Nigeria’s manufacturing sector is paying more taxes even as its production shrinks, underscoring the mounting pressures on an industry grappling with weak output and eroding competitiveness.
According to the National Bureau of Statistics (NBS), manufacturers remitted ₦803.53 billion in value-added tax (VAT) in 2024 — a 50 per cent increase from ₦578.39 billion in 2023 and more than double the amount recorded two years ago.
However, sectoral output fell to $25.4 billion in 2024, the steepest decline in 15 years and less than half the $55.9 billion recorded the previous year, according to World Bank figures.
“This gap shows that manufacturers are paying much more to source inputs but producing far less in value terms,” said Matilda Adefalujo, an economic research analyst at Lagos-based Meristem. “High energy costs, exchange rate swings, expensive imported materials, and poor infrastructure are all pushing up costs while limiting production capacity. The impact is slower industrial growth, fewer jobs, and heavier dependence on imports.”
Reforms, Inflation and Naira Devaluation Squeeze Manufacturers
Between 2023 and 2024, Nigeria endured one of its most challenging economic periods as sweeping reforms saw the naira lose over 70 per cent of its value and inflation soar to record highs. The harsh conditions forced several local and foreign-owned manufacturers to scale down or shut operations.
Despite these challenges, VAT contributions from the sector continued to rise, driven largely by higher prices, increased tax enforcement, and currency weakness.
“The shrinking manufacturing output in the face of doubling VAT revenue does not augur well. It is a clear sign the sector is unhealthy. And despite doing badly, it is still burdened with heavy taxation,” said Samson Simon, CEO of Abuja-based ARKK Economics and Data Limited.
Sector’s Contribution to GDP Weakens
The sector’s woes have been compounded by structural constraints — high inflation, volatile foreign exchange, and infrastructure bottlenecks — leading to a reduced contribution to gross domestic product (GDP). Following Nigeria’s recent GDP rebasing, the industry’s share fell to 21.08 per cent in 2024 from 27.65 per cent previously.
“Growth across the manufacturing value chain has been subdued,” said Tobi Ehinmosan, a macroeconomic analyst at FBNQuest Merchant Bank. “While recent stability in the naira and easing of prices offer some hope, the record VAT levels reflect government reforms aimed at boosting revenue rather than genuine sectoral expansion.”
Ehinmosan added that the government is seeking to raise the tax-to-GDP ratio from 10 per cent to 18 per cent in the coming years, with manufacturers contributing significantly to the push.
Calls for Urgent Reforms
Industry experts warn that without deliberate policies to lower production costs, Nigeria risks stifling a sector critical to its economic diversification agenda and its ambition to achieve a $1 trillion economy by 2030.
“Addressing rising production costs, stabilising the exchange rate, and ensuring affordable energy are crucial to restoring competitiveness; without these, foreign investment will remain elusive, and the sector’s decline could accelerate.” Simon, who is also an economics lecturer at Baze University, Abuja, noted.
The Manufacturers Association of Nigeria (MAN) has repeatedly flagged energy costs as a major burden, with electricity and fuel accounting for 35–40 per cent of production expenses. As a result, many producers pass costs onto already cash-strapped consumers, deepening inflationary pressures.
For Adefalujo, the way forward lies in easing operational bottlenecks: “Expanding reliable and affordable electricity supply, improving access to foreign exchange for critical inputs, and enhancing transport and port efficiency would reduce cost uncertainty and support growth.”
