Sixty-five years after Independence, Nigeria’s manufacturing sector remains trapped in underperformance, with experts warning that decades of reliance on import-dependent industrialisation, structural bottlenecks, and policy inconsistencies have undermined growth.
According to data from the National Bureau of Statistics (NBS), manufacturing contributed just 9.62 percent to Nigeria’s Gross Domestic Product (GDP) in the first quarter (Q1) of 2025, a modest rise from 7.62 percent in the previous quarter but far below the 20 percent benchmark recorded in peer economies such as Vietnam and Indonesia. Exports tell an even starker story, with manufactured goods accounting for less than eight percent of Nigeria’s total exports, compared to oil and gas, which still provide over 90 percent of foreign exchange earnings.
Economists warn that decades of policy missteps, foreign exchange (FX) volatility, and structural bottlenecks continue to undermine growth, even as recent reforms begin to shift the narrative toward backward integration and resource-based industrialisation.
Esther Adegunle, economic development expert, said Nigeria’s manufacturing sector has consistently failed to fulfil its role as an engine of industrialisation as the sector struggles to scale, constrained by deep structural bottlenecks.
“A central obstacle is the country’s massive infrastructure deficit, which inflates production costs, disrupts supply chains, and severely undermines competitiveness in regional and global markets.
“Nigeria’s manufacturing has averaged about 10 percent of GDP for the past two decades, roughly half of what is expected for a developing economy of this size. The sector has pockets of progress in cement and agro-processing, but these remain exceptions rather than the rule,” she noted.
According to her, the country’s infrastructure gap is central to this underperformance. Poor electricity supply, high energy costs, and weak transport and logistics systems have eroded competitiveness and inflated production costs. Research suggests Nigeria would need to invest about $14.2 billion annually, or six percent of GDP, over the next decade to close this infrastructure gap.
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For Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), the root of the problem lies in the flawed industrialisation strategy adopted in the 1970s.
“We embraced import substitution during the oil boom, setting up industries dependent on imported raw materials. When oil prices crashed in the 1980s, those industries collapsed because they could not sustain themselves. Since then, exchange rate volatility has remained one of the biggest problems for manufacturers, raising production and input costs and crippling competitiveness,” he explained.
Yusuf noted that Nigeria once boasted thriving automobile and textile industries, but the collapse of the naira and structural inefficiencies forced many of them out of business. He argued that the country’s import dependence left manufacturers vulnerable to foreign exchange shocks.
However, Yusuf sees signs of a turning point with recent reforms.
“We are beginning to see a shift towards backward integration and resource-based industrialisation. Countries that have done well in industrialisation rely on local resources, not imports. That is why sectors like cement and food and beverages are performing better; they rely more on local inputs,” he said.
He added that the weak naira is now discouraging imports and making local products more competitive, both at home and in export markets. According to him, industries are increasingly sourcing raw materials locally, while recycling has become a viable sub-sector. Also, the recapitalisation of the Bank of Agriculture to N1.5 trillion is opening up opportunities for agro-allied industries.
“Many Nigerian products are now more competitive in neighbouring markets because of the weak currency. For the first time in decades, exports of locally manufactured goods are picking up, but we still have a long way to go,” Yusuf stressed.
Adding his perspective, Musibau Adetunji Babatunde, commissioner for Budget and Economic Planning in Oyo State, said Nigeria’s economic challenges run deeper than headline figures suggest.
“Sincerely, we are not where we are supposed to be. The business environment is not conducive, unstable electricity, high energy costs, insecurity, and multiple taxation are driving up the cost of production. Inflation data have been rebased, but in reality, prices are not coming down in the market. The economy is still constrained despite government claims of progress,” Babatunde argued.
He warned that monetary policy alone cannot address Nigeria’s economic fragility.
“We need structural policy measures, fixing of power, roads, and rural infrastructure to reduce post-harvest losses and boost food supply. Supporting farmers with seeds, fertiliser, and access to land will reduce food prices. The real sector of the economy is where attention must shift, not just GDP growth headlines,” he said.
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Babatunde further cautioned that Nigeria’s fragile recovery is being propped up by high crude oil prices, a foundation he described as unsustainable.
“If crude oil prices fall tomorrow, the cosmetics we are doing to the economy will collapse. Structural reforms, not cosmetic adjustments, are what will make Nigeria business-friendly, competitive, and capable of driving exports,” he warned.
Protectionism since Independence
Since independence in 1960, Nigeria’s trade policies have oscillated between protectionism and liberalisation. The early decades saw high tariffs, import bans, and import substitution industrialisation (ISI) policies designed to shield domestic industries from competition. But this model bred inefficiencies and over-dependence on government protection.
The Structural Adjustment Programme (SAP) of the 1980s, pushed by the International Monetary Fund (IMF) and the World Bank, reversed course. Nigeria liberalised trade, slashed tariffs, and devalued the naira to integrate into the global economy. Instead, rapid liberalisation without strong industrial support wiped out many local firms that could not withstand cheaper imports.
In the 2000s, Nigeria adopted mixed policies. The Central Bank of Nigeria (CBN)’s 2015 ban on accessing forex for 41 items was designed to spur local production in cement, textiles, food, and beverages. Cement became the standout success: output rose from two million metric tonnes in 2002 to over 40 million metric tonnes by 2020, with Dangote, BUA, and Lafarge leading exports across Africa. But the restrictions also drove smuggling and high production costs. In 2023, the CBN lifted the ban, easing input constraints for manufacturers.
Nigeria’s entry into the African Continental Free Trade Area (AfCFTA) also presents both prospects and risks. AfCFTA could boost intra-African trade by 45 percent by 2045, according to the UN Economic Report on Africa, and add $141 billion to the continent’s GDP. Yet Nigerian firms face stiff competition from stronger African peers, making domestic competitiveness reforms crucial.
“The path forward is resource-based industrialisation, leveraging what we produce locally to industrialise. If we focus on that, while addressing power, logistics, and financing, Nigeria’s manufacturing can finally break out of fragility,” Yusuf stressed.