BY BUKOLA ARO-LAMBO, OLUSHOLA BELLO AND KINGSLEY OKOH, Lagos Manufacturing’s share of Nigeria’s Gross Domestic Product (GDP) slipped quarter-on-quarter in the second quarter of 2026, reigniting concerns that the sector is being starved of the long-term, affordable credit needed to expand. The decline came despite banks raising N4.65 trillion through a recapitalisation exercise designed to […]
BY BUKOLA ARO-LAMBO, OLUSHOLA BELLO AND KINGSLEY OKOH, Lagos
Manufacturing’s share of Nigeria’s Gross Domestic Product (GDP) slipped quarter-on-quarter in the second quarter of 2026, reigniting concerns that the sector is being starved of the long-term, affordable credit needed to expand.
The decline came despite banks raising N4.65 trillion through a recapitalisation exercise designed to strengthen their capacity to finance the real economy, raising questions over how the additional capital is being deployed.
Economists and industry leaders have consequently called for urgent government and Central Bank of Nigeria (CBN) intervention to channel more credit into manufacturing and boost the sector’s contribution to national output.
The latest GDP report by the National Bureau of Statistics (NBS) showed that manufacturing accounted for 7.72 per cent of real GDP in Q2, down from 9.57 per cent in Q1 and 7.81 per cent in the corresponding quarter of 2025.
On a quarter-on-quarter basis, manufacturing contracted by 15.85 per cent during the period, although nominal GDP for the sector rose by 35.55 per cent year-on-year.
In real terms, however, the sector grew by 3.24 per cent year-on-year in the second quarter of 2026, higher than the 1.60 per cent recorded in Q2 2025 but slightly below the 3.29 per cent achieved in the first quarter of 2026.
The growth nevertheless remained below the 4.43 per cent expansion recorded by the overall economy, resulting in a decline in manufacturing’s contribution to real GDP.
The figures have renewed concerns over the availability and structure of bank credit to manufacturers, particularly as Nigerian banks emerged from the recapitalisation exercise with significantly stronger capital positions.
Central Bank of Nigeria (CBN) data showed that manufacturing was the second-largest recipient of bank credit at N5.767 trillion as of March 2026. However, the figure was lower than the N6.608 trillion recorded at the end of 2025 and N7.716 trillion in the first quarter of 2025.
The decline has raised questions over whether the additional capital raised by banks is being sufficiently deployed to productive sectors.
Chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said the recapitalisation had undoubtedly strengthened the banking industry and improved its capacity to absorb economic shocks.
However, he said the more important issue was whether the stronger capital base was translating into increased credit for the real economy, particularly productive sectors such as manufacturing.
Yusuf said evidence of a significant improvement in credit to productive sectors remained weak, noting that private-sector credit stood at only about 17 per cent of GDP in 2025, compared with an average of about 25 per cent for sub-Saharan Africa.
He said the distribution of bank credit remained skewed towards services, which accounted for about 55 per cent of total bank credit, while manufacturing received about 14 per cent and agriculture approximately five per cent.
Yusuf also raised concerns over the predominantly short-term structure of bank lending, noting that about 55 per cent of bank credit was short-term.
According to him, the structure does not adequately serve sectors such as manufacturing and infrastructure, where businesses require longer-term financing to purchase equipment, expand plants and undertake capital-intensive investments.
For economist and vice chairman of Highcap Securities Limited, David Adnori, the financing challenge has become a major constraint on manufacturing’s ability to expand its contribution to the economy.
Adnori described manufacturing as the anchor of economic growth but said the sector remained undercapitalised because funds had been diverted to the service sector through inappropriate public policies.
According to him, banks are structurally unable to meet manufacturers’ financing needs because manufacturers require long-term capital for machinery and production structures, while banks largely finance short-term working capital, mostly for trade and importation.
He also faulted reliance on expensive bank debt at 30 to 40 per cent interest, arguing that manufacturers could access cheaper, long-term equity funding from the capital market.
Adnori said high production costs and weak consumer purchasing power had further made locally manufactured goods uncompetitive against cheaper imports from China.
He also cited smuggling and weak border controls as additional pressures on domestic manufacturers.
“The result is rising unemployment, declining wealth creation, and a persistent fall in manufacturing’s contribution to GDP,” he said.
To reverse the trend, Adnori called for a “Marshall Plan” to recapitalise the productive sector and direct more funding towards manufacturing.
“Government has been busy recapitalizing sectors that do not need capital. That policy has failed. We must strategically focus the capital market on raising funds for manufacturing,” he said.
President of the Association of Small Business Owners of Nigeria (ASBON), Dr Femi Egbesola, similarly said manufacturing was not contracting in absolute terms, but its growth remained too slow to increase its contribution to GDP meaningfully.
He identified high energy and production costs, exchange-rate volatility, expensive credit, multiple taxes, weak consumer purchasing power, and inadequate infrastructure as factors that reduce manufacturers’ capacity utilisation and competitiveness.
“The sector continues to grapple with high energy and production costs, exchange-rate volatility, expensive credit, multiple taxes, weak consumer purchasing power and inadequate infrastructure. These factors are reducing manufacturers’ capacity utilization and competitiveness,” Egbesola stated.
He said the recapitalisation of banks should translate into greater lending to the productive sector, but noted that SMEs were yet to see a significant increase in affordable credit.
“Recapitalization has strengthened the banks’ capacity, but the real test is whether that capacity is translated into cheaper, longer-term financing for businesses that produce, employ and create value,” he said.
Egbesola therefore urged the federal government and the CBN to ensure that recapitalised banks channel more credit into manufacturing.
“A stronger banking sector is only truly beneficial to the economy when Nigerian businesses can access the capital they need to grow,” he added.
The calls for intervention come against the backdrop of the CBN’s position that the N4.65 trillion raised by banks through the recapitalisation exercise should be deployed to expand lending to productive sectors.
CBN Governor Olayemi Cardoso had said the exercise, which ended on March 31, 2026, was not designed merely to strengthen bank balance sheets but to expand their capacity to finance economic growth and absorb greater risks in support of the real sector.
“Recapitalisation was never an end in itself. We did not ask the industry to raise capital merely so that balance sheets would appear more impressive. We did so because a bank’s capital ultimately determines the level of risk it can responsibly absorb on behalf of the real economy, the scale of transactions it can underwrite, the shocks it can withstand, and the confidence with which it can finance investment and consumption,” he said.
Cardoso stressed that the priority should now be ensuring that the capital raised reaches businesses capable of driving production, employment and foreign exchange earnings.
“Given where we are today, the question is no longer whether the envisaged capital was raised. Rather, it is: what will we now do with the capital raised?
“A stronger banking system that lends timidly has missed the point. The capital that has been raised must find its way into the productive economy, into small and medium sized enterprises, agriculture, infrastructure and businesses that create jobs and earn foreign exchange,” Cardoso stressed.
Recall that the director-general of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, had earlier said that high lending rates remained one of the biggest obstacles to manufacturing growth.
According to him, two out of every three manufacturers surveyed under MAN’s Manufacturers’ CEOs Confidence Index identified commercial bank lending rates as a major disincentive to productivity.
He also said manufacturers considered the volume of credit available from commercial banks inadequate for their financing needs.
Ajayi-Kadir had further disclosed that credit to the manufacturing sector fell by N1.92 trillion, from N8.53 trillion in December 2024 to N6.61 trillion in December 2025, representing a 22.5 per cent decline.
He linked the contraction to high interest rates, bureaucratic bottlenecks and policy inconsistencies, arguing that the cost of borrowing was undermining manufacturers’ ability to invest in new equipment, expand production capacity and create jobs.
The MAN chief said although the reduction of the Monetary Policy Rate to 26.5 per cent represented a positive development, commercial lending rates remained significantly higher and continued to place pressure on businesses.
He added that persistent foreign exchange challenges, inadequate infrastructure, high logistics costs, multiple taxes and levies, port delays, insecurity and weak implementation of policies designed to promote locally manufactured goods continued to undermine competitiveness.
The MAN survey also indicated that manufacturers remained dissatisfied with improvements in access to foreign exchange, while capacity utilisation, investment and employment remained broadly stagnant.
Other industry analysts have equally questioned whether the banking sector’s recapitalisation has achieved its intended objective of improving credit flows to productive sectors.
Speaking earlier on the issue, Ayokunle Olubunmi, head of financial institutions ratings at Agusto & Co, said the difficult macroeconomic environment remained a major factor discouraging banks from aggressively expanding lending.
He noted that banks were increasing disbursements cautiously, reflecting concerns over credit risks and the broader economic environment.
United Capital’s chief economist, Ayodele Akinwunmi, had also attributed the increase in banking-system liquidity partly to recapitalisation, stronger deposit mobilisation and improved confidence in the banking system.
However, the increase in liquidity has not translated proportionately into credit expansion to businesses.
A report by the Alliance for Economic Research and Ethics (AERE) similarly highlighted the gap between stronger bank balance sheets and credit delivery to the productive economy.
The report cited a N14 trillion contraction in private-sector lending between February and April 2026, despite improvements in banking liquidity.
It argued that recapitalisation had strengthened the financial position of banks without producing a corresponding increase in lending to businesses that need credit to expand production.
Analysts have also pointed to the attractiveness of government securities as a factor that could discourage banks from taking the greater risks associated with lending to manufacturers.
Where banks can earn attractive returns by investing in government securities, lending to manufacturers operating amid high energy costs, exchange-rate volatility, weak consumer demand and uncertain operating conditions becomes comparatively less attractive.
Meanwhile, the latest GDP figures show that manufacturing itself remains highly uneven.
The 3.24 per cent sectoral growth was supported by strong performances in some subsectors, including cement, pharmaceuticals and petroleum refining.
Cement production grew by 12.75 per cent, pharmaceuticals by 7.70 per cent, while petroleum refining recorded a much stronger 43.94 per cent growth.
However, textiles, apparel and footwear contracted by 1.23 per cent, while motor vehicles and assembly declined by 1.02 per cent.
The divergence suggests that the headline manufacturing growth figure does not necessarily reflect broad-based improvement across factories. Rather, growth in a few subsectors helped offset weakness in others.
For manufacturers, the implication is that stronger economic growth will not automatically translate into a stronger manufacturing contribution unless structural constraints affecting production are addressed.
The sector’s inability to grow at the same pace as the overall economy means that its relative contribution to GDP can continue to decline even when factories record positive year-on-year growth.
Ajayi-Kadir therefore called for policies that would improve access to affordable financing and reduce the cost of production.
Manufacturers have also continued to press for targeted interventions, including the proposed N1 trillion Manufacturing Stabilisation Fund, which the association believes could provide badly needed support to businesses facing rising production costs and financing constraints.
The central question, therefore, is whether the banking sector’s stronger capital base will eventually translate into greater lending to manufacturing.
For now, the evidence suggests that recapitalisation has made Nigerian banks stronger, but the transmission from stronger bank balance sheets to cheaper and more accessible manufacturing credit remains incomplete.
Until that transmission improves, analysts warn that manufacturers may continue to operate below their potential, with high financing costs and other structural constraints limiting investment, capacity expansion and the sector’s ability to increase its contribution to Nigeria’s economic growth.
