Nigeria’s raw material sector strongly influences Nigeria’s economic fortunes, contributing significantly to the success of many industries such as food and beverages, textile, pharmaceutical, biofuel, construction, steel and iron manufacturing, ceramics and glass, electronics, jewellery, power generation, petrochemical, automotive, transportation, manufacturing and cosmetics industries that are dependent on agriculture, solid minerals, and energy resources. Unfortunately, there is poor optimization of this vast natural wealth due to inefficiencies in raw material transportation from extraction to end-users, which should support industrial growth, boost export earnings, and foster overall economic stability. Despite marginal improvements, Nigeria’s 54% share of locally sourced raw material falls far below many progressive peers. South Africa’s manufacturing sector has a higher local sourcing capability, often exceeding 70% in specific industries. India has 80% local sourcing rates, particularly in textiles and pharmaceuticals. For Kenya, Egypt, and Ghana, it is approximately 60-70%, 65%, and 55-60% respectively.
Unarguably, there are some positive improvements, but they are slow-paced. In June 2023, Nigeria’s manufacturing capacity utilization was below the 2019 pre-pandemic levels of 60.7%. According to the Manufacturer’s Association of Nigeria (MAN), local raw materials sourcing averaged around 53.5% in 2023, up from 52.8% in 2022 and 51.5% in 2021. Still, the manufacturing sector’s substantial import dependence is a primary concern, accounting for about 30% of Nigeria’s import bill. Several factors, including high energy costs, inflationary pressures, and ongoing foreign exchange shortages, account for this below-the-par position. However, by implementing strategies to diversify suppliers, build strong relationships with suppliers, and invest in infrastructure, businesses can reduce the impact of supply chain disruptions and increase their reliance on domestic raw materials.
Infrastructure is the backbone of any efficient supply chain. In Nigeria, inadequate transportation networks, storage facilities, and energy supply have significantly hindered the efficient movement of raw materials. Nigeria’s essential infrastructure stock, approximately 20-25% of GDP, is substantially lower than the international benchmark of 70% for competitive economies. This results in severe inefficiencies in service delivery across transportation, energy, and water supply sectors. According to the World Bank, Nigeria’s infrastructure deficit costs the country approximately 2% of its GDP annually. Poor road networks, congested ports, and unreliable power supply contribute to delays, increased costs, and the loss of raw materials during transit. For instance, the inefficiency at Apapa Port in Lagos, which handles about 70% of Nigeria’s imports and exports, is a significant bottleneck for raw material supply chains.
Poor infrastructure leads to increased operational costs for manufacturers, who often resort to expensive private alternatives, such as generators for power, which can account for up to 40% of production costs. Additionally, inadequate transport infrastructure causes logistical challenges, leading to post-harvest losses of up to 40% in agricultural products, further exacerbating the scarcity of locally sourced raw materials.
The Renewed Hope Infrastructure Development Fund (RHIDF), which aims to mobilize an initial N20 trillion (approximately $14.5 billion) for critical capital projects, offers a significant window of hope in this respect. By its design, the Fund is to bypass bureaucratic delays associated with traditional budgetary processes, enabling faster execution of infrastructure projects across various sectors, including roads, railways, agriculture, and energy. The president plans to deploy up to $35 billion annually until 2040 to close an estimated $878 billion infrastructure gap, significantly enhancing economic growth and improving the quality of life for Nigerians. Key projects include the Lagos-Calabar Coastal Highway, the Sokoto-Badagry Highway, and modernizing ports and aviation facilities.
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Additionally, a clear and consistent regulatory framework is another essential factor for enhancing raw material market supply chains. Bureaucratic inefficiencies, unclear policies, and overlapping regulations often hamper Nigeria’s raw material sector. The World Bank has noted that regulatory inefficiencies can increase business costs by up to 30% as companies invest in compliance measures that may not yield clear benefits due to the lack of a stable regulatory environment. A good case is the detrimental impacts on agricultural supply chains. Farmers and suppliers often navigate a patchwork of regulations that can change without notice, affecting everything from food safety standards to transportation requirements. This inconsistency can lead to significant post-harvest losses, estimated at 40% for some crops, as producers struggle to meet varying compliance standards.
Among others, four essential steps are critical to enhancing Nigeria’s regulatory environment and improving raw material market supply chains. First, there is a need for doubled efforts to streamline customs and import/export processes, combat corruption, and invest in efficient supply chain management technology. The second is infrastructure development, which includes improving road networks, expanding storage facilities, and upgrading ports. Third, fostering collaboration between the government and businesses through public-private partnerships and workforce training. Lastly, regional cooperation, including harmonizing regulations with neighbouring countries, can facilitate the seamless movement of goods.
By rejigging the framework and strengthening the capabilities of the Presidential Enabling Business Environment Council (PEBEC) set up in 2016 through the 90-Day Regulatory Reform Accelerator Program, the Renewed Hope focus of our dear President Tinubu can drive a comprehensive regulatory reform agenda that enhances Nigeria’s competitiveness, attract investments, and foster sustainable economic growth. The 90-Day Regulatory Reform Accelerator Program focuses on improving Nigeria’s business environment through targeted reforms in critical areas. Key features of the program include the review and update of service-level agreements for Ministries, Departments, and Agencies (MDAs) aimed at improving transparency and efficiency. It also addresses entry and exit reforms at airports, enhances port operations for better cargo handling, and promotes agro-export and manufacturing for export to boost Nigeria’s competitiveness. Several sources report that PEBEC has established performance-tracking mechanisms to ensure accountability, including fortnightly meetings and a planned town hall to discuss progress and gather stakeholder feedback.
Access to affordable financing is also another critical area of concern for stakeholders in the raw material supply chain. Many small and medium-sized enterprises (SMEs) in the raw material sector face difficulties securing financing due to high interest rates and stringent collateral requirements. The immediate implication is expanded raw material supply deficits. In 2022, Nigeria spent approximately ₦2.4 trillion on importing raw materials while only exporting about ₦1trillion, resulting in a deficit of ₦1.4 trillion. This financial strain emphasizes the need for improved credit facilities for local producers and processors, enabling them to invest in technology and capacity building.
Strengthening SME-focused financial institutions, such as the Bank of Industry (BOI) and other microfinance institutions, may go a long way in resolving this constraint. By increasing their capital base and reach, these institutions can enhance the accessibility of affordable financing. Additionally, promoting alternative financing models like crowdfunding, peer-to-peer lending, and venture capital can provide SMEs with the necessary capital without the stringent requirements of traditional bank loans. Improving financial literacy among SME owners while further exposing them to leveraging technology can help reduce operational costs. A robust credit information system remains crucial for improving access to financing, as it allows financial institutions to assess SMEs’ creditworthiness better. Finally, encouraging public-private partnerships can leverage additional resources and expertise to develop tailored financing solutions.
Furthermore, integrating advanced technologies into Nigeria’s raw material supply chains can enhance transparency, reduce losses, and optimize processes. Technologies such as blockchain, the Internet of Things (IoT), and data analytics are very helpful in tracking and monitoring raw materials from extraction to final delivery, ensuring their efficient and secure handling. For instance, blockchain technology can provide a transparent and tamper-proof ledger of transactions, helping to reduce corruption and ensure that all stakeholders in the supply chain receive fair compensation. In agriculture, IoT devices can monitor soil conditions, weather patterns, and crop health, enabling farmers to make data-driven decisions that increase yield and reduce waste. Unofficial estimates show that adopting IoT in agriculture could boost Nigeria’s agricultural output by 20% by 2025.
Again, in Nigeria, many workers in the raw material sector lack the necessary training and expertise to operate efficiently, leading to inefficiencies and losses. The manufacturing sector’s dependency on imported materials reflects a lack of local expertise in processing and production. A comprehensive approach is required to effectively build the capacity of personnel involved in Nigeria’s raw material supply chain. The first is implementing targeted training programs focusing on modern processing technologies, quality control, and supply chain management. Second, collaborating with educational institutions to enhance curricula with practical skills related to raw materials processing can ensure a skilled workforce. Also, establishing partnerships with industry stakeholders can facilitate knowledge transfer and adoption of technology, as well as regular workshops and seminars.
To enhance market supply chains, government agencies, private sector players, and local communities must work together as stakeholders to address challenges and seize opportunities. An excellent example of such stakeholder collaboration is the partnership between MAN and the Raw Materials Research and Development Council (RMRDC). This collaboration highlights the importance of working together to promote local sourcing and innovation in raw material processing. Other good examples include public-private partnerships (PPPs), which can be a great lever to fund infrastructure projects. At the same time, community engagement can ensure local needs satisfaction and conflict avoidance. The Nigerian Extractive Industries Transparency Initiative (NEITI) is an example of a multi-stakeholder platform that promotes transparency and accountability in the extractive sector. By fostering collaboration, Nigeria can create a more resilient and efficient raw material supply chain that benefits all stakeholders.
Finally, enhancing market supply chains in Nigeria’s raw material sector is essential for unlocking the country’s full economic potential. Nigeria can create a more efficient and competitive raw material sector by addressing key factors such as infrastructure development, regulatory framework, access to finance, technological integration, capacity building, and stakeholder collaboration. These initiatives will boost industrial growth and export earnings and contribute to the country’s economic stability and prosperity. The time to act is now, and with concerted efforts from all stakeholders, Nigeria can achieve its goal of becoming a leading player in the global raw material market.
