February 14, 2023/United Capital Research

The Manufacturers Association of Nigeria (MAN) announced its plans to increase the output of the manufacturing sector and its contribution to the country’s Gross Domestic Product (GDP) to 20.0% by 2023. This represents a giant leap from its current average of c.9.0% contribution levels. The association plans to achieve this target by increasing exports of locally produced products to other African countries and promoting employment in the sector through capacity building & innovative technologies. Additionally, it plans to focus on promoting inclusive inter-industry linkage between Small and Medium Industries (SMIs) and large corporations.

Examining the latest GDP numbers, the manufacturing sector contracted by 1.9% y/y, 620bps lower than the 4.3% y/y growth recorded in Q3-2021. This is the first contraction since Q4-2020 when pandemic-related restrictions were easing, contributing just 8.6% to the entire GDP in Q3-2022. The decline was primarily driven by the 4.1% y/y contraction in the Food, Beverage, and Tobacco sub-sector in the period under review. The contraction in manufacturing output was broadly down to persistent Foreign Exchange (FX) pressures weighing on the imports of essential raw materials and equipment for production. Also, weaker consumer demand (due to elevated price levels), high energy costs and supply chain concerns dampened the growth of the sector.

In our opinion, we struggle to see the fulfilment of the 20.0% contribution target to the GDP as the major headwinds to the sector persist. We expect the FX supply crunch, elevated global inflation (high cost of raw materials), high energy costs and persistent supply chain disruptions will remain hindrances to the growth of the manufacturing sector. However, we believe that improved consumer demand owing to the widespread adoption of consumer credit from banks and consumer lending facilities may accommodate a rebound in food and beverage consumption. That said, we do not expect the rebound to drive a significant contribution to the nation’s GDP. Achieving the association’s goal will require radical improvements in power supply, other general infrastructure (transportation, and ports), business operating environment, wealth of Nigerian consumers, implementation of AfCTA, FX supply, and government policy consistency.