Nigerian manufacturing is dominated by small and medium scale firms. An estimated 87 percent of manufacturing firms are characterized as SMEs. Manufacturing and industrial activity is concentrated around the major urban centres of Kano and Lagos and to a lesser extent Kaduna and Ibadan. Evidence from Lagos state which has the largest concentration of manufacturing firms suggests that Nigerian firms are foregoing scale economies. As indicated above, many sectors have low levels of market competition, with small numbers of larger enterprises and a competitive fringe of smaller or tiny ones. However, firm sizes of even the largest firms are very small by international standards.
Manufacturing sector surveys (2001, 2003, 2004) have repeatedly highlighted three worrisome features of Nigeria's manufacturing sector: (i) firms tend not to invest at all or to invest very little; (ii) only a small fraction of firms engage in export, the vast majority serving only the domestic market; and (iii) firms generally have a lot of unused capacity. Less than 50 percent o f firms in the different surveys reported non-zero investments. And for investing firms the investment rate is only large enough to balance depreciation and cannot cover much expansion. Larger firms are more likely to invest but tend to have lower investment rates. This pattern of performance is similar to that in several other African countries. The survey data also suggests that the proportion of firms engaged in export may have risen between 2001 and 2004 but still remains low at under 10 percent. Even in sectors such as food, textiles and garments where exports were relatively high, the numbers of firms exporting was low. Again larger and more efficient firms are more likely to be engaged in exports. Nigerian firms are estimated to be 15 percentage points less likely to export than firms in Ghana and Tanzania. It is also striking that a large Nigerian firm is less likely to export than a small firm in Tanzania or Ghana. This firm level data confirms the macroeconomic evidence of low manufactured exports. Capacity utilization rates have declined over the years and averaged about 45 percent in 2004. Large firms tend to have the highest capacity utilization rates. A comparative study o f five African countries showed that Nigerian manufacturing is about 30 percent less efficient than South Africa but has efficiency level similar to Ghana, and Kenya and higher than Tanzania by about 15 percent.