Crisis in Real sector: Capacity utilization drops as govt borrowing crowd out business 

  Stakeholders warn of higher prices, weaker output and job losses 

By AYOOLA OLAOLUWA  

Nigeria’s manufacturing sector is facing fresh turbulence after bank credit to manufacturers plunged by nearly 23 per cent within a year, raising fears of deeper production cuts, factory shutdowns and job losses.  

Latest figures show lending to the sector dropped from N8.53 trillion in December 2024 to N6.61 trillion at the end of 2025, leaving manufacturers struggling to finance operations amid soaring production costs.

This comes as government borrowing accounted for the bulk of credit expansion in the past year, with new Central Bank of Nigeria (CBN) data showing that lending to the public sector grew nearly six times faster than credit to businesses.

According to latest monetary statistics sighted by Business Hallmark, government credit rose to N40.38 trillion in May 2026 from N22.99 trillion in the corresponding period of 2025, representing an increase of N17.39 trillion or 75.6 per cent.

By comparison, credit to the private sector increased by N3.07 trillion over the same period, rising from N77.97 trillion in May 2025 to N81.04 trillion in May 2026, a growth rate of 3.9 per cent.

The accelerated growth of credit to the government pushed the net domestic credit up by over 20 per cent year-on-year. In May 2025, the net domestic credit stood at N100.96 trillion, a figure that moved to N121.42 trillion last month.

The figures suggest that while lending activity remained positive across the economy, the strongest expansion in credit occurred in financing government obligations rather than businesses and households.

The data also showed that government credit increased by N779.7 billion between April and May 2026, rising from N39.6 trillion to N40.38 trillion.

Private-sector credit grew by N456.21 billion during the same period, increasing from N80.59 trillion to N81.04 trillion.

Although private-sector credit remained more than twice the size of government credit, its growth pace lagged behind that of public-sector borrowing.

In May, private-sector credit was about 2.01 times the level of government credit, but expanded by only 0.57 per cent month-on-month compared with the two per cent increase recorded for government lending.

The development comes despite the CBN’s continued efforts to maintain tight financial conditions to keep inflation under check.

Overall, the figures point to continued expansion in credit across the financial system, but with lending to government growing at a significantly faster pace than credit extended to the productive sectors of the economy.

The CBN has yet to provide a sectoral breakdown showing how the N81.04 trillion was distributed across the economy in May.

While the latest figures indicate that banks continued to extend credit to businesses despite elevated borrowing costs, they also show that public-sector borrowing remained a major driver of credit growth.

Speaking on the development, the Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, said the steep decline leaves the manufacturing sector lagging far behind the oil and gas industry’s N10.59 trillion credit stock and the finance sector’s N9.24 trillion.

According to the MAN DG, the trend demonstrates a systemic preference for speculative and rent-seeking activities over the real sector.

He noted that in comparison, India’s bank credit to industry grew by 9.6 per cent while Vietnam projected a 20 per cent credit growth target for the sector to intentionally fuel its processing and manufacturing engines.

He also maintained that the reduction in credit access would limit capacity utilisation, stall technological upgrades and hinder job creation.

“For the wider economy, reducing financial support to manufacturing could slow vital diversification efforts, leaving the country more vulnerable to external commodity shocks and supply-driven inflation”, he said.

Lamenting the high borrowing costs, Ajayi-Kadir warned that manufacturers are being priced out of access to credit as lending rates have crossed 35 per cent.

Maintaining that the current funding framework should not be allowed to continue, the DG called for a further reduction of the benchmark interest rate by at least 200 basis points over the next two quarters to improve credit affordability to manufacturers.

“While the apex bank trimmed the monetary policy rate (MPR) to 26.5 per cent to signal disinflation, manufacturers’ costs of borrowing remained exploitatively high at an average of 27 per cent prime lending rates and 35.6 per cent maximum lending rates in major commercial banks. This creates an environment where borrowing for manufacturing is financially unviable”, he regretted.

Ajayi-Kadir decried the continued non-implementation of the N1 trillion Manufacturing Stabilisation Fund under the Federal Government’s Accelerated Stabilisation and Advancement Plan (ASAP), saying the sector has waited for the funds to ameliorate the credit crunch in the sector and cushion the impact of currency devaluation and astronomical energy costs.

“The delay is worrisome. It has left us navigating over 30 per cent interest rates without the promised fiscal cushion. As factories continue to scale down operations or exit the business altogether, the gap between policy promises and the actual disbursement is symptomatic of an implementation deficit that continues to stifle Nigeria’s industrial potential”.