Naira Slump and Forex Shortage: Why Manufacturers Spent N8tn on Raw Materials Imports
Nigeria’s manufacturing sector is facing a serious challenge of sourcing foreign exchange (forex) to import raw materials that are not available locally. This has resulted in a huge trade deficit and increased production costs for the manufacturers.
According to The PUNCH, manufacturers spent about N7.9tn to import raw materials from 2020 to 2023, based on the data from the National Bureau of Statistics. However, the value of raw materials exported by Nigeria during the same period was only N1.77tn, leaving a gap of N6.1tn.
Some of the major raw materials imported by manufacturers included cane sugar, milk preparations, mixtures of odiferous substances, and lubricating oils from countries like Brazil, Ireland, Swaziland, and The Netherlands.
The high demand for forex by manufacturers has not been met by the official market, forcing them to resort to the parallel market where the exchange rate is much higher. This has increased the cost of imported inputs and consequently the cost of production.
The Manufacturers Association of Nigeria (MAN) reported that the local raw materials utilization by the manufacturing sector increased slightly from 51.5 per cent in 2021 to 52.8 per cent in 2022. However, this was not due to improved availability of local raw materials, but rather due to the difficulty in accessing forex.
MAN also lamented the lack of adequate funding for the Raw Materials Research and Development Council (RMRDC) by the government, which has hindered the development and production of some critical raw materials such as Active Pharmaceutical Ingredients (APIs).
The Director-General of MAN, Segun Ajayi-Kadir, told The PUNCH that the forex crisis was affecting the competitiveness and profitability of the manufacturing sector. He urged the government to adopt a stable and realistic exchange rate for calculating import duty for production inputs that are not locally available.
A former president of MAN, Mansur Ahmed, also revealed that manufacturers could only source 5 per cent of their forex needs from the banks. He called for more collaboration between the government and the private sector to address the forex challenge.
The Deputy President of the Lagos Chamber of Commerce and Industry (LCCI), Gabriel Idahosa, attributed the over-reliance on imported raw materials to the failure of Nigeria’s import substitution strategy. He said that importing raw materials for production purposes would not harm the local economy if Nigeria was able to export more value-added products and earn more forex.
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