Nigerian manufacturers have faced a significant increase in borrowing costs over the past five years, with the average interest rate on loans rising to 32.2% in 2025 from 21% in 2020. This represents a 53% increase, according to data from the Manufacturers Association of Nigeria. The rise in borrowing costs has been attributed to various factors, including the country's economic conditions and the banking sector's lending policies.
The average lending rate for manufacturers stood at 32.5% in the first half of 2025, before declining to 31.8% in the second half, resulting in a full-year average of 32.2%. Although this figure is 3.4 percentage points lower than the 35.6% average recorded in 2024, it remains substantially higher than the 21% average in 2020. The high borrowing costs have significant implications for manufacturers, who rely heavily on bank financing for working capital and long-term investments.
According to Ike Ibeabuchi, a financial analyst and emerging markets expert, borrowing rates above 30% can alter the economics of new investments, potentially affecting the timing and scale of projects such as factory expansions, additional production lines, or equipment upgrades. 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.
The cost of credit is particularly important for manufacturers, as it can increase the cost of maintaining day-to-day operations, even when companies are not borrowing specifically to finance new projects. The Manufacturers Association of Nigeria has expressed concerns about the decline in commercial bank credit allocation to the manufacturing sector, which 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%, with manufacturing recording one of the largest credit contractions among the top sectors. The Director-General of MAN, Segun Ajayi-Kadir, has stated that 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.
Ajayi-Kadir has also expressed concerns that 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.
The decline in credit allocation to the manufacturing sector has significant implications for the Nigerian economy, which relies heavily on the sector to drive growth and development. As the sector continues to face challenges, stakeholders are calling for urgent action to address the issues and provide sustainable financial foundations for manufacturers to thrive.
Key points
- Nigerian manufacturers face a 53% increase in loan costs as credit shrinks.
- The average lending rate for manufacturers stood at 32.2% in 2025.
- Credit allocation to the manufacturing sector contracted by 22.5% year-on-year.
