The Director General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, has recently highlighted the significant burden that the high cost of production places on local manufacturers, urging the public not to blame them for the rising prices of their products.
Key among these costs is the price of diesel, which has been a major factor affecting production costs and profitability.
However, a potential turning point has emerged with Dangote Refinery’s recent decision to reduce the price of diesel by 29.4 percent.
The refinery now offers diesel at N1,200 per litre, down from the previous rate of N1,700. This price cut is expected to provide some respite to manufacturers who have been grappling with soaring operational costs due to energy expenses.
Ajayi-Kadir emphasized that diesel costs alone were previously consuming up to 80 percent of the profit margins for many manufacturers. “Do you know that diesel is taking 80 per cent profit of surviving manufacturing firms in Nigeria currently at the rate of about N1,700?” he asked, illustrating the dire situation faced by the industry.
The impact of high diesel prices extends beyond manufacturing, influencing the overall economy and contributing to inflationary pressures. As the cost of production rises, manufacturers have little choice but to increase the prices of their goods, thereby passing on the burden to consumers.
In addition to the challenges posed by high energy costs, manufacturers in Nigeria are also dealing with new hurdles such as changes in the Customs exchange rate, increased interest rates, foreign exchange scarcity, and regulatory changes like the NAFDAC ban.
The initiative by Dangote Refinery, led by President Aliko Dangote, is a welcome development for the manufacturing sector. Dangote himself noted the broader economic benefits of the diesel price reduction, stating, “Now, in our refinery, we started selling diesel at about N1,200 instead of N1,700 and I’m sure as we go along, things will continue to improve quite a lot.”
This strategic move by the refinery is expected to ease some of the cost pressures on manufacturers, potentially stabilizing prices and mitigating the inflationary trend affecting locally produced goods like flour. As the manufacturing sector awaits broader structural reforms, the reduction in diesel prices by Dangote Refinery stands as a critical relief effort, promising to bolster production capacity and economic stability in Nigeria.
