News in brief:
– Nigerian manufacturers are increasingly sourcing local raw materials due to forex crisis.
– Rising costs and high interest rates are still major challenges for the manufacturing sector.
The ongoing foreign exchange (forex) crisis in Nigeria has driven local manufacturers to explore domestic raw materials as a solution to mitigate rising production costs, according to one report. The sharp depreciation of the naira has left manufacturers struggling with the high costs of importing materials, compelling them to turn inward for alternatives.
Impact of the forex crisis on manufacturing
Nigerian manufacturers have faced significant financial challenges since the naira depreciated by over 70% after the 2023 currency float. Importing essential materials like hot-rolled steel and chemical gums has become too expensive for many industries, forcing them to find local replacements.
Many prominent companies are now turning to local sources to sustain their operations:
- FrieslandCampina WAMCO, a dairy company, works with over 10,000 pastoralists in states like Oyo and Kwara to source raw milk. This local sourcing has helped it continue production amidst the forex crisis.
- Nigerian Breweries, a major brewing company, invested ₦78 billion in local agriculture, cultivating sorghum and cassava for beer production. The company’s manager, Hans Essaadi, emphasised that they are expanding partnerships with farmers in northern Nigeria to boost agricultural output.
- Dangote Cement, BUA Cement, and Lafarge Africa have turned to local raw materials like limestone and gypsum, reducing their reliance on imported components.
Costs still rising despite local sourcing
Despite these efforts, the costs of manufacturing have continued to rise. In the first half of 2024, raw material expenses surged by 121% to ₦1.27 trillion for major companies like BUA Foods, Nigerian Breweries, and Dangote Sugar Refinery. This increase is largely driven by high energy costs, logistical challenges, and ongoing forex issues.
In addition to raw material costs, manufacturers are also struggling with borrowing costs. In September 2024, the Central Bank of Nigeria raised the monetary policy rate to 27.5%, pushing interest rates for loans to over 35%. This has put further financial strain on businesses, with some warning that production capacity may shrink as a result.
The Manufacturers Association of Nigeria (MAN) is calling for reforms to stabilise the sector. Suggestions include reducing interest rates, stabilising electricity tariffs, and encouraging manufacturers to explore new markets to boost forex earnings.
