Interest Rate Hike to Worsen Manufacturing Challenges – MAN DG
Segun Ajayi-Kadir, Director General of Manufacturers Association of Nigeria (MAN), says the recent decisions by the Monetary Policy Committee (MPC) will further exacerbate the challenges of the manufacturing sector.
Ajayi-Kadir said the further tightening credit interventions and increasing loan costs would raise production costs, limit fund accessibility, and erode investment and competitiveness within the manufacturing sector.
The Central Bank of Nigeria policy committee on Tuesday raised the Monetary Policy Rate (MPR) by 150 basis points from 24.75 per cent to 26.25 per cent while the Liquidity Ratio (LR) was left unchanged at 30.0 per cent.
Also, Cash Reserve Ratio (CRR) was retained at 45.00 per cent for deposit money banks and 14 per cent for merchant banks while the asymmetric corridor was retained at +100/-300 basis points around the MPR.
According to the MAN Director General, it has become evident that the MPC leans towards prioritising the financial sector over the real sector, rather than striving for a balanced approach between the two.
He said that the current monetary stance would lead to constraints on investment and expansion, hindering manufacturers’ ability to invest in innovative technologies, expand production capacities, or venture into new markets.
The combination of heightened borrowing costs and reduced liquidity will hinder manufacturers’ ability to invest in innovative technologies, expand production capacities, or venture into new markets.
“As a result, this could lead to delays or cancellations of planned initiatives, ultimately constraining the sector’s potential for growth and its overall contribution to economic growth and development.
“The decision by the MPC will further compound the already high cost of doing business, consequently diminishing the competitiveness of Nigerian products in the global market.
“The high lending rate exceeding 30 percent will increase the cost of borrowing and make Nigeria’s goods less competitive to products from other nations,” he said. Ajayi-Kadir quoted data sourced from the World Trade Organization, which revealed a stark contrast in manufacturing export values between Nigeria, South Africa, Egypt, and Morocco in 2022.
He noted that while South Africa, Morocco, and Egypt recorded $45.38 billion, $30.61billion, and, $20.14 billion, respectively, Nigeria recorded a modest $3.21 billion. “Moreover, the capacity utilisation of the manufacturing sector decreased from 56.4 per cent recorded in 2022 to 55.1 per cent in 2023.
“Also, the growth of the sector was reduced to 1.40 percent in 2023 from 3.35 percent and 2.45 percent recorded in 2021 and 2022, respectively. Such a glaring divergence underscores the significant disparity in the competitiveness of Nigeria,” he said.
Ajayi-Kadir, acknowledging the efforts of the MPC in confronting the economic challenges facing the country, notably the fluctuations in inflation and exchange rates, urged the committee to consider the impact on the real sector and the multiplier effect on the nation.
He stressed that collaboration with fiscal authorities was essential to reinforce the sector’s traditional role in driving significant employment, heightened productivity, steady foreign exchange earnings, and sustained economic progress.
He noted that the strategy of raising the MPR had persisted for nearly two years without yielding positive results, hence the need for the Central Bank of Nigeria (CBN) to explore alternative measures to address the underlying causes of inflation, primarily cost-push factors.
“MAN earnestly urges the MPC to carefully evaluate the effects of these monetary policy actions on both the manufacturing sector and the broader economy. Achieving a delicate equilibrium between addressing macroeconomic challenges and fostering the growth and resilience of the manufacturing industry is crucial.
“Therefore, MAN advocates for robust collaboration between monetary and fiscal authorities and implements targeted interventions aimed at mitigating the underlying cost-push factors driving inflation, thereby alleviating the financial burden on manufacturers,” Ajayi-Kadir said.
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