Lower Inflation Not Translating To Lower Production Costs – Manufacturers

The Manufacturers Association of Nigeria (MAN) has said the recent moderation in the country’s headline inflation rate has not translated into lower production costs for manufacturers.

MAN stated this in its position on the August 2026 inflation report, where headline inflation moderated to 15.39 percent from 15.43 percent in July.

The director-general of MAN, Segun Ajayi-Kadir described the 0.04 percentage point decline as a positive development for business planning, investment and consumer welfare, but noted that the improvement remains fragile.

“More importantly, a lower inflation rate does not necessarily mean that manufacturers are experiencing lower production costs,” he said.

According to Ajayi-Kadir, the critical issue for manufacturers is whether the cost of producing goods is actually declining.

He said manufacturers continue to operate in an environment characterised by high energy costs, logistics challenges, exchange rate costs, elevated raw-material prices and multiple fiscal and regulatory charges.

He stated that the August inflation outcome should be seen as an opportunity to move from simply managing inflation to addressing the structural costs that keep Nigerian manufacturing expensive.

On implications, Ajayi-Kadir noted that manufacturers cannot always transfer the full increase in production costs to consumers because purchasing power remains weak.

“As a result, margins remain under pressure while working capital requirements remain high, as firms need more funds to purchase the same quantity of materials when input prices rise,” he explained.

MAN DG pointed out that investment decisions also remain cautious as high energy, financing and logistics costs continue to reduce the attractiveness of new investments.

Capacity utilisation may remain constrained, Ajayi-Kadir warned, as some firms may reduce production when the cost of operating additional shifts or purchasing additional inputs becomes commercially unsustainable.

He added that local products may become less competitive as high domestic production costs make it more difficult for Nigerian manufacturers to compete with imported products.

He also cautioned that employment growth may be affected as sustained cost pressures limit manufacturers’ ability to expand production and create additional jobs.

He said sustainable economic growth requires more than a gradual decline in headline inflation, stressing the need for an environment where manufacturers can access affordable energy, finance, foreign exchange and logistics, while sourcing a greater proportion of inputs locally.

He called on the federal government to use the current period of relative inflation moderation to implement targeted cost-reduction and productivity-enhancing measures.

“These include dedicated and reliable electricity supply to major industrial clusters, priority access to gas for industrial users, incentives for captive power and renewable energy, and a review of electricity tariff structures affecting productive industries,” he emphasized.

Ajayi-Kadir also recommended prioritising rehabilitation of major transport corridors linking ports, industrial clusters and markets, eliminating overlapping road levies, implementing tax reforms to eliminate multiple taxation, effective implementation of the Nigeria First Policy for local patronage, and a targeted long-term manufacturing financing window at below-market rate.