Dangote, BUA, Flour Mills raise investments by 30% on opportunities

Leading manufacturers in Nigeria, including Dangote Group, BUA Group, and Flour Mills of Nigeria, raised their investments by nearly 30% in the first half of 2024. The Manufacturers Association of Nigeria (MAN) reported that investment in the sector reached approximately N250.13 billion, a 29.63% increase compared to H1 2023. This investment boost reflects efforts by these companies to navigate an economy impacted by rising costs, currency devaluation, and operational challenges. However, MAN noted that much of this increase is attributed to the inflated costs of imported machinery due to the naira’s depreciation, rather than actual growth in production capacity.

In 2023, manufacturers had increased their fixed asset investments—plants, machinery, and buildings—by 32%, showing cautious optimism for economic recovery. Yet, the real value of these investments was weakened by inflation and currency devaluation, especially after the exchange rate float of 2023. The food, beverage, and tobacco sector led this increase, with investments rising by 57%, followed by chemical and pharmaceutical, and vehicle assembly sectors.

Since 2014, overall manufacturing investment has dropped by 38.2%, illustrating a prolonged decline over the last decade. Although companies like Emzor and BUA Cement continue to make large-scale investments, the sector faces persistent challenges, including foreign exchange shortages, high energy costs, and an unstable policy environment, which complicates their operations.
Source- Business Day

Expert Analysis for Agri-Food Stakeholders
The sustained investment in Nigeria’s manufacturing sector—despite difficult economic conditions—has important implications for the agribusiness landscape. With the food, beverage, and tobacco sectors showing significant growth, agribusiness stakeholders can expect increased demand for agricultural products used in food processing. However, currency depreciation and inflation pose potential challenges for local producers, as input costs rise, and consumer purchasing power weakens.

Key Considerations for Agri-Food Stakeholders:

Supply Chain Pressure: With rising costs of imported raw materials and machinery, there may be increased reliance on locally sourced agricultural products, creating new opportunities for domestic producers. This could prompt agribusinesses to explore partnerships with manufacturers to stabilize and enhance supply chains.

Currency and Inflation Challenges: The devaluation of the naira affects all industries, especially those dependent on imports. For agribusinesses, this could mean higher costs for agro-chemicals, seeds, and machinery, potentially leading to increased end-product prices. Strategic planning and exploring local alternatives might mitigate these effects.

Energy and Interest Rate Concerns: High energy costs continue to burden manufacturers, and the agriculture sector could face similar pressures in processing and distribution. With interest rates at historical highs, financing for expansion or technological upgrades may be costly, prompting a need for innovative funding solutions, perhaps through cooperative financing or government-backed incentives.

Policy Advocacy: Given the instability in forex availability and government policy, there is a pressing need for agribusiness stakeholders to advocate for more consistent policies that support both agricultural production and agro-processing.

In summary, while the increase in manufacturing investment signals a cautious confidence in Nigeria’s economic potential, the agribusiness sector must prepare for both the opportunities and hurdles posed by a fluctuating economy. Sustainable growth in the sector will depend on adaptive strategies and proactive measures to manage costs and leverage local supply networks.