The Nigerian manufacturing sector experienced its first quarterly decline in credit allocation in two years, following a reduced appetite for bank loans driven by the Central Bank of Nigeria’s (CBN) sustained interest rate hikes. In its effort to curb inflation, the CBN increased the Monetary Policy Rate (MPR) 13 times in two years, rising from 11.5% in April 2022 to 27.5% in November 2024. This policy pushed the average maximum lending rate of banks from 27.37% to 31.06% during the same period.
Data from the CBN shows that credit to the manufacturing sector dropped by 6.67% quarter-on-quarter (QoQ) to ₦8.67 trillion in Q3 2024, down from ₦9.29 trillion in Q2 2024. This marks the first decline since Q3 2022, when credit began a consistent upward trend, peaking at ₦9.29 trillion in mid-2024.
Industry experts attribute the decline to the high cost of borrowing and persistent economic challenges. Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), explained that many manufacturers are turning to alternative funding sources as bank loan interest rates exceed 30%.
“The manufacturing sector is under significant strain, grappling with foreign exchange issues, high energy costs, expensive logistics, and weak consumer purchasing power,” Yusuf said. “With interest rates at over 30%, it’s impractical for manufacturers to secure fresh loans. Most existing credit is being used to service outstanding debts.”
Segun Ajayi-Kadir, Director General of the Manufacturers Association of Nigeria (MAN), echoed these sentiments, noting that the combination of high energy costs, currency devaluation, and inflation has discouraged borrowing for manufacturing investments.
“Manufacturers depend heavily on credit to finance operations, but escalating costs and diminished productivity have reduced loan appetites,” he said. “The 250% increase in power costs, coupled with production disruptions, has further exacerbated the decline.”
According to Tunde Abidoye, Head of Equity Research at FBNQuest Securities, banks are also adopting a more conservative lending approach to mitigate the risk of non-performing loans (NPLs). CBN data shows that banks’ NPL ratio deteriorated from 3.9% in June 2024 to 4.58% by the third quarter.
“High interest rates and restrictive monetary policies have made banks cautious about extending credit,” Abidoye said. “Additionally, many businesses are postponing investment decisions due to the uncertain economic climate.”
Proshare analysts noted that the manufacturing sector has faced modest growth over the past two years due to elevated borrowing costs and inflation. This has led to constrained expansion and a decline in output. The challenging environment has also resulted in the exit of several multinational companies, including PZ Cussons Nigeria, Kimberly-Clark Nigeria, and Diageo Plc.
Experts are calling for a review of monetary policies to protect Nigeria’s real sector. Yusuf emphasized the importance of lowering interest rates and stabilizing the naira to support manufacturers and other businesses.
“There must be deliberate efforts to reduce the cost of borrowing and address structural challenges in the economy,” he said. “This includes ensuring affordable energy, efficient logistics, and a stable foreign exchange regime.”
The Federal Government has been urged to implement targeted measures to boost production across key manufacturing sub-sectors, such as food, beverage, tobacco, cement, and textiles, which are significant contributors to the sector’s output.
As 2025 approaches, industry stakeholders are hopeful for a more favorable economic climate that will enable the manufacturing sector to recover and thrive.
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