July 9, 2024/CSL Research
The National Bureau of Statistics (NBS) capital importation data showed the manufacturing sector attracted investments worth US$191.92m in Q1 2024 compared to US$256.12m in Q1 2023, a significant decline of 25.07% y/y. On a q/q basis capital importation into the manufacturing sector declined by 57.36% q/q from the US$450.11m recorded in Q4 2024.
The NBS data also revealed that the manufacturing sector accounted for 5.68% of the total capital inflow into the economy in Q1. We note that Nigeria’s total capital importation into Nigeria in Q1 2024 was US$3.38bn higher than US$1.03bn recorded in Q1 2023. On a q/q basis, capital importation improved by 210.16% from US$1.09bn in Q4 2023.
The growth in Nigeria’s manufacturing sector has been extremely modest in the past two years, reflecting the negative impact of the Central Bank of Nigeria’s (CBN) hawkish monetary policy stance. In 2024, interest rates have reached unprecedented levels, leading to elevated finance costs for numerous manufacturing companies. Additionally, the high borrowing costs has significantly constrained the expansion of manufacturing activities.
Also, inflation has added an additional layer of pressure, as diminished purchasing power has resulted in lower sales volumes and output. In Q1 2024, the sector’s growth rate was 1.49%, down from 1.61% in Q1 2023.
The persistent currency devaluation and FX scarcity have continued to dampen the import capacity of the manufacturing sector. For context, about 60.0% of companies on the NGX30 have significant FX needs either for import or foreign debt services. In fact, FMCGs (over half of the manufacturing sector) have been badly beaten, with many of the listed players recording a negative equity position after the devaluation.
The tough macroeconomic conditions have led to several companies leaving Nigeria. In the first six months of this year, some manufacturing companies including Kimberly-Clark Nigeria, and Diageo Plc have exited the country, adding to the several multinationals that left in 2023.
Despite the slowdown in the growth of the sector, we believe the sector will see marginal improvement in the second half of the year, with a forecasted growth rate of 2.01% for 2024. This optimism is largely attributed to the scaling up of operations at the Dangote refinery.
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