February 13, 2024/CSL Research

The manufacturing sector was rattled by troika factors in 2023. First, the 49% (June[1]December 2023) currency devaluation by the CBN and FX scarcity dampened the import capacity of the manufacturing sector. For context, we highlight that about 60.0% of companies on the NGX30 have significant FX needs either for import or foreign debt services. FMCGs (over half of the manufacturing sector) were badly beaten, with many of the listed players recording a negative equity position after the devaluation. Due to the severe impact of the devaluation on the sector, Manufacturers also tried to pass on the associated increase in the cost of production to consumers, but this affected volumes, particularly for non[1]essentials due to the constrained purchasing power of consumers. 

Also, interest rates reached unprecedented levels, leading to elevated finance costs for numerous manufacturing companies. The high borrowing costs significantly constrained the expansion of manufacturing activities impacting the growth of the sector. Inflation introduced an additional layer of pressure, as diminished purchasing power resulted in lower sales volumes and output. The several problems faced by the sector led to a decline in the sector growth rate in 2023. The manufacturing sector’s real GDP growth was 0.48% in Q3 2023, a 78.12% decrease compared to the 2.20% recorded in Q2 2023. The sector’s contribution to the real GDP in the third quarter of 2023 was 8.43%, a slight decline from the 8.59% recorded in the third quarter of 2022. We expect the sector to stabilize at 1.44% in 2023. 

In 2024, we are optimistic about the manufacturing sector, largely stemming from the commencement of the Dangote refinery. The facility could add over 0.7% to the GDP of Nigeria and save the country about US$8.00 billion annually in FX. In addition, we see legroom for higher oil refining, as the 60,000 barrels Port Harcourt Refinery is anticipated to come on stream in the first quarter of 2024. Also, mechanical completion of the 125,000 barrels Warri Refinery has been slated for Q1-2024, and operation will begin fully in Q2-2024. We forecast a 2.01% growth rate for the sector in 2024 from 1.44% in 2023.