Rising Inflation and Naira Depreciation Drive Manufacturers’ Costs to N2.6tn

Nigeria’s manufacturing sector is grappling with escalating operational expenses, as the combined impact of sustained inflation and the weakening naira has pushed production costs to a staggering ₦2.6 trillion. Industry stakeholders warn that unless urgent measures are taken to stabilise the economy, the rising cost of doing business could further erode competitiveness, limit production capacity, and threaten jobs in the sector.

According to figures from the Manufacturers Association of Nigeria (MAN), the latest cost burden reflects the steep rise in raw material prices, energy expenses, transportation costs, and imported input bills over the past year. The depreciation of the naira against major foreign currencies has significantly raised the cost of imported machinery, spare parts, and raw materials, which form a large share of manufacturing inputs.

Manufacturers say the double pressure of inflation—currently at multi-decade highs—and foreign exchange instability has created a difficult business climate. Many factories are struggling to maintain operations at optimal capacity, while others have been forced to scale down production, lay off workers, or suspend certain product lines altogether.

A breakdown of the expenses shows that energy costs remain one of the heaviest drains on manufacturers’ budgets. The persistent inadequacy of public power supply has compelled many companies to rely on diesel and gas generators, with the cost of fuel rising sharply over the past months. This, coupled with logistics challenges caused by poor road infrastructure and higher transport fares, has further inflated operational costs.

MAN President, Otunba Francis Meshioye, said the situation is worsening as manufacturers face increased pressure from local and international competition. He noted that the cost surge has reduced profit margins and raised the prices of finished goods, affecting consumer demand. According to him, unless government policies directly address the volatility of the foreign exchange market and the structural bottlenecks in local production, manufacturers will continue to struggle.

Meshioye stressed the need for urgent policy intervention to stabilise the naira, including boosting foreign exchange supply through non-oil exports and reducing overdependence on imports. He added that promoting backward integration in key industries could significantly reduce reliance on imported raw materials and shield manufacturers from exchange rate volatility.

Inflationary pressure is another major factor eroding manufacturers’ operational viability. With consumer purchasing power under strain, companies are caught between passing rising costs onto buyers or absorbing the losses. For many, neither option is sustainable in the long term. Some manufacturers have opted to reduce product sizes or alter formulations to keep prices relatively stable, but these measures often lead to lower product quality and brand erosion.

Economists point out that the manufacturing sector’s rising expenses are not only a threat to the companies themselves but also to the wider economy. As production costs increase, the prices of goods rise, fuelling further inflation—a cycle that can be difficult to break without decisive macroeconomic reforms.

To cushion the impact, industry players are calling for targeted government support, such as tax reliefs, subsidised credit facilities, and investment in critical infrastructure. Meshioye noted that while monetary tightening by the Central Bank of Nigeria (CBN) aims to curb inflation, high interest rates have made it harder for manufacturers to access affordable financing for expansion or working capital.

Some stakeholders have also recommended revisiting import tariffs on essential industrial inputs, arguing that high duties worsen production costs when local alternatives are insufficient or unavailable. In addition, improving port operations and reducing bureaucratic bottlenecks could help manufacturers receive imported goods faster and at lower clearing costs.

Energy reform remains a priority for manufacturers. Many have urged the government to fast-track investment in the power sector to ensure more stable and affordable electricity. Transitioning to renewable energy sources, such as solar and biomass, is being explored by some companies, but the high initial investment remains a barrier for small and medium-sized manufacturers.

The sector’s challenges have broader implications for Nigeria’s economic growth and employment. The manufacturing industry is a major employer and a vital driver of industrialisation, contributing significantly to GDP. However, if rising costs continue unchecked, more factories could shut down, leading to job losses and reduced industrial output.

Despite the bleak outlook, some manufacturers remain hopeful that recent government moves to attract foreign investment, diversify exports, and reform the foreign exchange market will yield positive results in the medium term. However, they caution that without immediate action to stabilise the economy, the sector’s recovery could be slow and uneven.

For now, manufacturers are navigating a tough economic environment where inflation and currency depreciation are dictating the pace of production. The ₦2.6 trillion expense mark underscores the urgent need for coordinated policies to restore stability, enhance productivity, and protect one of Nigeria’s most critical economic sectors from further strain.