By Biznalytiq Research Desk
Introduction: Factories Under Financial Strain
In 2025, Nigeria’s manufacturing sector stands at a critical crossroads. While the government speaks of industrial revival and local production, factory owners across the country tell a different story — one of halted expansion plans, idle machines, and rising loan defaults. The culprit? Soaring interest rates that have turned credit into a luxury few can afford.
The cost of borrowing in Nigeria has reached its highest levels in over a decade, hovering between 25% and 32% for commercial loans. For manufacturers — whose operations depend heavily on machinery financing, import duties, and raw material costs — such rates are not just unsustainable; they are destructive.
According to recent data from the Manufacturers Association of Nigeria (MAN), over 40% of Nigerian factories have either scaled down production or postponed capital investments due to expensive credit. In a climate where energy costs are high and foreign exchange remains volatile, pricey loans have effectively stalled the nation’s industrial heartbeat.
“Interest rates have become a barrier to survival,” says one factory owner in Ogun State. “We used to expand production every year. Now, we’re just struggling to stay afloat.”
For a country eager to diversify away from oil dependency, the paralysis of the manufacturing sector carries grave implications for jobs, exports, and economic resilience.
The Rising Cost of Borrowing in Nigeria
To understand how we got here, one must look at the Central Bank of Nigeria’s monetary tightening policies. In an effort to curb inflation — which climbed above 30% in mid-2025 — the Monetary Policy Rate (MPR) was raised repeatedly, settling at an unprecedented 26.75%.
Commercial banks, seeking to protect margins and manage default risks, responded by pushing lending rates far higher. For most small and medium-sized factories, this meant that even a modest ₦10 million loan could attract interest payments exceeding ₦3 million per year — a crushing burden on already thin profit margins.
Global Context, Local Pain
While central banks worldwide tightened policies to fight inflation after the COVID-19 shocks, Nigeria’s case is uniquely harsh. Unlike developed economies with low inflation anchors and robust credit markets, Nigeria’s financial system remains shallow, with high risk premiums.
Investors demand greater returns to compensate for perceived instability, while banks remain cautious about lending to manufacturers who often lack collateral or stable forex access.
Impact on Manufacturing Credit Flows
Data from the National Bureau of Statistics (NBS) show that total credit to the manufacturing sector dropped by 18% year-on-year in Q2 2025. Sectors such as food processing, textiles, and cement — once the pillars of Nigeria’s industrial base — are now seeing stalled expansion projects and rising layoffs.
At the same time, interest income for banks has surged, highlighting a widening gap between financial-sector profitability and real-sector decline. The situation raises tough questions about whether Nigeria’s monetary policy is striking the right balance between controlling inflation and promoting growth.
“The current credit environment is unsustainable for productive enterprises,” notes Biznalytiq Research. “If high rates persist, Nigeria’s industrialization drive could lose another decade.”
Manufacturers’ Struggle for Affordable Credit
For manufacturers, access to credit is more than a financial issue — it is a matter of survival. Machinery upgrades, raw material imports, and power generation all depend on financing. Without it, even large firms find it difficult to maintain production lines, let alone scale them.
A 2025 CBN Financial Stability Report shows that manufacturing accounts for less than 9% of total private-sector credit, down from 15% in 2019. Instead, most lending now flows into oil, trade, and short-term consumer credit, which banks perceive as safer bets.
Bank of Industry (BOI) — A Lifeline Under Pressure
The Bank of Industry (BOI) remains one of the few institutions offering single-digit interest loans to manufacturers. However, demand far outstrips supply. BOI disbursed roughly ₦300 billion in industrial loans in 2024, yet applications exceeded ₦1.2 trillion.
Manufacturers who fail to access BOI loans are left at the mercy of commercial banks whose lending terms often exceed 25%. Many SMEs cannot provide the collateral or audited financials these banks demand, pushing them into informal borrowing or complete stagnation.
How to Apply for BOI Loan in Nigeria — a practical guide for manufacturers and SMEs seeking affordable funding.
Surging Energy and Forex Costs Deepen the Crisis
Even when manufacturers secure loans, high borrowing costs combine with expensive energy to squeeze margins. Power now consumes up to 35% of factory operating costs, forcing some companies to rely on diesel generators that gulp millions monthly.
Add unstable foreign exchange rates — with the naira fluctuating between ₦1,500 and ₦1,600 per dollar — and manufacturers face a perfect storm. Imported inputs become costlier, and repaying foreign-denominated loans becomes a nightmare.
“We cannot plan production cycles when we don’t know what the naira will be worth next month,” laments a steel producer in Lagos.
Small and Medium Factories Hit the Hardest
Across Nigeria’s industrial clusters — from Nnewi’s auto-parts hub to Aba’s garment lines — small and medium-sized manufacturers (SMEs) are facing their toughest financing climate in years.
Most operate on thin cash flows and depend on short-term bank facilities to import materials or restock equipment. But as benchmark rates rise, commercial loans priced at 28–32 percent have become impossible to service.
“We used to renew our credit line every quarter,” explains the owner of a leather-goods factory in Kano. “Now the interest alone can wipe out our profit. We’ve stopped borrowing entirely.”
Collateral and Paperwork Roadblocks
Banks typically demand fixed assets such as land titles as collateral. Many SME manufacturers lease their premises, leaving them ineligible for formal credit. Even when collateral exists, long approval processes and requests for tax clearances discourage applicants.
According to SMEDAN, less than 20 percent of small manufacturers have ever accessed bank credit. Most rely on cooperatives, family funds, or supplier credit — arrangements that limit their scale.
The result is a widening productivity gap: large conglomerates with access to multinationals or development finance keep operating, while local workshops shrink or shut down.
Employment Shock and Idle Capacity
High borrowing costs quickly translate into fewer jobs. Manufacturing once employed more than 1.5 million Nigerians directly and several million indirectly. But MAN’s latest survey shows factory employment down 12 percent in the past year as firms cut shifts, delay new hires, or outsource to cheaper informal workshops.
Idle machines are becoming a common sight. Capacity utilisation in many subsectors — especially textiles, plastics, and agro-processing — has fallen below 50 percent.
The ripple effects extend beyond factory gates. Transporters, packaging firms, and distributors lose contracts when production slows. In regions like Ogun and Anambra, where manufacturing clusters drive local economies, the slowdown has begun to reflect in reduced household income and weaker consumer demand.
Why Policy Matters: The Central Bank’s Balancing Act
The Central Bank of Nigeria (CBN) faces a difficult dilemma. Inflation must be tamed, yet each rate hike squeezes productive investment. Analysts say the policy mix has leaned too heavily toward price stability at the expense of growth.
While the MPR currently stands at 26.75 percent, inflation continues above 30 percent — meaning the pain inflicted on industry has not yielded proportionate gains.
Economists interviewed by Biznalytiq argue that part of the problem lies in transmission. High policy rates make sense in theory, but Nigeria’s weak financial infrastructure amplifies their impact. Banks pass on every increase to borrowers, even though inefficiencies — not just inflation — drive costs.
“A 25 percent policy rate in Nigeria is not the same as 25 percent in the U.S.,” notes Biznalytiq Research. “Here, it multiplies across risk premiums, documentation fees, and collateral demands.”
Inflation Drivers Beyond Interest Rates
Manufacturers insist that inflation is being driven less by excess demand and more by structural bottlenecks — energy tariffs, transport costs, and currency depreciation. Tightening monetary policy cannot fix those issues.
Without addressing these bottlenecks, high interest rates act like brakes on an already slow vehicle. The outcome: factories pay more to borrow but still face rising input prices, leading to cost-push inflation — the very phenomenon policymakers hope to avoid.
The Credit Crunch and Innovation Freeze
Industrial innovation thrives on credit. Modernising machinery, adopting cleaner energy, or digitising supply chains all require financing. When credit dries up, innovation stalls.
A recent UNIDO Nigeria report found that over 60 percent of local factories operate with outdated equipment, much of it over ten years old. Limited access to finance prevents upgrades, resulting in low productivity and poor product quality compared to imported goods.
This creates a vicious circle: low quality reduces export potential, smaller revenues make it harder to repay loans, and banks become even more reluctant to lend.
Manufacturing vs. Financial Sector Divide
Ironically, while factories struggle, commercial banks continue to post record profits. In 2025, several tier-one banks reported pre-tax earnings growth exceeding 80 percent, largely driven by interest income.
This divergence highlights a structural imbalance. Nigeria’s economy rewards financial intermediation more than production. Capital circulates within money markets rather than funding real assets.
For policymakers trying to revive “Made in Nigeria,” this disconnect is alarming. Industrial growth cannot occur when credit flows mainly toward government securities and consumer loans.
See: Beyond Statistics: Why Nigerians Still Feel the Pinch Despite Signs of Economic Stability — for deeper insight into how policy decisions ripple through everyday business life.
The Search for Affordable Credit and Industrial Revival
Policy Reset: Balancing Growth and Price Stability
Nigeria’s manufacturing sector sits at the crossroads of monetary policy and national growth. The Central Bank of Nigeria (CBN) has kept interest rates high to curb inflation, yet those same rates now suffocate the industrial base that should power economic recovery.
Several analysts say a policy reset is overdue. Monetary tightening has delivered marginal gains against inflation but devastating losses in output and job creation. Economists argue that a gradual shift toward targeted, sector-based credit easing could strike a healthier balance.
“You can’t starve the real sector and expect economic growth,” said Dr. Abiola Adediran, an economist at the University of Lagos. “Inflation will not fall sustainably unless local production increases. And that requires cheaper financing.”
Government Interventions: Between Intention and Impact
Over the past decade, successive governments have launched initiatives to support industrial finance — from the Bank of Industry (BOI) to the Development Bank of Nigeria (DBN) and the Central Bank’s intervention funds for agriculture and manufacturing.
But the real-world impact has been limited. Many beneficiaries complain about complex eligibility rules, delayed disbursements, and the politicisation of loan approvals.
According to data obtained from the BOI’s 2024 Annual Report, less than ₦1 trillion in credit reached the manufacturing sector — a fraction of what is needed to close Nigeria’s estimated ₦10 trillion industrial funding gap.
The mismatch between policy ambition and execution remains a recurring problem. As one factory owner put it:
“The forms are online, but the funds are not accessible. By the time approval comes, your supplier has doubled the price.”
Private-Sector Innovations: Factoring, Leasing, and Crowdfunding
Amid official bottlenecks, new financing models are emerging. Non-bank lenders and fintech platforms are experimenting with invoice discounting, equipment leasing, and crowdfunding to fill the credit void.
For example, some Lagos-based manufacturing cooperatives now pool resources to buy equipment collectively and rent them to members — a localised version of asset leasing. Platforms like Moniepoint Business and Fundit Africa are also testing SME financing models that rely on transaction data rather than collateral.
Although these options are still small-scale, they represent a shift toward data-driven, inclusive finance that could redefine factory funding in the coming years.
Exchange Rate and Energy Costs: Twin Pressures
Even if interest rates fell tomorrow, two structural barriers would continue to weigh on manufacturers — foreign exchange volatility and energy prices.
Imported raw materials, spare parts, and machinery depend on access to the dollar, euro, or yuan. Since the 2024 currency reforms, the naira’s sharp depreciation has raised import costs by over 40 percent, wiping out the benefits of any temporary credit relief.
Energy costs tell a similar story. Diesel prices hover around ₦1,400 per litre, and power supply remains inconsistent. Many factories now run generators for 12 to 18 hours daily, consuming fuel that accounts for 30–40 percent of operating costs.
“It’s not just high interest that’s killing us,” said a plastic-bag producer in Ogun State. “It’s everything — from the dollar to diesel. Credit is expensive, but survival is even more expensive.”
Analysts’ Consensus: A Three-Pillar Reform
Experts across the banking and industrial sectors have begun converging around a three-pillar reform model for Nigeria’s industrial revival:
- Targeted Credit Support:
The CBN should develop sector-specific windows offering single-digit loans to manufacturers that can show measurable job creation or export potential.
This model mirrors the Egyptian Industrial Modernisation Fund, which revived hundreds of idle factories between 2016 and 2020. - Infrastructure and Energy Fix:
Without reliable power and logistics, cheap credit alone won’t deliver competitiveness. Public-private partnerships in industrial parks and gas distribution must accelerate. - Exchange Rate Stability:
A more predictable FX regime would reduce import uncertainty and enable long-term investment planning.
When combined, these measures could reduce production costs by up to 25 percent within three years, according to estimates from PwC Nigeria.
The Road to Self-Reliance
For Nigeria’s industrial policy to succeed, it must go beyond funding — it must create an environment where manufacturing is profitable again. That means coherent trade policies, transparent tax regimes, and infrastructure that supports rather than punishes production.
Today, imported goods still dominate Nigerian shelves because they are often cheaper than locally produced alternatives. This paradox reflects an economy where policy misalignment — not lack of entrepreneurial spirit — is the real obstacle.
The manufacturing sector’s revival will depend on restoring confidence. Investors need assurance that policies won’t change abruptly, that the naira won’t crash every quarter, and that the banking sector won’t prioritise quick returns over long-term growth.
Signs of Hope: Local Substitution and Regional Markets
Despite the challenges, there are early signs of adaptation. Some industries — notably agro-processing, pharmaceuticals, and construction materials — are retooling to reduce dependence on imports.
Nigerian firms like Dangote Cement, BUA Foods, and Fidson Healthcare have shown that local production can thrive under the right scale and strategy. Smaller firms are learning from these models, exploring partnerships and backward integration to source inputs locally.
Regional trade agreements such as the African Continental Free Trade Area (AfCFTA) also provide an avenue for expansion. If credit access improves, Nigeria could become a regional hub for value-added exports rather than raw material exports.
Conclusion: The Cost of Waiting
Every month of delayed industrial reform costs Nigeria jobs, tax revenue, and global competitiveness.
Pricey credit has frozen factory floors, but inaction could turn that freeze into permanent deindustrialisation.
The solution is not complex: make credit affordable, stabilise the currency, and fix the energy system.
Without these, Nigeria will continue to import what it could have produced — and export jobs it could have created.
Manufacturing remains the surest path to inclusive growth. As one business owner told Biznalytiq:
“We don’t need free money; we need fair credit. Give us that, and we’ll build the economy ourselves.”
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