High Production Costs Make Nigerian Factories Uncompetitive, NSDC Boss Says

Nigerian manufacturers are struggling to compete globally due to exorbitant production costs, paying significantly more for electricity, credit, and logistics compared to their counterparts in countries like Vietnam and China. Kamar Bakrin, Executive Secretary of the National Sugar Development Council (NSDC), highlighted that these costs are two to 10 times higher, creating a major disadvantage for the nation's factories.

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None of this is a demand problem. Nobody on this continent needs persuading to buy what Nigeria makes. It is a cost-of-production problem, and that distinction matters because costs, unlike demand, are within our power to fix.

Bakrin emphasized that the primary challenge confronting Nigerian manufacturers is not weak demand, but rather the high cost of production. "Nobody on this continent needs persuading to buy what Nigeria makes," he stated, differentiating the issue from demand-side problems. He asserted that costs, unlike demand, are within Nigeria's power to address, making it a solvable problem.

Specific cost comparisons reveal the scale of the issue. Industrial electricity in Nigeria costs about 15 cents per kilowatt-hour on the national grid, soaring to nearly 30 cents when relying on diesel generators. This is substantially higher than Vietnam's eight cents and China's 10 cents. Nigerian manufacturers reportedly spent an estimated ₦1.34 trillion last year generating their own electricity, effectively running "a second, unwanted business as a private power station."

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Every factory in Nigeria is running a second, unwanted business as a private power station.

Furthermore, working capital costs range from 27 to 35 percent in Nigeria, compared to about 9 percent in Vietnam and 3 percent in China. Logistics also present a challenge, with Nigeria ranking 88th out of 139 countries on the World Bank's Logistics Performance Index, far behind Vietnam (43rd) and China (19th). Consequently, manufacturing contributes a mere 8 percent to Nigeria's GDP, with capacity utilization dropping to 57.7 percent, despite a large domestic market and access to the African Continental Free Trade Area (AfCFTA).

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The government’s macroeconomic reforms have delivered stability, inflation roughly halved from its peak and reserves at $51bn, the highest since 2009, giving factories, for the first time in years, the conditions to plan and invest.

Bakrin noted that the current macroeconomic stability, with inflation halved and reserves at a decade-high, provides a crucial window of opportunity for factories to plan and invest. He stressed the urgency of improving competitiveness, especially with global supply chains being redrawn and the AfCFTA requiring Nigerian goods to compete effectively or risk conceding the market.

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Either our goods are crossing borders going out, or everyone else’s goods are crossing ours coming in. We are either going to compete, or we are going to concede the market.