MANUFACTURERS’ LOAN COSTS JUMP 53% AS CREDIT FALLS

Nigerian manufacturers experienced a 53 per cent increase in the average cost of bank credit between 2020 and 2025, adding to the financial pressure facing businesses seeking funds for production and expansion.

Data from the Manufacturers Association of Nigeria showed that manufacturers paid an average interest rate of 32.2 per cent on borrowed funds in 2025, compared with 21 per cent in 2020.

The figures represent an 11.2 percentage-point increase over five years, despite some moderation in borrowing costs recorded in 2025.

Manufacturers’ average lending rate stood at 32.5 per cent during the first half of 2025 before falling to 31.8 per cent in the second half, resulting in a full-year average of 32.2 per cent.

The 2025 average was 3.4 percentage points lower than the 35.6 per cent recorded in 2024, indicating some improvement in financing conditions.

However, borrowing costs remained significantly higher than the level recorded five years earlier, showing the longer-term rise in the cost of financing manufacturing activities.

Financial analyst and emerging markets expert, Ike Ibeabuchi, said borrowing rates above 30 per cent could affect decisions on new investments.

He explained that companies planning factory expansions, additional production lines or equipment upgrades would have to factor high financing costs into their expected returns, potentially affecting the timing and size of such investments.

High borrowing costs are particularly important to manufacturers because bank credit is used not only for long-term investments but also to finance working capital.

Manufacturers rely on such funding to purchase raw materials, maintain inventories, pay workers and suppliers, and manage the period between production and receiving payments from customers.

Consequently, high interest rates can increase the cost of everyday operations even when businesses are not borrowing specifically for expansion.

Meanwhile, MAN reported that commercial bank credit to the manufacturing sector fell by N1.92tn, from N8.53tn in December 2024 to N6.61tn in December 2025.

The decline represents a 22.5 per cent year-on-year contraction in credit allocation to the sector.

MAN said manufacturing recorded one of the largest contractions among the major sectors, surpassed only by the General Services sector, which recorded a 25 per cent decline.

The Director-General of MAN, Segun Ajayi-Kadir, said the reduction in credit had left the manufacturing sector behind the Oil and Gas industry, which received N10.59tn, and the Finance sector, which recorded N9.24tn in credit.

According to him, the figures indicate a financing pattern that gives greater preference to activities outside tangible manufacturing production.

Ajayi-Kadir said the manufacturing sector could not grow sustainably without stronger and more consistent financial support.

He warned that declining access to credit could reduce capacity utilisation, delay technological upgrades and limit job creation.

He added that weaker financial support for manufacturers could also slow Nigeria’s economic diversification efforts and increase the country’s exposure to external commodity shocks and supply-driven inflation.