Nigeria Faces Manufacturing Crisis as Diesel Soars to N1,100/litre

In a concerning development, Nigeria is on the brink of an industrial crisis as the price of diesel surpasses N1,100 per litre. The relentless energy crisis, exacerbated by foreign exchange woes and a weakening naira, is pushing manufacturing companies and businesses towards shutdown. This dire situation also threatens to hike prices of alternative energy sources like Liquified Petroleum Gas (LPG) and Compressed Natural Gas (CNG).

The Nigerian Association of Liquefied Petroleum Gas Marketers predicts a significant increase in the price of a 12.5kg cooking gas, which may jump from the current N10,000 to N18,000. The manufacturing sector is already suffering, with factories closing due to power shortages and economic hardships. Concerned stakeholders are sounding alarms, warning that job losses and revenue declines in this sector could severely impact Nigeria’s economic growth and its contribution to the Gross Domestic Product (GDP).

The Central Bank of Nigeria’s currency redesign policy has further exacerbated the situation. Manufacturers have experienced a 17.3 percent increase in production and distribution costs, along with declines in capacity utilization, volume of production, employment, and sales volume. The cost of shipment has surged by 14.3 percent.

The Manufacturers Association of Nigeria identifies the high cost of energy as the primary challenge facing the manufacturing sector. It’s compounded by high credit costs, multiple taxes, raw material shortages, forex scarcity, and poor forex allocation.

Despite ongoing issues with the unreliable electricity grid, manufacturers have spent nearly N1 trillion sourcing alternative energy over the past seven years. This expenditure continues to rise year after year.

With approximately 95 manufacturing companies shutting down annually, leading to over 4,451 job losses, the manufacturing sector’s output value has significantly decreased. The price of crude oil nearing $100 per barrel further compounds the challenges, with Nigeria’s actual electricity output stagnating at around 3500 megawatts over the last decade.

Muda Yusuf, Director for the Centre for the Promotion of Private Enterprise, warns that the increased diesel prices will raise production costs for industries and affect the transportation of goods and services. He also expresses concerns about inflation skyrocketing.

Frank Onyebu, former Chairman of the Manufacturers Association of Nigeria, calls on the government to take urgent steps to halt the price increase and support local manufacturers. He emphasizes the need to reduce the cost of governance, create policies that encourage production, improve infrastructure, and eliminate corruption.

Stakeholders within the transport sector suggest that Nigerians explore alternative transport options, such as carpooling, electric vehicles, and public transit, to cope with rising diesel prices. They note that this increase will impact household items and commodities, necessitating government action on wages, the foreign exchange regime, and security.

The Nigeria Employers’ Consultative Association (NECA) calls on the Federal Government to remove the 7.5 percent Value Added Tax (VAT) on Diesel and Premium Motor Spirit (PMS) to mitigate the fuel price increases.