Nigerian manufacturers breathe easier as FX scarcity eases

By Mary Adenike

The scarcity of foreign exchange in Nigeria is gradually easing as more manufacturers reported an improvement in FX inflows in the fourth quarter of 2024, according to the latest aggregate Manufacturers CEO’s Confidence Index (MCCI).

The index report published by the Manufacturers Association of Nigeria (MAN) showed that 22.9 percent of CEOs agreed that the rate at which manufacturers sourced FX has improved in Q4 compared to 13.5 percent in the previous quarter.

“Despite the increase in the average exchange rate from N1,586/$ in Q3 to N1,623/$ in Q4, forex sourcing recorded a mild improvement. Further evidence based on data collected revealed that an average of 15.4 percent of manufacturers’ forex demand was accessed at the official window compared to 14.5 percent in Q3,” the report said.

Segun Ajayi-Kadir, director general of MAN, attributed the improvement to the relative market stability driven by the increase in forex reserves, the introduction of the Electronic Foreign Exchange Matching System, and the expansion of dollar sales to BDCs during the period of review. 

“However, the rate of forex sourcing remains a challenge as 59.4 percent of the respondents disagreed that the rate at which manufacturers source for forex has improved while 17.7 percent were not sure,” he said.

Many manufacturers in Africa’s most populous nation rely on imported raw materials and components for their production processes. But access to foreign currencies has been a major hurdle for manufacturers since the FX market was liberalised in June 2023.

Since then, FX scarcity has led to higher costs and record losses for manufacturers. In 2024, the average exchange rate at the official market was N1,450/$1, higher than N645.1/$1 in 2023. Although the exchange rate is still high, the Central Bank of Nigeria’s recent efforts to unify exchange rates and improve forex availability have contributed to relative stability in the FX market.

The MCCI also revealed a tepid rise in manufacturers’ confidence in the Nigerian economy. It grew to 50.7 points in Q4 from 50.2 points in Q3. The moderate improvement in the aggregate MCCI is the first since Q1 last year.

“Despite the prevailing macroeconomic and operational challenges embattling manufacturing companies in Nigeria, the CEOs remain resilient,” it said.

The MCCI is a quarterly research and advocacy publication of MAN, which measures changes in the pulse of operators and trends in the manufacturing sector quarterly, in response to movements in the macro-economy and government policies, using primary data mined through direct survey over 400 CEOs of MAN member-companies.

It is computed using data generated on standard diffusion factors of current business condition, business condition for the next three months, current employment condition, employment condition for the next three months, and production level for the next three months.

It has a baseline score of 50 points and scores above the baseline indicate improvement in manufacturers’ confidence in the economy, while an index score of less than the baseline suggests deterioration in the operating environment.

The breakdown of the diffusion indices revealed that all current indices recorded improvement due to seasonal demand and relative stability in the exchange rate during the period. However, they remained below the 50-point benchmark. 

The report also confirmed a downward review of manufacturers’ expectations for the first quarter of 2025 due to the prolonged harsh macroeconomic environment and the predicted slowdown of business activity in the first month of 2025. 

“Nevertheless, the projected indices remained above the 50-point threshold due to the expectations of a more stable exchange rate, halt in interest rate hikes, minimal decline in energy prices and the enactment of favourable Tax Reform Bills by Q1.”

The sectoral breakdown of the report revealed that the confidence indices of 3 Sectoral Groups contracted while 7 Sectoral Groups witnessed improvement in confidence levels. However, 2 of the 7 Sectoral Groups dipped below the 50-point threshold. 

The zonal breakdown also showed that five industrial zones recorded confidence indices below 50 points while nine performed above the threshold. However, four of the nine industrial zones recorded contracted indices.

MAN noted that the manufacturers’ outlook for 2025 stands at the crossroads of optimism and reality checks and the year is a pivotal one and the outcome will be crucial for this most significant sector. 

“The exorbitant electricity tariff hike, high exchange rate, multiple taxation, high interest rate, low credit access, and insecurity remain some of the top challenges of manufacturers. The challenges are clear.”

The association recommends that macroeconomic reforms must involve actionable plans that take precedence over rhetoric and that the President’s ambitious goal of taming inflation down to 15 percent and stabilising the naira at N1,500/$ must be pursued by clearly defined and easily assessable actions, with appropriate timelines.