Manufacturers sell below production cost to offload N2trn unsold inventory

By Yinka Kolawole

Manufacturers in Nigeria are increasingly selling products below production cost in a desperate bid to clear nearly N2 trillion worth of unsold inventory, underscoring the severe cost pressures and weak consumer demand confronting the country’s industrial sector.

Findings by the Manufacturers Association of Nigeria (MAN) show that while manufacturers have recorded modest improvements in sales volumes, the gains are largely driven by aggressive price cuts and thinner profit margins rather than any meaningful recovery in consumer purchasing power.

Speaking in an interview, Director General of MAN, Segun Ajayi-Kadir, said many manufacturers have been forced to absorb losses simply to move products and keep their factories operating.

“What has happened is that manufacturers have continued to sell more, not because demand has improved, but because they have taken a hit by lowering prices in order to sell more,” he said.

According to him, the sector’s unplanned inventory, estimated at just under N2 trillion, has compelled many firms to dispose of finished goods at prices far below optimal profitability and, in several cases, below production cost.

The development highlights the difficult operating environment facing manufacturers, who continue to battle soaring production costs, weak consumer demand, high borrowing costs, foreign exchange volatility, poor infrastructure, insecurity, and persistent logistics bottlenecks.

Ajayi-Kadir said manufacturers are responding by increasing local sourcing of raw materials and investing more in value addition to reduce dependence on imports. However, he noted that high foreign exchange costs and import-duty benchmark pricing continue to undermine the competitiveness of locally manufactured products, limiting Nigeria’s ability to maximise opportunities under the African Continental Free Trade Area (AfCFTA).

He stressed that improved incentives, cheaper financing and more efficient logistics are critical to positioning Nigerian manufacturers to compete effectively across African markets.

According to him, financing remains one of the biggest obstacles to industrial growth. With the monetary policy rate hovering around 26 per cent, commercial bank lending rates have climbed to between 30 and 35 per cent, making borrowing commercially unsustainable for most manufacturers.

“It is hardly possible for any manufacturer to borrow from commercial banks and still make a profit,” he said

Although manufacturers increasingly rely on the Bank of Industry (BoI) and offshore funding where available, Ajayi-Kadir noted that even development finance has become more expensive, with BoI lending rates rising to as high as 15 per cent.

He said the increase has significantly raised debt servicing costs for manufacturers that previously accessed intervention funds at single-digit rates, further tightening already stretched cash flows.

“Manufacturers who had secured credit at around 9% are now being required to pay 15%, a sharp jump that further tightens already stretched balance sheets,” he stated.

To ease the pressure, MAN requested the Federal Government to immediately release the promised N1 trillion Manufacturing Stabilisation Fund, saying the intervention is urgently needed to provide affordable credit to struggling manufacturers.