Investments in Nigeria's manufacturing sector witnessed a substantial contraction of 35.3 percent in 2024, plummeting to N658.81 billion from N1.018 trillion in the preceding year. This sharp decline, as highlighted in the Manufacturers Association of Nigeria's (MAN) Second Half of 2024 Economic Review, is largely attributed to the escalating cost of finance driven by rising interest rates, alongside broader economic uncertainties.
The MAN report indicated that the prohibitive cost of borrowing significantly hampered manufacturers' ability and willingness to invest. Commercial bank lending rates to the sector surged to an average of 35.5 percent in 2024, a notable increase from the 28.06 percent recorded in 2023. This spike was a direct consequence of the Central Bank of Nigeria's (CBN) aggressive monetary tightening policy, which saw the Monetary Policy Rate (MPR) being raised to 27.50 percent in an effort to combat persistent inflationary pressures. Consequently, the total finance costs borne by manufacturers ballooned to N1.3 trillion, effectively squeezing investment capacity and hindering expansion plans.
The report further broke down the investment decline, noting that in nominal terms, total investment in the sector decreased by 11.3 percent to N2.85 trillion. Within this, investments in Land & Buildings and Furniture & Equipment experienced the most significant reductions.
Interestingly, the MAN review pointed out a positive, albeit modest, trend within the year. The second half of 2024 (H2'24) saw a 19.4 percent increase in manufacturing investments compared to the first half (H1'24). This suggests a cautious resumption of capital expenditure by manufacturers, possibly indicating an adaptation to the prevailing economic conditions or the anticipation of future improvements. However, this H2'24 uptick was insufficient to offset the substantial year-on-year decline.
Despite the slump in investment, the Nigerian manufacturing sector demonstrated some resilience in terms of output. Real manufacturing output experienced a modest year-on-year increase of 1.7 percent, reaching N7.78 trillion. This growth was primarily driven by increased activity in sub-sectors such as Motor Vehicle & Miscellaneous Assembly, Non-Metallic Mineral Products, and Electrical & Electronics. In nominal terms, the sector's output rose sharply by 34.9 percent to N33.43 trillion, a surge largely attributed to pervasive inflationary pressures and the consequent rise in domestic prices.
Reviewing the sector's overall performance in 2024, the Director General of MAN, Segun Ajayi-Kadir, described the Nigerian manufacturing landscape as "challenging but resilient." He highlighted the sector's struggle against "macroeconomic instability, inflationary pressures, and policy-driven disruptions." Ajayi-Kadir noted that the subdued real GDP growth reflected the broader economic challenges of rising production costs, exchange rate volatility, and weakening consumer demand. The surge in inflation to 34.8 percent by the end of 2024 further compounded these issues by eroding purchasing power and inflating operational expenses.
Ajayi-Kadir concluded by emphasizing the critical need for macroeconomic stabilization, improved energy supply, and access to affordable financing to foster sustainable growth and enhance industrial productivity within the Nigerian manufacturing sector moving forward. While acknowledging the observed resilience and increased local sourcing of raw materials, he underscored that real output remained constrained under the prevailing economic climate.