Market News

BY Josephine Okojie and Juliet Onyema 

Manufacturers’ unsold finished goods in Africa’s most populous nation have surged by 357.6 percent in one year, hampering manufacturing activities and indicating a struggling economy, according to the Manufacturers Association of Nigeria.

Inventory of unsold products in the manufacturing sector rose to N1.24 trillion in the first half of 2024 from N272 billion in the same period of last year, MAN’s latest half-yearly review report released on Monday shows.

The manufacturers association attributed the rising unsold products to low consumer spending, weaker naira, and the impact of the subsidy removal.

“The high levels of unsold inventories reflect the challenges faced by consumers and the need for interventions to stimulate demand and improve the sector’s performance,” the report.

The manufacturing sector employment generation capacity continued to decline, with only 2,606 jobs created in H1 2024, a 29.99 percent reduction from H2 2023.

Job creation fell by 37.83 percent year-on-year, reflecting the ongoing challenges within the sector, including economic uncertainties, inflationary pressures, and an unfavourable business environment.

The Chemical and Pharmaceutical Industry remained the highest number of job creators, while the Motor Vehicle and Miscellaneous Assembly Industry created the fewest jobs.

According to the report, some sectors showed resilience and growth, while others struggled with declining production values, and reduced employment.

Capacity utilization in Nigeria’s manufacturing sector showed a slight decline year on year from 56.5 percent in H1 2023 to 56.4 percent in H1 2024 however there was a 2.8 percent increase compared to H2 2023, reflecting some recovery.

“The sector also faced significant challenges, including high energy costs due to a 200 percent increase in electricity tariffs, forex scarcity, and declining consumer demand.

“These factors collectively resulted in elevated operational costs and a difficult business environment for manufacturers,” the report.

In real manufacturing production value, Nigeria’s output declined by 1.66 percent year-on-year in H1 2024, falling from N1.36 trillion in H1 2023 to N1.34 trillion.

Despite this decline, the sector saw a 9.97 percent increase compared to H2 2023, driven by a baseline effect.

Rising electricity tariffs, exchange rate volatility, and higher energy costs, which heightened production costs amidst declining consumer demand and the persistent increase in interest rates by the Central Bank of Nigeria strained the sector.

This growth was primarily driven by the sharp rise in domestic prices, as reflected in the Consumer Price Index (CPI), which surged to 34.19 percent in June 2024.

“The increase in nominal output masked the underlying difficulties faced by manufacturers in maintaining real output levels, highlighting the impact of inflationary pressures on the sector,” the report stated.

The manufacturing sector’s local raw material sourcing surged slightly to 56.03 percent in H1 2024, from 55.4 percent in H1 2023. This modest increase indicates a gradual shift towards local sourcing, driven by difficulties obtaining foreign exchange.

However, some sectors, like Non-Metallic Mineral Products and Textile, Apparel and Footwear, faced declines in local sourcing, reflecting the challenges of shifting away from imported raw materials.

Investment in the manufacturing sector continued to rise, reaching N250.13 billion in H1 2024, showing a 29.63 percent year-on-year increase.

However, this increase is primarily due to the depreciation of the naira, which inflated the cost of importing machinery and other essential assets.

“In real terms, investment spending did not increase, as manufacturers focused on maintaining current production levels rather than expansion due to the challenging economic environment,” the report stated.

The electricity supply to industries improved in H1 2024, with average daily supply hours increasing to 11.28 hours per day.

However, an increase in electricity tariffs by over 200 percent imposed by DisCos significantly raised the cost of electricity for manufacturers, and the ongoing power outages placed additional financial strain on the sector.

The cost of providing alternative power continued to rise, with manufacturers spending N238.31 billion on alternative energy sources in H1 2024, a 7.69 percent increase from H2 2023.

According to the report, the surge in costs was driven by higher prices for diesel, gas and other energy sources and the need for manufacturers to invest in self-energy generation due to unreliable power supply from the national grid.

The report underscores the urgent need for Nigeria to implement decisive and coherent economic reforms to address these challenges that Nigeria’s manufacturing sector faced in the first half of 2024.

The success of these reforms will be crucial in reversing the current economic downturn, creating jobs, reducing inflation, and improving the overall welfare of Nigerian citizens, the report stated.

“The key areas of focus include enhancing policy consistency, improving the business environment, and fostering economic diversification,” the report stated