Manufacturing Amidst Global Economic Disruptions

As the ongoing United States of America and Israel’s combined military operation in Iran is disrupting global shipping and crude oil supply, Nigeria’s manufacturing sector is once again exposed to the vagaries of tempestuous global supply chain, writes Dike Onwuamaeze

The global economy is experiencing the third wave of disruptions in six year. The first was the COVID-19 pandemic that paralysed the entire world economy following a luckdown to contain its spread. The second was in 2022 when the outbreak of the Russia War in Ukraine caused significant supply chain disruption in the commodity market, especially gas and wheat.

Now the global economy is reeling under the strain of the ongoing United States of America (USA) and Israel’s combined military assults on Iran, which is tagged “Operation Epic Fury” and “The Lion Roars” by the USA and Israel respectively.

However, Iran’s response to the bombardment of its oil and defence infrastructures and calculated eliminations of its political and military leaders, which included the blockage of the Strait of Hormuz and targeting of crude oil and petroleum facilities in Arab countries like Saudi Arabia, United Arab Emirate, Kuwati, etc.  is taking tool on global commerce and supply of crude oil and refined petroleum products.

The effects of the Iran’s response has spiraled the price of crude oil to $120 as at Friday and has caused shortage in the supply of fertilizer products and the raw materials required for its production. Iran threat to bomb any ship sailing across the Strait of Harmuz has forced major insurance companies to withdraw their covers ob ships sail along that route.

All these developments are having telling impacts on the Nigerian economy, especially its industrial sector which is bearing the brunt of higher energy costs and the agricultural sector that may be deprieved of fertilizer input during this crucial crop planting period.

Economists have warned that these developments would increase the costs of doing business, revive the declining inflationary pressure, accentuating low food production and high food prices, which might undermine the current macroeconomic gains being recorded by the Nigerian economy.

Professor of Economics and former member of the Monetary Policy Committee of the Central Bank of Nigeria, Professor Mike Idi Obadan, said: “Already, through very high energy costs, manufacturers are under serious cost pressures. Cost of production has risen sharply through high increased prices of diesel, petrol, and aviation fuel.

“The energy price stabilising force of the Dangote Refinery has now been disrupted with petrol price per litre rising from about N830.00 pre-US-Iran war to the present N1,300 and above depending on the location. Diesel price per litre has similarly risen from about N950.00 to 1,650.00.

“These rising prices of energy and imported input costs have adversely affected production and productivity in production enterprises, especially manufacturers.”

Speaking in the same vien, the Director General of NECA, Mr. Adewale-Smatt Oyerinde, noted that the war in Iran is driving up international crude oil prices and pushing up domestic energy costs, thereby placing pressure on businesses, especially firms in manufacturing, agriculture and logistics and eroding the purchasing power of citizens.

Oyerinde stressed that energy costs sit at the heart of Nigeria’s economy as energy is the engine of production and distribution.

He said: “Once fuel prices rise, the effects are immediate and widespread, transport costs increase, food prices rise, and the overall cost of doing business escalates.”

He stressed that businesses, particularly in manufacturing, agriculture, and logistics, are already under significant pressure.

“For many firms that rely on diesel for operations, current price levels are becoming increasingly difficult to sustain. Profit margins are shrinking, and businesses are being forced to either pass on costs or scale down operations.  

“This situation is not only driven by external factors, it is also reflecting ongoing constraints within the energy value chain, including supply inefficiencies and infrastructure limitations,” he said.

He warned that without urgent intervention the situation could escalate. “If this trend continues unchecked, we risk business closures, job losses, and a deeper cost-of-living crisis.”

Oyerinde therefore called for immediate action by the government to stabilise the downstream sector and support vulnerable industries.

He said: “Government must act swiftly to ease supply constraints, stabilise prices, and provide targeted relief for critical sectors.” According to him, “Nigeria’s resilience will not be determined by oil prices, but by how effectively we manage them. This is a moment to strengthen institutions, improve transparency, and invest in sustainable energy solutions.”

He cautioned that if properly managed, this could strengthen our economy adding that, “if not, the gains from rising oil prices will be completely eroded by inflation and economic hardship.”

For the Chief Executive Officer of Centre for the Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf, the operating environment would be extremely challenging for businesses, especially the Small and Medium Enterprises (SMEs) as energy, logistics and raw material costs are elevated, while weak consumer demand limits pricing flexibility.

The result, according to Yusuf, is a tightening squeeze on margins, declining profitability and rising business vulnerability, particularly in consumer-facing sectors.  

He said that the transmission channels are direct and profound as rising global oil prices are already feeding into the Nigerin economy via higher petrol and diesel prices, increasing transportation and logistics costs, rising production costs across sectors, renewed exchange rate pressures and escalating food prices driven by input and distribution costs.

Yusuf stated that Nigeria’s exposure to energy-driven inflation is intensified by structural weaknesses in the domestic economy. “The heavy reliance on petrol and diesel for power generation, due to unreliable electricity supply, creates a strong and immediate pass-through from global oil prices to domestic inflation.

“Estimates indicated that unreliable electricity imposes annual economic losses of between N7 trillion and N10 trillion, while spending on generators exceeds N3.7 trillion annually.

“This structural dependence means that energy price shocks quickly translate into higher production costs, transport costs and general price levels across the economy,” Yusuf said.

There are also fears that the blockage of the Starit of Hormuz would impat negatively on local production of urea fertilizer and the importation of NPK fertilizer.

A Senior Lecturer, Department of Agricultural Economics, University of Nigeria, Nsukka, Dr. Chris Onyekwe,   pointed out that Iran’s defensive strategy through the closure of Strait of Hormuz has far-reaching consequences that are well beyond crude oil prices.

Onyekwe stated that it also has consequences for crop production, fertiliser availability, food inflation, and national food security.

He added, “My personal view and contention are that fertiliser is one of the foremost critical inputs in Nigeria’s crop production system. The interruption of fertiliser shipments during the planting season could have several serious consequences.

“Firstly, crop yields would likely decline significantly for the next two seasons because Nigerian soils are generally nutrient-depleted due to continuous cultivation and limited soil management practices.

“Without adequate fertiliser application, farmers cultivating staple crops such as maize, rice, sorghum, cassava, and vegetables may experience yield reductions ranging from 20 to 50 per cent depending on the crop and region.

“Secondly, reduced yields would translate into reduced supply in the domestic markets, which will in turn trigger demand pull inflation.  Consequently, fertiliser shortages during the planting season could accelerate food inflation later in the year.

“Thirdly, food security risks would increase. It is evident that smallholder farmers account for the majority of Nigeria’s food production. If they cannot access fertilizer in time, the harvest cycle will be compromised, leading to reduced household incomes for farmers and reduced food availability nationally.

“In essence, fertiliser supply disruption today could manifest as higher food prices, increased import dependence, and greater food insecurity within the next harvest cycle.”

Onyekwe contended that it is time to initiate a strategic move to revive dormant and moribund fertiliser blending plants in Nigeria.

Nigeria previously developed several fertilizer blending plants under public and private sector arrangements, but many became inactive due to policy inconsistency, poor management, and supply chain challenges.

He said that revitalising these facilities could provide several benefits such as reduced dependence on imported finished fertilisers, enable local customisation of fertiliser blends based on soil nutrient profiles in different agro-ecological zones, improved distribution efficiency to farmers across the country and generating employment in agro-industrial value chains.

“However, revival should be accompanied by private sector participation, transparent management structures, and strong regulatory oversight to avoid the inefficiencies that led to their earlier decline,” Onyekwe said.

 He also said that the current situation has highlighted the need to revisit Nigeria’s fertiliser policy with a focus on resilience and self-reliance.

Key areas that require review include the establishment of strategic fertiliser reserves similar to strategic petroleum reserves, provision of incentives for domestic production and blending and ensuring efficient distribution systems that would reduce middlemen and ensure that fertiliser reaches farmers on time.

Onyekwe noted that a modern fertiliser policy should prioritise availability, affordability, and sustainability and the integration of organic fertilisers and soil health programs to reduce excessive reliance on imported chemical inputs.

He said that the way forward is for the government to immediately assess national fertiliser stocks and supply pipelines and engage domestic fertiliser manufacturers to guarantee supply for the current planting season.

He suggested that government should in the short term, “facilitate emergency logistics and import alternatives if necessary and provide targeted subsidies or credit support to farmers to cushion rising input costs.

“While in the medium to long term, the government should develop a national fertiliser security strategy that include reviving and modernising domestic fertiliser blending plants through public–private partnerships and investing in soil fertility research and extension services.”

He said: “Promote integrated soil nutrient management combining organic and inorganic fertilisers. Establish strategic fertiliser reserves to cushion future global supply shocks.

“The disruption of global shipping routes such as the Strait of Hormuz demonstrates how geopolitical events can quickly translate into agricultural and food security risks for import-dependent countries.

“Nigeria must therefore treat fertilizer availability as a strategic national priority, particularly during the planting season.”  

Onyekwe believed that the urgency of the moment warranted that the government should persuade local fertiliser producers to prioritise Nigerian domestic market.

He said: “Nigeria’s large fertiliser manufacturers are globally competitive and understandably export part of their output. However, in times of strategic supply disruption such as the current geopolitical crisis, there is a strong economic and food security case for temporarily prioritising the domestic market.

“The government does not necessarily need to compel firms immediately. A cooperative approach may work better. Authorities could engage manufacturers through negotiated supply commitments for the planting season.

“Policy incentives such as temporary tax concessions, logistics support, or guaranteed bulk purchases could encourage firms to allocate a defined share of production to Nigerian farmers.”

Oyerinde agreed that the ongoing conflict in the Middle East has disrupted a major shipping route that carries large volumes of fertilizer inputs including urea, ammonia, and phosphates, which are essential for global agricultural production.

This has already triggered a sharp increase in fertilizer prices and supply uncertainty globally, raising concerns about the cost and availability of farm inputs during planting seasons.

He said: “For Nigeria, the implication is primarily higher input costs and potential supply delays, which could reduce fertilizer application by farmers and consequently affect agricultural productivity.  Since fertilizer remains a critical input for crop yields, any sustained disruption in global supply chains may translate into higher food production costs and possible upward pressure on food prices.”

Oyerinde, however, clarified that Nigeria has made significant progress in fertilizer production in recent years. The country now has several fertilizer production facilities, including three major urea plants with a combined production capacity of about 6.5 million metric tonnes annually.

“However, blending plants depend on a steady supply of raw materials such as phosphate and potash, which Nigeria still imports.

“When global supply chains are disrupted or when input prices rise significantly, the ability of blending plants to operate consistently can be affected.

“Strengthening and fully utilising Nigeria’s fertilizer blending capacity is both timely and necessary. Fertilizer blending plants play an important role in adapting fertilizer formulations to local soil conditions and improving distribution across farming regions,” Oyerinde said.

He added, “At a time when global supply chains are facing disruptions, expanding domestic blending capacity and ensuring steady access to raw materials will be essential to maintain fertilizer availability for farmers and support national food security,” he said, adding that “ensuring adequate fertilizer supply nationwide will still require coordinated efforts across production, blending, logistics, and distribution.”

He advised that Nigeria’s response should focus on strengthening resilience within the agricultural input supply chain.

“Key priorities should include expanding domestic fertilizer production and blending capacity to reduce dependence on external supply shocks,” he said.