Manufacturers groan as rising credit, production costs threaten recovery

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By Yinka Kolawole

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Nigeria have warned that the high cost of credit and rising production expenses remain major threats to the recovery of the manufacturing sector, despite a renewed improvement in manufacturers’ confidence in the economy.

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This was revealed by the Manufacturers Association of Nigeria (MAN) in its

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Manufacturers’ CEOs Confidence Index (MCCI) for the second quarter of 2026 (Q2’26).

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Manufacturers’ CEOs identified limited access to finance as their primary challenge, with two in every three executives citing commercial bank lending rates as a major disincentive to manufacturing productivity. They also described the volume of credit available to the sector as inadequate.

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The manufacturers linked the high cost of borrowing directly to the Central Bank of Nigeria’s (CBN) monetary policy stance, particularly the Monetary Policy Rate

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(MPR), which stood at 26.5 per cent during the quarter.

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According to the manufacturers, the prevailing high-interest-rate regime had increased the cost of credit and, by extension, production costs, weakening manufacturers’ ability to expand output, invest and create jobs.

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The report noted that although the MPR had been reduced and maintained at 26.5 per cent, the rate remained too high to support the financing needs of the real sector.

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The manufacturers further noted that the limited flow of bank credit, combined with rising energy, distribution, shipping and raw material costs, continued to constrain productivity and capacity utilisation.

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“Two in every three CEOs cited commercial bank lending rates as a disincentive to manufacturing productivity,” the report stated, stressing that the cost of credit directly influences production costs.

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They also complained about frequent power outages, inadequate foreign exchange supply, high production costs, shortages of raw materials, multiple taxation and inadequate government infrastructure.

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Despite reforms in the foreign exchange market and relative stability in the naira, about half of the manufacturers surveyed said improvements in foreign exchange sourcing had not translated into sufficient access to foreign exchange for their operations.

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They argued that the situation continued to limit manufacturers’ ability to operate at full capacity, while also raising the cost of imported inputs and machinery.

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Only 27 per cent of manufacturing executives considered government expenditure on infrastructure encouraging for manufacturing activity, reflecting concerns over the slow impact of public infrastructure investments on productivity.

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The report further showed that manufacturers continued to face rising production, distribution and shipping costs during the quarter, even as sales volume recorded a modest improvement.

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Despite the challenges, the report noted that manufacturers’ confidence rose by 3.4 points to 52.1 in Q2’26 from 48.7 in Q1’26, but the improvement was driven largely by expectations of better business conditions rather than a significant improvement in the actual operating environment.

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Looking ahead, manufacturers were more optimistic about the third quarter, projecting business conditions at 55.6, employment at 55.2 and production conditions at 63 points.

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Commenting, Director General of MAN, Segun Ajayi-Kadir, said the projected improvement would depend largely on policy implementation and measures to ease the cost of doing business.

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He called on CBN to reduce the MPR to below 20 per cent to unlock manufacturing growth, improve access to affordable credit, and give priority allocation of foreign exchange to manufacturers.

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“Reducing financing and production costs was critical to converting the renewed confidence among manufacturers into actual increases in output, investment and employment,” he stressed.

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Speaking on the specific government policies or economic developments that are driving the renewed optimism among manufacturers, with the MCCI showing manufacturing confidence at a 2-year high, Ajayi-Kadir stated: “What has happened in the past is that for two years we have witnessed a lull in terms of how confident manufacturers are. But what we are seeing now is that there’s a departure and it is based not on the experience of real improvement in their condition but in the expectation and that’s based on the fact that we believe that government will follow through on some of its reform measures that are beginning to stabilize the economy.

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“For instance, the exchange rate, the tax reform has given hope that we are now going to have a tax system that supports productivity and actually incentivizes it. Even though we currently have a setback that the law is going to take a retroactive effect, we hope that this is resolved otherwise it will just wipe off the confidence that we have in that area.”

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