Nigeria’s manufacturing sector under pressure on surging energy, freight costs

…MAN urges FG to learn from previous global shocks

With diesel prices and global shipping costs skyrocketing following the closure of the Strait of Hormuz and attacks on energy infrastructures, the Nigerian manufacturing sector has come under tremendous pressure.

The situation compounds existing pressures on the sector, with manufacturers grappling with rising input costs. Experts warn that if the Iran war doesn’t end soon, the current caution will give way to higher market prices.

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“For the manufacturing sector, the implications of the Iran war are immediate, severe and multifaceted,” said Segun Ajayi-Kadir, secretary-general of the Manufacturers Association of Nigeria, in a March 27 note.

Kadir explained that manufacturers rely heavily on gas and Automotive Gas Oil (diesel) to power operations, as it serves as the primary alternative to Nigeria’s unreliable power supply.

He noted that the global energy shock caused by the Iran war is driving domestic pump and depot prices upward.

He said that the extended transit times and multiplied shipping costs owing to the closure of the Strait of Hormuz – a key trade route for commodity and energy products – are making manufacturers’ raw material procurement prohibitively expensive.

He added that this shock will wipe out manufacturing operating margins if the war persists. “Manufacturers now face the dual threat of soaring production costs and rapidly accumulating unsold inventories, jeopardizing our target of achieving a 3.1 percent real growth rate for the sector in 2026,” he said.

Depot prices of Automotive Gas Oil (diesel) have surged by 65 percent from N970 before the war to N1,600. This sharp increase has raised operating costs for factories dependent on diesel-powered generators.

Recently, CMA CGM, one of the world’s biggest shipping companies, announced a “Peak Season Surcharge” of $600 per TEU until further notice on all cargo to Nigeria from China, its biggest import partner for raw materials. Only one of a myriad of new price announcements.

The situation feeds into logistics as haulage expenses grow. Moving a container from the Apapa port to a warehouse in Ikeja, which previously cost around N450,000, now ranges between N650,000 and N700,000, BusinessDay learnt.

According to MAN, manufacturers in the chemical & pharmaceutical, basic metal, iron and steel and the food & beverage sectors are the hardest hit.

Kadir explained that petrochemical derivatives are highly sensitive to crude oil price shocks, and any disruption in the global petroleum market will immediately inflate the cost of (Active Pharmaceutical Ingredients) APIs and chemical base materials.

“This will squeeze margins and threaten the export dominance of operators within the Sectoral Group,” he said.

“The US-Israel-Iran conflict is a stark reminder of Nigeria’s vulnerability to external shocks so long as our manufacturing base remains heavily reliant on imported raw materials.”

“We cannot control the geopolitics of the Gulf, but we can and must control our domestic policy responses. The window for reactive measures is closed; the time for proactive manufacturing fortification is now.”

Missed opportunity

According to MAN, in economic theory, a spike in global oil prices to $100 per barrel should be a fiscal windfall for Nigeria, boosting our foreign exchange (FX) reserves and stabilizing the Naira towards our projected 2026 threshold of N1,300/$.

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However, reality presents a stark macroeconomic paradox. “As domestic crude production remains severely suboptimal (hovering around 1.3 to 1.4 million barrels per day due to persistent structural deficits), Nigeria captures only the price gains while missing out entirely on the volume gains,” Kadir said.

He urged the federal government to learn from previous global shocks. “We do not have to guess the impact of Middle Eastern conflicts involving the US; we only need to look at the data from the US-Iraq War,” he noted.

“We can either follow the failed path of the early 2000s, where we squandered an oil boom while our factories rotted, or we can use this crisis as a catalyst for genuine manufacturing autonomy,” he added.

On the growth side, real GDP expansion in manufacturing stood at 1.13 percent year-on-year in the fourth quarter of 2025. This represents a marginal decline compared to both the corresponding period of 2024 and the third quarter of 2025, indicating that output growth remains subdued.