Lagos, Nigeria — November 12, 2024: Investment in Nigeria’s manufacturing sector increased by 30 percent in the first half of 2024, with key industry players such as Dangote Group, BUA Group, and Flour Mills of Nigeria ramping up their investments, the Manufacturers Association of Nigeria (MAN) revealed in its half-year review.
Total investments in the sector amounted to N250.13 billion in H1 2024, marking a 29.63 percent year-on-year increase compared to N193.04 billion in the same period of 2023. However, MAN noted that the surge in investment was primarily due to the depreciation of the naira, which inflated the cost of importing machinery and other key assets.
“In real terms, investment spending did not increase significantly,” said MAN. “Manufacturers have largely focused on maintaining current production levels, rather than expanding, due to the ongoing challenging economic environment.”
Inflation, Exchange Rate Impact on Real Investment Value
Despite the nominal increase in investments, the association emphasized that the real value of investments had declined due to inflation and the devaluation of the naira following the 2023 exchange rate float. Manufacturers have been grappling with rising costs for raw materials and machinery, and many have scaled back expansion plans in the face of persistent economic challenges.
This follows a trend observed in 2023, when investment in plants, machinery, and other fixed assets rose by 32 percent compared to 2022. In total, manufacturers invested N427.18 billion in 2023, up from N323.98 billion the previous year. The growth in investments reflected increased confidence in the Nigerian economy, but the value of those investments was again diluted by inflationary pressures and a volatile exchange rate.
Sectoral Investment Breakdown
Investment growth was not uniform across all sub-sectors. According to MAN, five out of ten major manufacturing groups saw investment increases. The food, beverages, and tobacco sector led with N93.16 billion invested in the second half of 2023, a 57 percent increase. Other sectors showing investment growth included chemicals, pharmaceuticals, and vehicle assembly.
Despite these sectoral gains, when comparing current investment levels to those in 2014, the overall investment in Nigeria’s manufacturing sector has dropped by 38.2 percent over the past nine years. In 2014, total manufacturing investments were N691.77 billion, which fell to N489.55 billion in 2015.
Key Companies Driving Investments
Several major companies have been active investors in the sector. These include Dangote Cement, BUA Cement, Flour Mills of Nigeria, Nestlé, FrieslandCampina WAMCO, and Nigerian Breweries. In 2023, Emzor Pharmaceutical Industries secured €13.85 million in funding from the European Investment Bank (EIB) to develop a $23 million plant aimed at combating malaria.
Nestlé also committed N61 billion to expand its operations at three factories in Nigeria, while BUA Cement secured a $500 million loan from the International Finance Corporation (IFC) to expand its integrated cement plants in Sokoto State. Dangote Industries is also investing heavily, with plans for a six million-ton per annum cement plant in Ogun State.
Manufacturers Facing Multiple Challenges
Despite increased investments, manufacturers in Nigeria are contending with a host of challenges. High energy costs, including rising diesel and petrol prices, are severely impacting production costs. Diesel and petrol now cost over N1,000 per litre, making logistics and manufacturing processes more expensive.
The foreign exchange crunch remains a critical issue, with the naira depreciating by more than 70 percent since President Bola Tinubu’s administration took office. The naira was trading at N1,678.87 to the dollar as of November 12, 2024. Olaoluwa Boboye, an economist at CardinalStone, attributed the depreciation to market speculation, with businesses anticipating further rate hikes.
In addition to the forex crisis, high interest rates are further compounding the challenges for manufacturers. The Central Bank of Nigeria raised its benchmark interest rate from 18.75 percent to 27.25 percent in 2024, making it more difficult for businesses to access affordable financing. MAN reported that the average loan interest rate for manufacturers was 28.1 percent in the second half of 2023, up from 18.75 percent the previous year.
Outlook for the Sector
Despite these difficulties, there remains some optimism about the future of Nigeria’s manufacturing sector. The significant investments made by major companies in 2023 and 2024 reflect a growing confidence in the long-term potential of the economy. However, the continued challenges related to forex scarcity, high energy costs, and rising interest rates could temper this optimism if left unaddressed.
MAN’s Director-General, Segun Ajayi-Kadir, expressed concern about the impact of rising fuel prices on manufacturing input costs, warning that this could lead to higher prices for consumers at a time when disposable incomes are shrinking.
“As fuel costs rise, so do production and logistics costs,” he said. “This will inevitably lead to higher prices, which is concerning given the current economic situation.”