Nigeria’s manufacturers paid more in value-added tax (VAT) in 2024 than at any time in the past five years, even as the sector’s output in terms of net value shrank to its lowest in 15 years, according to data compiled by BusinessDay.
The surge, driven by rising input costs, higher prices, and tighter tax enforcement, underscores the strain on an industry struggling with weak output and declining competitiveness.
Total VAT input from the manufacturer rose to N803.53 billion in 2024, according to data from the National Bureau of Statistics (NBS). That’s about 50 percent more than the N578.39 billion generated by the sector in the prior period and more than double what was paid two years ago.
Read also: Manufacturers urged to embrace local machine building to drive industrialisation
While the manufacturing sector coughs out the highest VAT revenue, its output slumped to $25.4 billion last year, marking the steepest fall in 15 years. More worrying is that its value more than halved between 2023 and 2024, from $55.9 billion, according to data obtained from the World Bank.
“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 felt in slower industrial growth, fewer jobs, and heavier dependence on imports and services to drive the economy.”
Between 2023 and 2024, Africa’s most populous nation faced one of its toughest economic periods as authorities embarked on radical reforms that saw the naira tumble by more than 70 percent and inflation rise to its highest on record.
This rather harsh business environment forced some domestic and foreign-owned companies – majorly manufacturers — to close operations or scale down. Yet the sector’s contribution as per VAT has been climbing over the years.
Samson Simon, CEO of ARKK Economics and Data Limited, explained that the rise in manufacturing VAT contribution was due to increased prices and a collapse in the country’s exchange rate over the past two years.
“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 the sector doing badly, it is still burdened with heavy taxation,” the Abuja-based economist said.
The sector, faced with legacy issues such as sky-high inflation, foreign exchange volatility, and infrastructural bottlenecks, has seen its contribution to the gross domestic product (GDP) slow even after the country overhauled its economy, which made it about 30 percent bigger.
After the rebasing exercise, industry, one of the tripods of the broad-based economy that captures manufacturing, declined to 21.08 percent from 27.65 percent in 2024.
Tobi Ehinmosan, a macroeconomic analyst at research and consultancy firm FBNQuest Merchant Bank, said growth across the manufacturing value chain has been ‘subdued’ over the years, noting that there are signs of improvements with the relative stability of the naira and easing of prices.
Read also: Cadbury, Okomu Oil top manufacturers driving shareholders value
Ehinmosan, however, attributed the record high VAT contribution of the sector to “the new drive of the nation’s authorities to expand revenue and increase its contribution to the overall GDP” from a paltry 10 percent to about 18 percent in the next few years.
“I would attribute the increase to the initiatives and reforms of Tinubu’s government to raise revenue and fix loopholes and leakages. But the manufacturers still grapple with high input costs,” he said.
What government must do to halt the trend
As Nigeria marches towards embarking on its $1trillion economy milestone by 2030, the manufacturing sector, if provided with a more enabling environment, could power that growth.
But the President Bola Tinubu administration must address the rising cost of production by improving the business environment and ensuring business-friendly policies, according to Simon, who doubles as an economics lecturer at Baze University, Abuja.
He added that by arresting weakened competitiveness and tackling diminished purchasing power, the country will not only see a rebound in the manufacturing sector but also attract scarce foreign direct investment.
According to the Manufacturers Association of Nigeria (MAN), beyond record high interest rates and inflation, rising energy costs consume between 35 to 40 percent of production costs, leaving the manufacturers with no choice than to pass the cost down to consumers whose spending power has been hammered.
But the government needs to put in measures that directly ease production pressures to reverse this trend, according to Adefalujo, quoted earlier.
“Stabilising the exchange rate and improving FX access for essential inputs would help reduce cost uncertainty,” she said.
The economist further said that expanding reliable and affordable electricity supply would free manufacturers from heavy diesel expenses, stressing that faster and more efficient transport and port operations would prevent costly delays.
“Policies that encourage local sourcing of raw materials, alongside targeted tax relief and accessible long-term financing for plant upgrades, could boost capacity,” Adefalujo said.
“If these steps are taken, the small recovery seen in 2024 in sub-sectors like food, chemicals, and non-metallic products could be built into a more sustained revival for manufacturing.”
