Manufacturers’ loan costs jump 53% as credit falls

Nigerian manufacturers faced a 53 per cent increase in the average cost of bank credit between 2020 and 2025, underscoring the growing financial pressure on 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 difference represents an 11.2 percentage-point increase in five years, despite a moderation in borrowing costs last year.

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

The 2025 figure was 3.4 percentage points lower than the 35.6 per cent average recorded in 2024, suggesting some easing in financing conditions. However, borrowing costs remained substantially above the level prevailing five years earlier.

The figures highlight the longer-term escalation in the cost of financing production in Nigeria, with the improvement recorded in 2025 doing little to reverse the increase accumulated over the preceding years.

“A borrowing rate above 30 percent can also alter the economics of new investment. Businesses considering factory expansion, additional production lines or equipment upgrades must factor the financing cost into projected returns, potentially affecting the timing and scale of such investments,” said a financial analyst and emerging markets expert, Ike Ibeabuchi.

The cost of credit is particularly important for manufacturers because bank financing is often used not only for long-term investment but also for working capital.

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Manufacturers require funds to purchase raw materials, maintain inventories, pay workers and suppliers, and bridge the gap between production and the collection of sales proceeds.

As a result, high interest rates can increase the cost of maintaining day-to-day operations even when companies are not borrowing specifically to finance new projects.

Meanwhile, MAN said that commercial bank credit allocation to manufacturing contracted by N1.92tn from N8.53tn in December 2024 to N6.61tn in December 2025.

This represents a significant year-on-year contraction of -22.5 per cent, which is particularly disturbing, given that manufacturing recorded one of the largest credit contractions among the top sectors, surpassed only by the General Services sector at -25 per cent.

Director-General of MAN, Segun Ajayi-Kadir, said this steep decline leaves manufacturing lagging far behind the extractive Oil & Gas Industry’s N10.59tn and a booming Finance Sector’s N9.24tn, demonstrating a systemic preference for speculative and rent-seeking activities over tangible productivity.

“Clearly, the Nigerian manufacturing sector cannot thrive without sustainable and growing financial foundations. The reduction in credit access could further limit capacity utilization, stall technological upgrades and hinder job creation. For the wider economy, reducing financial support to manufacturing could slow down vital diversification efforts, leaving the nation more vulnerable to external commodity shocks and supply-driven inflation,” he added.