The industrial sector is a key contributor to Nigeria’s GDP, though the impact of the Covid-19 pandemic has weighed on growth in recent years. These effects have been particularly notable in the oil industry – one of the most important segments, given that crude oil exports are the largest contributor to the economy.
Oil production was more heavily impacted than any other segment during the crisis, as lockdowns, falling energy prices and temporary refinery shutdowns resulted in a sharp contraction. While manufacturing continues to underperform, several segments recorded impressive growth during the pandemic, and the industry as a whole experienced less of a downturn than other areas of the economy, helped by demand for essential goods and materials.
To put the sector on a path to recovery, the government has identified a number of strategically important industries, including agro-processing, pharmaceuticals and medical supplies, which are likely to play an important role in driving economic growth, creating new jobs and attracting investment. At the same time, new opportunities lie in the expansion of downstream oil and gas activities and cement production. This will be supported by the creation of economic free zones and incentives designed to foster growth of key industries, attract foreign investment and boost the industrial sector’s overall contribution to GDP. Efforts by government officials and industry stakeholders to identify solutions to the macroeconomic and sector-specific challenges that are currently inhibiting industry’s growth potential will be key determinants of long-term success.
Structure & Oversight
Industrial activity is overseen and regulated by the Federal Ministry of Industry, Trade and Investment. Its core directives are to strengthen manufacturing and production, boost trade revenue, and attract local and foreign private investment in the sector. In addition, as the government works to reinforce value chains across the economy, the ministry is tasked with supporting the country’s ecosystem of small and medium-sized enterprises (SMEs). To that end, the Nigerian Industrial Development Bank was restructured and rebranded as the Bank of Industry in 2001, providing a renewed focus on extending affordable finance to start-ups and SMEs. The bank announced in April 2022 that it had raised around $4bn over the course of four years from more than 100 international banks in an effort to support Nigerian industry. The bank aims to increase that figure to $10bn in the coming years.
The Nigerian Export Processing Zones Authority (NEPZA) is responsible for issuing licences and regulating companies that operate in the country’s free zones. The authority’s role could become more important in the future as Nigeria seeks to expand industrial output and increase exports. The country is currently facing a severe foreign exchange imbalance, which is largely caused by its dependence on exports. Free zones will therefore play a vital part in boosting domestic manufacturing capacity and attracting investment.
Another important entity in the sector is the Manufacturers Association of Nigeria (MAN), a trade group established in 1971 to link private manufacturers and the government. MAN and its 3064 member organisations collaborate to formulate policy suggestions for the government and have been influential in some significant sector developments since its inception. STRATEGY: Under the banner of the National Industrial Revolution Plan (NIRP), launched in 2014, the government is working to enhance the manufacturing sector and position it as an engine for cross-sector economic growth and job creation. NIRP seeks to harness areas of national industry where the country could become both a regional leader and globally competitive. The subsectors identified are agriculture and agro-production; metals and solid minerals; downstream oil and gas; construction; and light manufacturing. Alongside sector-specific policies, NIRP also called for major infrastructure expansion and regulatory reform. At the same time, it seeks to strengthen the link between manufacturing and innovation, with the aim of boosting the efficiency, quality and output of domestic manufacturing. Through NIRP and other efforts, the previous administration intended to raise the industrial sector’s contribution to GDP from 4% in 2014 to more than 10% by 2020 – a target that was very nearly achieved.
However, since NIRP’s launch, inconsistency in policy execution has meant that the country’s raw materials and manufacturing capacity has been broadly underutilized, resulting in underdeveloped supply chains and value chains (see analysis). Consequently, Nigeria has become increasingly dependent on imported goods to satisfy its continued need for inputs, which in turn has widened the foreign exchange deficit.
“Value addition in Nigeria is disproportionately low, considering its wealth of natural resources,” Manuel Murrenhoff, managing director of manufacturing company Bühler Nigeria, told OBG. “Most exported goods leave the country in their raw state to be processed elsewhere. In some instances, they are imported back in their finished form and sold to consumers,” he added.
In the years since 2014 NIRP has been updated to better account for issues including climate change and the economic impact of the pandemic, as well as developments such as the 2019 African Continental Free Trade Agreement and the emergence of Fourth Industrial Revolution technologies.
Performance & Size
Manufacturing generally performed better than other sectors in Nigeria during the pandemic. Global supply chain shocks meant that the country became more reliant on local producers for essential goods and raw materials. According to the National Bureau of Statistics (NBS), manufacturing accounted for 9% of GDP in both 2020 and 2021, before rising to 13.8% in 2022. In the first quarter of 2023 the sector contributed 10.1% of GDP, representing 1.6% year-on-year (y-o-y) growth. The sector grew by 6.9% in 2022, down from 13.5% in 2021. However, expansion slowed in the second quarter of 2023 to 2.2% y-o-y, accounting for 8.6% of GDP at the time.
The industrial sector is a key employer. Given that the NBS stopped publishing a comprehensive breakdown of the workforce in 2017, the size of the manufacturing workforce in 2023 is difficult to accurately measure. However, the World Bank estimated that Nigerian industry as a whole – including mining and quarrying, manufacturing, construction and public utilities – constituted 12.2% of the total workforce as of 2020, up from 12% in 2019. However, these is reason to expect the current footprint may be smaller. MAN announced in July 2022 that due to rising electricity costs, its member organisations reduced their labour force by around 40% over the course of one month.
Exports
According to the most recent NBS data, the value of manufacturing exports in the second quarter of 2023 totalled N212.1bn ($505.3m). In comparison, manufacturing exports in the previous quarter were N131.2bn ($312.6m) and N119.3bn ($284.2m) in the second quarter of 2022. As of June 2023 other African countries accounted for the largest proportion of Nigeria’s exports, at N77.5bn ($184.6m), followed by Asia (N72bn, $171.5) and Europe (N44bn, $10.5m).
Investment
Full foreign ownership is permitted in most sectors of the economy, with notable exceptions being arms and ammunition production and petroleum activities. Private investment in the manufacturing sector rose by 6.2% in 2022 to finish the year at N324 ($771.9m), up from N305bn ($726.7m) in 2021. While an expansion, the rate of growth slowed from 157.4% in 2021, reflective of pandemic-related shutdowns and mobility restrictions. As of 2021 the five largest subsectors in terms of investment were food, beverages and tobacco (N117.6bn, $280.2m); chemicals and pharmaceuticals (N54.6bn, $130.1m); motor vehicles and miscellaneous assembly (N38.4bn, $91.5m); non-metallic products (N22bn, $52.4m); and basic metals, iron and steel (N19.9bn, $47.4m).
The National Investment Promotion Commission (NIPC) investment announcement report for 2021 concluded that $10.5bn worth of investment proposals had been made that year, up 25.6% from 2020. According to the most recent quarterly data, 33 projects valued at $2.6bn were proposed in the first quarter of 2022. Despite these positive developments, the NIPC stated that a more cohesive and transparent approach was required from state and federal government agencies in order to ensure investor interest translates into completed projects and a steady flow of funding.
Free Zones & Incentives
There are 42 economic and industrial free zones in Nigeria, of which 25 are active. In November 2022 the government announced that total investment in free zones reached $56bn since 1992, helping to create 150,000 direct jobs and 250,000 indirect jobs. Each zone offers a range of incentives, including exemption from certain taxes, levies, duties and foreign exchange regulations. “Addressing power and infrastructure challenges is crucial to the growth of Nigeria’s free zones,” Suren Abeywickrema, Nigeria country head at ARISE IIP, told OBG. “Collaboration between the government and private sector is necessary to provide logistical support and improve road networks, which are critical for sustained industrial activities.” Several zones focus on specific areas of industry, and in recent years the government has prioritised the development of the health sector and related value chains, with plans to establish 15 medical free zones (see Health & Education chapter).
Sector Challenges
Despite efforts to attract investment, Nigerian manufacturing is still operating at around 40% capacity and requires significantly more private finance in order to expand and reduce reliance on imports. Somewhat paradoxically, the government and the Central Bank of Nigeria have implemented restrictive measures on capital repatriation for foreign investors due to the foreign exchange imbalance and depreciation of the naira. This has disincentivized market entry and caused frustration for many foreign entities and individuals with interests in the country.
In addition, electricity supply remains a concern for those looking to undertake projects and the national grid not equipped to deliver the total available capacity (see Energy chapter). “The country has an installed capacity of over 16,000 MW, but transmission mismanagement means that only one-quarter of this is utilised,” Adedeji Olowe, founder of Open Banking Nigeria, told OBG. “Electricity distribution should be privatized and electricity itself market priced. Until that happens, manufacturers – and especially SMEs – will face challenges, ultimately curbing production and reinforcing Nigeria’s reliance on imported goods and materials.”
These issues, along with the surge in global energy prices since 2020, have resulted in rising production costs due to elevated prices of imported raw materials. In order to insulate the population from oil price volatility, the government historically subsidised petrol costs, offsetting the high cost of electricity for manufacturers to some degree. However, these subsidies were removed in May 2023. Prior to the removal, public expenditure on petrol subsidies rose by 17.1% between July and August 2022, reaching N525.7bn ($1.3bn) over the period, while in the first eight months of the same year, the cost stood at around N2.6trn ($6.2bn). State-owned Nigerian National Petroleum Company spent 95% of its August 2022 revenue on petrol subsidies. Though the subsidy was vital for manufacturers, it had put a strain on public finances and depleted the revenue of one of the country’s leading industrial operators, contributing to supply chain bottlenecks.
Oil Refining
Given Nigeria’s ample supply of crude oil, refining and other downstream activities offer significant potential to strengthen and diversify manufacturing value chains and could help ease a number of impediments to growth in the sector. The NNPC and its subsidiaries own and operate four refineries – two in Port Harcourt, one in Warri and one in Kaduna – with a combined capacity of 445,000 barrels per day (bpd). Between 2010 and 2020 these facilities were running at around 20% capacity, with large sections of their infrastructure no longer fit for purpose. In 2020 the refineries were closed for appraisal and upgrades to each were announced in 2021, with phased development to restore all to operation within four years. The Port Harcourt facilities, which have a combined capacity of 210,000 bpd, will be the last to be completed.
While reduced refinery operations and eventual closures have forced Nigeria to rely on imported petroleum products, this is likely to change in 2024, when the $20bn Dangote Refinery project comes online. The plant, which has a capacity of 650,000 bpd and will produce petrol, diesel, jet fuel and polypropylene, is set to become the world’s largest single-train refinery and petrochemicals plant. The new facility should reduce dependence on imported petroleum products, helping to stabilise fuel costs for the population and providing affordable feedstock for downstream activities.
Petrochemicals
Alongside efforts to strengthen the oil and gas industry, the government is looking to invest in petrochemicals. Singapore-based Indorama is a major player in the Nigerian petrochemicals space through Indorama Eleme Petrochemicals, which produces olefins, polyethene and polypropylene products in its facility near Port Harcourt. In April 2022 the company announced that it would invest a further $3bn in its Nigerian operation and support the government’s drive to create finished products from gas. Another of the company’s offshoots, Indorama Fertiliser Company, already produces some 3m tonnes of urea per year, with the new investment intended to drive production volumes and expand the range of fertiliser products.
Agro-Industry
Much of Nigeria’s agricultural output is exported unprocessed, and a significant amount is wasted due to the lack of storage and processing facilities, particularly in rural areas. “Nigeria’s population is forecast to grow to 800m by the year 2100, so it is vital that it is able to both produce and process food domestically,” Bühler Nigeria’s Murrenhoff told OBG. “With 40% of its land mass arable – the most in Africa and the anticipated growth of its consumer market investors may be enticed by these opportunities, provided favourable policies are in place.”
The October 2022 launch of the Special Agro-In-dustrial Processing Zones (SAPZ) initiative marked a positive step for the subsector. The initiative is being spearheaded by the African Development Bank (AfDB). Initial funding totalling $538m – provided by the AfDB ($210m), the Islamic Development Bank and the International Fund for Agricultural Development ($310m) and the Nigerian government ($18m) – will help establish agro-industrial zones in rural areas to enable food-pro-cessing businesses to operate in closer proximity to farmers, helping to both boost efficiency and reduce overall waste and transport costs.
Under the first phase of the project, industrial zones will be established in eight states: Abuja, Cross River, Imo, Kaduna, Kano, Kwara, Ogun and Oyo. All required infrastructure, such as roads, water, power, logistics facilities and digital infrastructure, will be installed to help integrate the zones. They will focus on the processing of commodities such as maize, cassava, rice, soybeans, cocoa, poultry and other livestock.
Outlook
Both Nigeria’s manufacturing industry and its broader economy face significant challenges, but the government’s efforts to boost production, reduce dependence on imports and drive export trade should help bring wide-reaching benefits.
For those changes to materialise, manufacturers need reliable, affordable access to electricity and other vital infrastructure, while potential investors require attractive regulatory framework to inspire confidence and encourage market entry. The fact that even the country’s top-performing manufacturing subsectors are not operating close to their full potential offers hope that with the correct policies in place, the sector’s untapped capacity can be mobilised and expanded to cater to a large and rapidly expanding consumer market. Meaningful and wide-reaching diversification will take time, but developments in the petroleum and agro-production subsectors could provide a platform for expansion.
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