Middle East War Puts Nigerian Manufacturers in a Fix
The Manufacturers Association of Nigeria (MAN) has warned that the escalating military confrontation involving the United States, Israel and Iran could derail Nigeria’s fragile industrial recovery and trigger a new wave of factory closures.
In a position paper on the implications of the crisis for the manufacturing sector, MAN described the conflict as a “geopolitical shock” whose “economic shrapnel” directly hit Nigerian factory floors through higher energy costs, disrupted shipping routes and worsening foreign exchange pressures.
The warning comes at a time when Nigeria appeared to be clawing back some macroeconomic stability. Annual inflation had eased to 15.10 per cent and manufacturing capacity utilisation had risen above 60 per cent. MAN now fears these gains could be reversed.
Oil price paradox
Global markets have responded sharply to the tensions. Brent crude has surged past $84.50 per barrel, while disruptions around the Strait of Hormuz and rerouting away from the Red Sea have pushed up freight and war-risk insurance premiums.
In theory, higher oil prices should be a fiscal boon for Nigeria, boosting foreign exchange reserves and helping stabilise the naira towards a projected 2026 rate of N1,300 to the dollar. But MAN argues that suboptimal crude production levels—hovering between 1.3 and 1.4 million barrels per day—mean the country is capturing the price gain without the volume benefit, deepening a “macroeconomic paradox”.
At the same time, the global flight to safe-haven assets has strengthened the US dollar, piling additional depreciation pressure on the naira and raising the cost of imported inputs.
Trade at risk
The United States remains one of Nigeria’s key trading partners. In 2024, Nigeria exported $5.91 billion worth of goods to the US, 9.3 per cent of its total exports of $63.6 billion. Imports from the US stood at $4.33 billion.
MAN warns that the current conflict threatens this bilateral flow. It anticipates immediate spikes in freight forwarding costs, longer lead times for imported raw materials and an upsurge in imported inflation. The cost of securing inputs for Nigerian factories is expected to rise, further eroding already weak consumer purchasing power.
“For the Nigerian manufacturer, global geopolitics is no longer a television spectacle; it is a direct tax on the cost of production,” MAN said.
Sectoral pain points
While the entire real sector is expected to feel the impact, MAN identified three sectoral groups as particularly vulnerable:
- Chemical and Pharmaceuticals: The most exposed group. In 2023, chemical products accounted for about 88 per cent ($136.45 million) of Nigeria’s total manufactured exports to the US ($154.11 million). Given their dependence on petrochemical derivatives and imported Active Pharmaceutical Ingredients (APIs), any disruption in global petroleum markets will sharply raise input costs and threaten export competitiveness.
- Basic Metal, Iron and Steel: Highly energy-intensive operations mean that any spike in domestic gas and diesel prices could render production costs unsustainable.
- Food, Beverage and Tobacco: Dependent on imported grains and packaging materials, this sector faces severe imported inflation. Rising freight costs will likely translate directly into higher consumer prices, worsening living conditions for Nigerians.
Across the board, manufacturers face a combination of escalating energy costs, soaring shipping and logistics expenses, and weakening consumer demand. MAN warns that this could jeopardise the sector’s target of achieving 3.1 per cent real growth in 2026.
Echoes of the US–Iraq war
To underscore the risks, MAN drew parallels with the economic fallout of the US–Iraq War. In that period, total manufacturing exports plunged from $901.35 million in 2002 to $496.87 million in 2003. Manufacturing GDP growth collapsed from 17.74 per cent to -10.8 per cent, and the sector’s contribution to GDP dropped from 11.68 per cent to 9.7 per cent in a single year.
These historical data, MAN argued, show that Middle Eastern conflicts involving the US have previously delivered “devastating” blows to Nigeria’s industrial sector.
Call for urgent policy actions
MAN described the US–Israel–Iran conflict as a stark reminder of Nigeria’s vulnerability to external shocks so long as its manufacturing base remains heavily dependent on imported raw materials. While Nigeria cannot control events in the Gulf, the association insists that it can control its domestic policy response—and that “the window for reactive measures is closed”.
“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,” the paper stated.
To shield the economy and avert widespread factory closures, MAN recommended several immediate interventions:
- Fast-track industrial energy transition: Scale up and subsidise the Presidential Compressed Natural Gas (CNG) initiative for manufacturing hubs and heavy-duty logistics to reduce reliance on imported diesel.
- Guarantee FX for critical inputs: The Central Bank of Nigeria should create a dedicated, prioritised foreign exchange window for manufacturers importing key raw materials and machinery, insulating them from speculative currency volatility.
- Domesticate petroleum supply chains: Compel domestic mega-refineries to prioritise the sale of refined fuels and petrochemicals to local manufacturers at discounted, non-import-parity rates.
- Suspend logistics and haulage levies: Implement a six-month moratorium on discretionary highway levies, haulage taxes and multiple transit tolls that increase the cost of distributing manufactured goods.
