The Central Bank of Nigeria (CBN) recent interest rate hike for the seventh time in one year may hasten the looming recession in the manufacturing sector, according to the Manufacturers Association of Nigeria (MAN).
In a statement on Thursday, the association said it will negatively impact their operations by increasing the cost of borrowing which will further discourage investments in the sector, leading to low productivity, decline in capacity utilisation and a reduction in manufacturing employment thereby fueling insecurity and social vices.
Others are high cost of production which will lead to higher commodity prices and inventory of unsold manufactured products, further reduction in national productivity and per capita income decline in government revenue as a result of low productivity of the manufacturing sector, low taxes and “high product prices owing to rising factor costs, which will in turn render the sector less uncompetitive.”
On Wednesday, the Monetary Policy Committee of the CBN raised the country’s benchmark interest rate, popularly known as Monetary Policy Rate (MPR) to 18.5 percent in May 2023 from 18 percent in March.
Since May last year, the apex bank has hiked interest rates seven times in a bid to curb surging inflation in Africa’s biggest economy. With the current rate, the CBN has raised the MPR by 700 basis points from 11.5 percent in April 2022.
“The rate hike decision was taken by 10 out of 11 members present at the meeting. The MPC also kept unchanged the asymmetric corridor at +100/-700 basis points around the MPR, retained Cash Reserve Ratio at 32.5 percent and liquidity ratio at 30 percent,” Godwin Emefiele, the CBN governor said.
Nigeria’s inflation accelerated for the fourth consecutive month to 22.22 percent in April compared to 22.04 percent in the previous month.
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The association has been clamouring for single-digit lending rates to allow manufacturers’ access needed funds to boost the performance of the sector, Segun Ajayi-Kadir, director-general of MAN, said.
“This increase, like the previous ones, is evidence that the CBN is either unperturbed about the plight of the productive sector or is unable to fathom out a more creative policy mix that would reflate the sector,” he said.
He said they are persuaded that the monetary authority is oblivious of the fact that the failure of its tightening policy to address the inflationary pressure is because the hike in inflation is largely caused by a combination of familiar challenges, including low output which is attributed to instability of macroeconomic variables, inconsistent and lacklustre fiscal policy regime.
Others are incoherent industrial policies, challenging and expensive operating environment, exploitative regulation, external shocks and poor exchange rate management.
According to manufacturers, it is evident that the continuous and consistent increase in MPR is not yielding the desired growth in the economy and the economy remains fragile and bedeviled with numerous challenges that inhibit growth.
“Therefore, the monetary authority needs to pay closer attention to rethink the policy mix, bearing in mind the parlous state of the economy, especially the effect of a high MPR on the manufacturing sector and the economy,” they said.
Nigeria’s manufacturing sector growth slowed to the lowest in three years on account of a cash shortage that crippled the economy in the first quarter. According to the National Bureau of Statistics, the sector grew by 1.61 percent (year-on-year) in real terms in Q1 2023, down from 2.83 percent in Q4 2022 and 5.89 percent in the same period last year.
“Every aspect of the economy was affected by the cash crunch. So whether you are a small-scale retailer by the roadside or services, the cash crunch reduced the GDP of the country significantly,” Gabriel Idahosa, deputy president of Lagos Chamber of Commerce and Industry, said.
He said manufacturers were the worst hit because they already carried trunk costs like raw materials and warehouses full of goods. “So, it is not a surprise that we have such an impact on manufacturers.”
MAN recommends that it is important that priority attention should be given to improving the size of the available special funding windows and making them accessible to the industries at liberal conditionality.
