Manufacturers Gasp Under Energy and Credit Burden as Economic Reforms Bite

Nigeria’s manufacturing sector is facing intense pressure as rising energy costs and tightening credit conditions combine to squeeze profitability and threaten growth. While government reforms aim to stabilize the economy and improve market efficiencies, the immediate effect has been an increased operational burden on manufacturers, many of whom are struggling to stay afloat amid soaring expenses.

Energy costs remain one of the biggest challenges for manufacturers. The country’s unreliable power supply forces most companies to rely heavily on alternative energy sources such as generators, which are expensive to run. In 2024, spending on alternative energy surged by about 75%, reaching over ₦700 billion in the second half of the year alone. This sharp rise reflects both increased fuel prices and a 35% cut in electricity subsidies, coupled with higher tariffs targeting high-energy consumers. Despite these measures designed to reduce government spending and encourage private sector investment in power infrastructure, manufacturers face escalating energy bills that significantly erode their margins.

The power sector’s deep-rooted challenges, including inadequate gas supply and aging infrastructure, continue to limit grid reliability. As a result, manufacturers often have no choice but to maintain costly standby power solutions, pushing up production costs and making Nigerian goods less competitive compared to imports.

Credit accessibility and cost present another critical hurdle. The Central Bank of Nigeria’s current monetary policy has kept interest rates high, with the Monetary Policy Rate (MPR) sitting at 27.5%. Consequently, lending rates for manufacturers often exceed 35%, substantially increasing the cost of financing. In 2024, finance costs for manufacturers jumped 44%, rising from ₦1.43 trillion in 2023 to ₦2.06 trillion. Such high borrowing costs deter investment in expansion, innovation, and working capital, stifling industrial growth.

Manufacturers’ associations, including the Manufacturers Association of Nigeria (MAN), have raised alarms about these pressures. They urge policymakers to consider targeted financial relief measures, including interest rate reductions and dedicated credit facilities tailored to industrial players, to ease the sector’s burden.

Economic reforms undertaken by the current administration under President Bola Tinubu, such as subsidy removals and exchange rate unification, are designed to correct long-standing market distortions and restore macroeconomic stability. However, these reforms have also contributed to inflationary pressures. Inflation averaged over 33% in 2024, significantly reducing consumers’ purchasing power and curbing demand for locally manufactured products.

Despite these challenges, some government initiatives offer hope. The “Nigeria First” policy, which promotes the consumption of locally made goods, aims to boost domestic manufacturing by encouraging patronage and supporting local industries. Additionally, reforms targeting infrastructure development and financial sector deepening are underway but have yet to deliver immediate relief.

For manufacturers to survive and thrive, there is a pressing need for coordinated government action to address energy inefficiencies and credit constraints. Investments in reliable power infrastructure, including increased gas supply and renewable energy options, could reduce dependence on costly generators. Meanwhile, monetary authorities could explore mechanisms to provide affordable financing tailored for manufacturing, enabling businesses to invest in capacity expansion and modernization.

 

In conclusion, while Nigeria’s economic reforms seek long-term stability and growth, the immediate impact on manufacturers has been a tightening squeeze driven by rising energy costs and high financing charges. Without urgent policy adjustments and targeted support, the manufacturing sector risks contraction, threatening jobs, industrial output, and broader economic diversification goals. Addressing these energy and credit burdens will be critical to sustaining Nigeria’s industrial base and fostering resilient economic growth.