Manufacturers Issue Dire Warning Over Soaring Energy Costs and Plummeting Demand
The Director General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, has issued a stark warning about the severe ripple effects of escalating energy prices on the African manufacturing sector. In a recent monthly report, Ajayi-Kadir highlighted that the ongoing unrest across the continent is driving up costs, which are becoming increasingly unsustainable for industries.
Rising Production Expenses and Weakened Demand
Ajayi-Kadir explained that most industries and businesses rely heavily on petroleum products for critical operations such as electricity generation, logistics, and packaging materials like plastics. Consequently, the surge in energy costs has directly translated into higher production expenses for all manufacturers. This increase has triggered elevated prices for industrial goods, which in turn has weakened consumer demand significantly.
He cautioned that if this situation continues without intervention, consumers will face a sharp rise in the cost of goods. Once consumers reach their elastic limit, manufacturers could be burdened with unsold inventory, potentially leading to the collapse of some industries. This scenario poses a serious threat to economic stability and job creation in the region.
Global Shipping Disruptions and Currency Depreciation
Further compounding the challenges, disruptions to global shipping routes have raised the cost of importing industrial inputs and extended delivery times. This has created additional hurdles for manufacturers who depend on timely access to machinery, raw materials, and intermediate goods to maintain production schedules.
Ajayi-Kadir also noted that the conflict has reinforced the strong relationship between global oil prices and currency movements. "As crude oil prices rise in the international market, demand for the U.S. dollar tends to increase, strengthening the currency relative to others," he stated. This dynamic has contributed to the depreciation of many African currencies, further increasing the cost of imported industrial inputs and exacerbating inflationary pressures across the continent.
Indirect Impact on Agro-Processing Industries
The report also warned about indirect effects on agro-processing industries due to disruptions in fertilizer supply. "Sustained constraints in fertilizer availability are likely to increase agricultural production costs and reduce the supply of raw materials for food processing industries across the continent," Ajayi-Kadir emphasized. This could lead to higher food prices and reduced availability of processed goods, affecting both consumers and manufacturers.
Urgent Calls for Resilience and Investment
Highlighting the urgent need to strengthen the resilience of Africa's manufacturing sector, Ajayi-Kadir outlined several critical measures that governments should pursue:
- Develop domestic refineries and strategic oil reserves to guard against future shocks from energy supply disruptions.
- Reduce excessive dependence on imported industrial inputs by strengthening backward integration, regional manufacturing networks, and local value chains.
- Accelerate investments in renewable energy, gas infrastructure, and regional power integration to ensure a stable and affordable energy supply.
- Expand domestic production of fertilizers, petrochemicals, steel, and industrial chemicals to reduce vulnerability to external supply shocks.
- Improve efficient transport corridors, ports, and logistics systems to lower trade costs and enhance industrial competitiveness.
Finally, Ajayi-Kadir urged a move beyond mere rhetoric to prioritize the patronage of locally made products. "This will help support and stabilize industrial production amid global pressures," he concluded, emphasizing that collective action is essential to prevent further deterioration of the manufacturing landscape.
