PMI: Rising production costs threaten manufacturing recovery

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By Yinka kolawole

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Nigeria’s manufacturing sector may struggle to sustain a recovery unless persistent cost pressures are addressed, analysts have warned, despite tentative signs that business activity is beginning to stabilise.

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Although the Purchasing Managers’ Index (PMI) for manufacturing edged up to 50.10 in June from 49.6 in May, experts say the marginal improvement masks deeper structural challenges, including soaring energy costs, high interest rates and weak consumer demand, which continue to weigh heavily on production and investment.

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The latest reading suggests manufacturing activity has only just returned to expansion territory after months of weakness, following contractions in April and May that reversed the strong growth recorded between September 2025 and March 2026.

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Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, attributed the sector’s fragile performance largely to escalating operating costs, particularly energy.

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“I will put it down to the fact that the cost of operations has been increasing, especially since the Iran war started. Costs of energy products—diesel, gas and others—have been going up significantly. Manufacturing is energy intensive, so rising energy costs will naturally affect performance,” Yusuf said.

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He added that access to affordable financing remains another major challenge.

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“Many manufacturers are still grappling with high interest rates. Development finance institutions are unable to meet the growing demand for financing because they are not adequately funded.

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“Accessing forex is no longer a major issue because we now have liquidity in the market. Except for compliance challenges arising from documentation requirements, foreign exchange availability is no longer the problem,” he said.

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President of the Association of Food and Agro-allied Processors of Nigeria, Kuteyi Duro, said manufacturers are finding it increasingly difficult to remain profitable amid relentless increases in production costs.

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“The cost of production is increasing daily. When diesel and petrol prices rise together, alongside raw material costs, it becomes difficult for industries to break even,” Duro said.

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He also criticised aspects of the government’s fiscal policies, including taxation and import waiver implementation, warning that the difficult operating environment is forcing some manufacturers to contemplate shutting down operations.

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Data from the National Bureau of Statistics (NBS) showed that manufacturing contributed 9.57 per cent to Nigeria’s real Gross Domestic Product (GDP) in the first quarter of 2026, an improvement from 7.40 per cent recorded in the fourth quarter of 2025.

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However, analysts caution that the sector’s recovery remains fragile. They note that manufacturers continue to battle elevated energy and borrowing costs, while weak household purchasing power is constraining demand for locally produced goods.

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They argued that sustaining the recovery will require policies that lower the cost of doing business, improve electricity supply, expand access to affordable credit, upgrade infrastructure and encourage local sourcing of raw materials.

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Without meaningful relief on production costs, analysts warn that Nigeria’s manufacturing sector could remain under pressure in the months ahead, limiting its contribution to economic growth, employment and non-oil export expansion.

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