significant drop reflects the impact of economic uncertainties and weakened investor confidence. Despite this overall decrease, the second half of 2024 witnessed a 19.4% increase in investments compared to the first half, suggesting a cautious resumption of capital expenditure by some manufacturers amidst tentative signs of stability.
Surge in Unsold Goods Despite Improved Second-Half Sales
A concerning trend highlighted in the report was the substantial 87.5% increase in the inventory of unsold finished goods, reaching N2.14 trillion in 2024. This surge was attributed to sluggish consumer demand, inflationary pressures, and elevated production costs. However, the second half of 2024 offered a glimmer of hope, recording a 27.9% decline in inventory compared to the first half, indicating improved sales clearance and price adjustments.
Stable Employment Figures Amidst Rising Employee Exits
Employment within the manufacturing sector remained relatively stable, with 34,769 new jobs created in 2024, representing a 1.8% increase from the 34,163 jobs added in 2023. However, the report also noted an increase in employee exits, rising to 17,949 from 17,364 in 2023. This trend signals labour mobility, economic migration, and internal restructuring within manufacturing firms.
Improved Power Supply Burdened by Soaring Energy Costs
Electricity supply to industries showed a significant improvement, with the average daily power supply rising to 13.3 hours in 2024 from 10.6 hours in 2023. A half-year comparison revealed an increase from 11.4 hours in the first half to 15.2 hours in the second half of 2024.
Despite this improvement in supply, manufacturers faced drastically increased electricity costs due to the over 200% hike in Band A tariffs, significantly inflating operational expenses. Consequently, manufacturers' total expenditure on alternative energy sources (diesel, fuel, and generators) surged to N1.11 trillion, a 42.3% increase from N781.68 billion in 2023. This expenditure jumped by 75% between the first and second halves of 2024, highlighting the immense financial burden of unreliable grid power.
Spiraling Finance Costs Hamper Investment
Manufacturers also grappled with a sharp increase in borrowing costs, with the average lending rate from commercial banks spiking to 35.5% in 2024 from 28.06% in 2023. This surge in interest rates pushed total finance costs to N1.3 trillion, significantly limiting capital expansion and investment opportunities for many firms.
In his concluding remarks, Ajayi-Kadir stressed the critical need for policy stability, improved foreign exchange liquidity, reforms in energy costs, and moderation of interest rates to foster sustainable growth within the manufacturing sector. He urged the government to expedite the implementation of policies that are conducive to manufacturing and to create a more predictable and enabling business environment.
In summary, following the release of the MAN report highlighting the surge in nominal manufacturing output driven by inflation but also persistent underlying challenges like declining real output in the second half, reduced investment, high unsold goods, rising energy and finance costs despite improved power supply, and stable but mobile employment, MAN's Director-General urged the government to implement policies that would stabilize the economy, improve access to foreign exchange, reform energy costs, and lower interest rates to foster sustainable growth in the manufacturing sector and create a more predictable business environment.