Private sector operators say the Central Bank of Nigeria’s (CBN) decision to reduce the monetary policy rate (MPR) from 13 percent to 11 percent, as well as its resolution to free over N700 billion to the employment generating sectors is a practical step to diversifying the economy and creating more jobs.
The amount which is to be targeted at employment generating sectors such as the real sector, agriclture, infrastructure and solid minerals, is expected to come from the reduction of the CBN’s anchor rate from 13 to 11 percent and Cash Reserve Ratio (CRR) from 25 to 20 percent .
The private sector operators however add that a single-digit rate of five percent would have been more ideal for Africa’s largest economy, where over 80 percent of businesses are micro-, small- and medium-scale enterprises (MSMEs).
The impact of the rate cut manifested yesterday as the nation’s capital market experienced rebounds with All share Index rising by 0.5 percent. “After reaching the lowest point since February 2015 in prior session, the Nigerian equities market rebounded yesterday, following cuts in MPR (from 13.0% to 11.0%) by the monetary authorities.
The All Share Index rose 0.5% to settle at 27,743.92pts yesterday. Investors gained a total of N52.3bn as market capitalisation increased to N9.5tn.” say Afinvest analysts, in their market report.
Similarly, Biodun Adedipe, an economist, expressed optimism last night that the action would bring an all inclusive growth, since, according to him, the targeted sectors constitue over 80 percent contribution to the Gross Domestic Product (GDP).
The CBN had on Monday, announced a reduction in MPR and cash reserve ratio (from 25 percent to 20 percent), with emphasis on freeing funds to the real sector, infrastructure, agriculture and solid minerals.
“I think it is a step in the right direction and shows the government is serious about diversification,” said Ike Ibeabuchi, managing director, MD Services Limited, in a telephone interview.
“I listened to the minister of finance when she said that it was difficult to borrow and pay back to Nigerian banks. Businesses are struggling and things are getting rougher by the day. So I think if rightly enforced, real sector players can get funds to run and create jobs,” Ibeabuchi said.
Nigeria’s monetary policy rate, which is the benchmark interest rate, has remained high at 13 percent, as part of monetary tightening measures of the CBN. The OPS has over the years, complained about high MPR, which often translates into an interest rate of between 18 and 35 percent in banks, saying that it cannot support businesses, particularly the real sector.
Shehu Sani, president, Miners Association of Nigeria (MAN), told BusinessDay that it is a step in the right direction, but added that miners would have wanted a single-digit rate.
“I must commend them, but I would have wanted something lower, a single digit rate. Over the years, banks have been making things difficult, holding the economy to ransom. Rather than join efforts in growing the economy, they have been interested in growing big. I think an intervention from higher authorities is ideal and should be enforced,” Sani said in an interview with BusinessDay.
Frank Udemba Jacobs, president, Manufacturers Association of Nigeria (MAN), told BusinessDay that real sector players want interest rate to be less than five percent, saying that the MPR reduction may only succeed in bringing down interest rate by one or two percent.
“This is marginal. The prevailing interest rate in banks is already high, between 16 and 28 percent. We are talking about diversification and we are saying that you cannot diversify an economy through manufacturing, when the interest rate is still double-digit,” Jacobs said.
John Isemede, immediate past director-general, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) and now consultant to the United Nations Industrial Development Organisation (UNIDO), told BusinessDay that while the decision is commendable, the major challenge in Nigeria is not the interest rate but poor productivity.
“ What are we producing?” Isemede asked.
“We are producing nothing; this is why the naira keeps pursuing the dollar. Interest rate is a function of many factors. Go to Seme border and see the pressure on the naira. What I suggest is that we need to have formidable businesses like Dangote and Nigerian Breweries. That is the only way we can reduce the pressure,” Isemede said.
ODINAKA ANUDU
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