Mideast turmoil: Companies producing chemicals and medicines face greatest danger

The Manufacturers Association of Nigeria has sounded the alarm over the escalating military confrontation between the United States, Israel, and Iran, cautioning that Nigeria's chemical and pharmaceutical manufacturers are at the greatest risk as global economic shocks reverberate throughout the industrial sector.

According to Segun Ajayi-Kadir, Director General of MAN, the intensifying Middle East crisis has sent shockwaves across the global macroeconomic landscape, threatening to reverse recent gains in Nigeria's economy, including easing inflation, which recently moderated to 15.10 per cent.

The crisis has also led to improved manufacturing capacity utilisation, which had climbed above 60 per cent, but this progress is now under threat, with global geopolitics becoming a direct cost driver for Nigerian manufacturers, as noted by Ajayi-Kadir.

Ajayi-Kadir stated, "When the US and Middle East sneeze, the global economy catches a cold, and Nigeria is not an exception," highlighting the country's vulnerability to global economic trends.

Despite rising global crude oil prices, which recently hovered around $84 per barrel, Nigeria stands to gain little due to its weak production output, estimated between 1.3 and 1.4 million barrels per day, creating a paradox where the country benefits from price gains but loses out on volume-driven revenue.

This situation limits foreign exchange inflows, and the crisis also threatens Nigeria's trade relations with the United States, one of its key partners, with Nigeria's exports to the US standing at $5.91 billion in 2024, representing 9.3 per cent of total exports.

MAN noted that imports from the US were valued at $4.33 billion, underscoring the significance of the trade relationship between the two countries.

Disruptions in global logistics and Middle Eastern transit routes could trigger higher freight costs, longer delivery timelines, and imported inflation, according to MAN.

The strengthening of the US dollar amid a global flight to safe-haven assets is already exerting renewed pressure on the naira, with consequences that will be felt directly on factory floors, the Association added.

Sectoral analysis by MAN showed that the Chemical and Pharmaceutical group is the most vulnerable, with chemical products accounting for about 88 per cent of Nigeria's manufactured exports to the US in 2023.

Rising costs of Active Pharmaceutical Ingredients and other inputs could erode margins and threaten export competitiveness, while the Basic Metal, Iron and Steel sector faces mounting operational costs due to its heavy dependence on energy.

The Food, Beverage and Tobacco segment is expected to grapple with imported inflation on grains and packaging materials, further complicating the situation for manufacturers.

MAN warned that manufacturers now face a dual challenge of rising production costs and weakening demand, which could derail the sector's projected 3.1 per cent growth in 2026.

According to MAN, the time for reactive measures is over, and Nigeria must proactively fortify its manufacturing base to withstand external shocks.