Nigerian manufacturers are facing an intensifying energy-cost crisis as spending on diesel and other alternative power sources now accounts for more than half of production costs, putting further pressure on profitability, competitiveness and business survival.
The latest increase in diesel prices to about N2,100 per litre in Lagos and Ogun states, from between N1,700 and N1,800 just days earlier, has worsened the burden on manufacturers that depend heavily on diesel-powered generators because of unreliable electricity supply from the national grid.
The Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, said production costs in the sector had risen by more than 400 per cent, while power-related expenses that previously accounted for about 40 per cent of operating costs had now exceeded 50 per cent.
Diesel sold for about N1,200 per litre in Lagos and Ogun in February, meaning prices have risen by roughly 75 per cent since then amid disruptions in global energy markets linked to the Iranian conflict and changes to the pricing methodology of Dangote Petroleum Refinery.
The escalating energy costs have weakened the ability of Nigerian manufacturers to compete with foreign producers, both in the domestic market and under the African Continental Free Trade Area (AfCFTA).
Data showed that manufacturers’ spending on alternative energy rose from N782 billion in 2023 to N1.1 trillion in 2024 and N1.34 trillion in 2025.
According to MAN, expenditure in the first half of 2026 alone had already reached the same level recorded throughout 2025, highlighting the growing cost of keeping factories operational.
Ajayi-Kadir said manufacturers were now dealing with a combination of rising production costs and growing inventories, threatening the sector’s target of 3.1 per cent real growth in 2026.
Manufacturing GDP growth stood at 1.13 per cent year-on-year in the fourth quarter of 2025, with sectors including pharmaceuticals, metals and food processing among those affected by the difficult operating environment.
The latest diesel price surge has raised fears that more companies could be forced to reduce production hours, lay off workers or shut down entirely.
The Executive Director of Universal Luggage Ltd, Frank Onyebu, said his company had progressively reduced its production shifts because of the rising cost of running generators.
“We used to run three production shifts. As operating costs went up, the shifts reduced to two, then one, and now every other day. The generators run only for a limited time, when we have orders to supply. Is this how to run manufacturing? Is this how our counterparts in other climes produce?” he asked.
The Head of the Energy Sector at MAN, Ibrahim Usman, described the rising cost of energy as the biggest threat to the survival and competitiveness of Nigerian manufacturers.
He said power accounted for more than 45 per cent of production costs in Nigeria, compared with about 10 per cent in many other countries.
“There is no way we can be competitive, especially as we are ramping up efforts to export under the AfCFTA. How can we compete with regional and international players that use far cheaper electricity?” Usman asked.
He said the situation was particularly troubling because Nigeria is an oil-producing country with increased refining capacity.
“Even when crude prices went down all over the world, our diesel prices remained high. This is killing businesses, industry and manufacturers,” he said.
Usman called for urgent government intervention to reduce diesel costs for manufacturers, promote renewable energy and accelerate investments in large-scale power generation.
He advocated the development of solar farms, particularly in northern Nigeria, as well as greater investment in hydropower projects.
According to him, the Zungeru hydropower project has the capacity to provide about 700MW for Kaduna and Kano states but remains underutilised because of transmission limitations and inadequate investment.
He called for modern transmission infrastructure linking Zungeru, Kaduna and Kano to improve electricity supply to industrial centres.
Meanwhile, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Almona, said the diesel crisis was weakening Nigeria’s industrial base.
Almona said diesel, which is critical to factories, cold-chain operators and small businesses, was now above N2,000 per litre, more than twice its pre-crisis price of about N900.
“For manufacturers and MSMEs that have no access to the national grid and run entirely on generators, this is not a background cost; it is their single largest operating expense,” she said.
She warned that businesses operating on thin profit margins were increasingly being forced to either transfer the additional costs to consumers or reduce their operations.
Almona called for a time-bound diesel duty waiver for verified manufacturers and industrial MSMEs, while urging the government to accelerate the conversion of industrial clusters to compressed natural gas (CNG).
She also advocated liberalising AGO import licensing to increase competition and ease supply pressures.
The National President of the Association of Small Business Owners of Nigeria (ASBON), Dr Femi Egbesola, said the diesel crisis was having a wider impact across the economy.
He said the rising cost of diesel was pushing up operating expenses for manufacturers and small businesses, resulting in higher product prices, reduced profit margins, lower production capacity, layoffs and business closures.
The rising cost of petrol has also added to the pressure on households and businesses.
Petrol prices in many filling stations across Lagos and Ogun had risen to between N1,300 and N1,370 per litre, from about N1,200 to N1,220 previously.
The latest increase has been attributed to higher crude oil prices and rising wholesale and logistics costs, with Brent crude reportedly reaching about $97 per barrel amid renewed tensions in the Middle East and concerns over possible disruptions to global oil supplies.
While motorists can reduce fuel consumption by limiting the use of private vehicles, manufacturers have fewer options because shutting down generators often means halting production altogether.
