Manufacturers struggle as alternative energy costs hit N1.1trn

Onome Amuge

Segun Ajayi-Kadir, director general of MAN

Nigeria’s manufacturing sector continues to bear the brunt of a failing national grid and escalating energy prices, forcing businesses to spend N1.11 trillion on alternative power sources in the past year, according to a new report.

The figure, disclosed in the Manufacturers Association of Nigeria (MAN) Economic Review for the Second Half of 2024, represents a 42 per cent increase from the N781.7 billion spent in 2023, underscoring the deepening energy crisis facing the industry.

The report showcased a sector struggling with a deteriorating economic environment, marked by persistent inflationary pressures, a soaring cost of doing business, and an unreliable power supply that continues to stifle production.

Electricity costs for Band A consumers, who are supposed to receive a higher level of service, rose by over 200 per cent last year following the implementation of new tariffs. 

While the availability of grid power saw a marginal improvement, manufacturers still contend with frequent outages. The report highlighted that Nigeria experienced at least 12 national grid collapses in 2024, further exacerbating the reliance on costlier alternatives. The combined effect of unreliable grid power and rising prices of gas, diesel, and petrol pushed the total expenditure on alternative energy to the N1.11 trillion mark.

A half-year breakdown revealed a 75 per cent jump in spending on alternative energy, from N404.8 billion in the first half of 2024 to N708.07 billion in the second half. This expenditure has risen dramatically over the past four years, climbing by nearly 1,475 per cent from N77.2 billion in 2021.

Data from MAN indicates that the food, beverage, and tobacco sector was the hardest hit, incurring N229.41 billion in alternative energy costs, up from N182.76 billion in 2023. The chemical and pharmaceutical sector saw its energy costs double to N208.68 billion, while the non-metallic mineral products sector experienced a 33.7 per cent increase to N118.49 billion. The textile, apparel, and footwear industry faced a four-fold increase, reaching N26.45 billion in 2024.

Segun Ajayi-Kadir, director general of MAN, noted that real GDP growth remains subdued, reflecting the economy’s struggle with escalating production costs, exchange rate volatility, and weakening consumer demand. Inflation soared to 34.8 per cent by the end of 2024.

“Meanwhile, aggressive monetary tightening by the Central Bank of Nigeria (CBN), which raised the Monetary Policy Rate (MPR) to 27.5 per cent, further exacerbated borrowing costs for manufacturers, limiting expansion and new investments,” Ajayi-Kadir said.

The report also highlighted a 87.5 per cent rise in unsold finished goods to N2.14 trillion in 2024, driven by weak consumer demand, rising production costs, and declining purchasing power. 

Real manufacturing investment fell year-on-year, indicating economic uncertainty and reduced expansion plans, although there was a 19.4 per cent increase in investment in the second half of the year compared to the first.

Manufacturers continue to struggle with unbearably high interest rates, with commercial bank lending rates to the sector climbing to 35.5 per cent in 2024 from 28.06 per cent in 2023, driven by the CBN’s tightening monetary policy. This has pushed manufacturers’ finance costs above N1.3 trillion, further constraining investment.

The challenging economic conditions have also impacted employment in the sector, with the number of employees leaving manufacturing companies increasing to 17,949 in 2024. While 16,820 net new jobs were created, this represents a 37.83 per cent year-on-year decline in job creation.

Capacity utilisation in the sector saw an improvement to 57 per cent in 2024, up from 55.1 per cent in 2023. Real manufacturing output increased by 1.7 per cent year-on-year to N7.78 trillion.

Local raw material sourcing saw an increase to 57.1 per cent in the second half of 2024, driven by foreign exchange scarcity and high import costs, with notable improvements in sectors such as wood and wood products, textiles, and pharmaceuticals. However, the electrical and electronics sector continues to lag due to its reliance on imported components.