The Manufacturers Association of Nigeria (MAN) reports a significant increase in the utilization of local raw materials in the manufacturing sector during the first half of 2023, reaching 55.3%, up from 48.0% in the same period last year. This trend is attributed to the prolonged scarcity of foreign exchange, which has compelled manufacturers to focus on domestic sourcing despite the associated cost implications. The high cost of FX has contributed to inflation and increased the expenditure on imported raw materials for manufacturers.
Key Points:
- The scarcity of foreign exchange in Nigeria has led to a surge in local sourcing of raw materials, with utilization in the manufacturing sector rising to 55.3% in H1 2023.
- The shift towards local sourcing is driven by challenges associated with accessing foreign exchange, despite the higher costs involved in domestic procurement.
- The Central Bank of Nigeria merged all segments of the FX market and reintroduced the willing buyer, willing seller model in June, leading to a depreciation of the naira against major foreign currencies.
- The official exchange rate increased from N463.38/$ to N755.08/$, while the parallel market rate reached N1,000/$ from 762/$.
- Manufacturers spent N1.12 trillion on importing raw materials in the first half of the year, compared to N696.1 billion in the same period last year.
- A survey revealed that only 14.7% of manufacturers believed that forex sourcing improved in Q2, highlighting the persistent scarcity of foreign exchange.
- MAN recommends a re-evaluation of the government’s role in funding local development and production of raw materials to support the manufacturing sector.
Analysis: The rise in local raw material sourcing underscores the impact of FX scarcity on Nigeria’s manufacturing sector. While it addresses immediate supply chain challenges, it comes with higher costs. The government’s intervention in funding local development and production of raw materials could provide a long-term solution. This situation emphasizes the need for a balanced FX policy that supports both local industries and the broader economy.
Background: The scarcity of foreign exchange has been a recurring challenge for businesses in Nigeria. This report highlights how manufacturers have responded by increasingly relying on locally sourced raw materials. While this addresses immediate supply chain challenges, it also highlights the importance of a stable and accessible FX market for sustained economic growth. The government’s role in supporting local development and production of raw materials is seen as a potential solution to mitigate the impact of FX scarcity on the manufacturing sector.