The Manufacturers Association of Nigeria (MAN) has warned the federal government that the recent interest rate hike by 200 basis points will increasing cost of loans and production for manufacturers.
The association also said that the interest rate hike to 24.75 percent would worsen the continuous macroeconomic instability prevalent in the economy with overwhelming impact on the manufacturing sector.
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Segun Ajayi-Kadir, the director general of MAN made this known in a statement declaring the association’s position on the report of MPC meeting held on March 25-26, 2024.
“Undoubtedly, macroeconomic instability will continue to disrupt production plans, jeopardise investments, and cloud the sector’s prospects.
“In specific terms, the current MPC decisions will further limit credit interventions, increase the cost of loans, upscale production cost, reduce access to funds, manufacturing investment and competitiveness,” the statement reads.
The MPC committee raised the MPR to 24.75 percent from 22.75 percent, adjust the asymmetric corridor around the MPR to +100/-300 basis points, retained the cash reserve ratio (CRR) of deposit money banks at 45 percent, adjust the cash reserve ratio of merchant banks from 10 percent to 14 percent and retain the liquidity ratio at 30 percent.
This MAN said is not healthy for the economy considering the fact that the country’s economy has encountered a range of challenges in recent years, such as foreign exchange instability, escalated energy prices and food insecurity which have heightened the inflationary pressures and grossly eroded the consumers’ purchasing power.
The association further highlighted that these issues have had a negative impact on the manufacturing sector, leading to decreased production and reduced competitiveness.
“The higher cost of doing business will be further exacerbated by the decision of MPC, thereby worsening competitiveness of Nigerian products in the global market, which is evident in the drastic reduction in global demand for these products.
Citing data from the World Trade Organisation, MAN noted that South African manufacturing export value was $46 billion, while that of Nigeria was $3billion in 2022. Clearly, this is over 15 times greater than Nigeria’s manufacturing export value in that year.
“The reduction in global demand for Nigerian products was further buttressed by NBS report that confirmed that manufacturing export value plummeted by 166 percent from N2.07 trillion in 2019 to N778.44 billion in 2023.
“In addition, the exorbitant lending rate of over 30 percent has contributed largely to a drop in the share of manufacturing export to non-oil export from 82.4 percent to 24.8 percent in 2019 and 2023 respectively,” it stated.
“The resultant increase in the cost of servicing loans is a threat to the financial stability of manufacturing companies.”
“The increase will destabilise manufacturers through the disruption of production plans, avoidable stock-out situations, and decreased capacity utilisation. Clearly, all of these could lead to downsizing of workers, closure of more companies, upscaling of social vices and insecurity in Nigeria.”
The association acknowledges the frantic efforts of the MPC aimed at addressing the economic challenges facing the country particularly the instability in inflation and exchange rates.
MAN recognised the rationale behind the decision but, it is essential for the committee to carefully consider the potential impact of the decisions on manufacturing and collaborate with fiscal authorities to support the sector to play its traditional role as a critical driver of meaningful employment, improved productivity, steady forex proceeds inflow and sustained economic growth.
It is worth noting that this approach of increasing the MPR has been adopted for almost two years without positive result. The association expected the new CBN administration to consider other measures to combat the pressure particularly addressing the causes of the increase which are majorly cost-push factors.
Hence, MAN urged the MPC to carefully consider the impact of these monetary policy measures on the manufacturing sector and the broader economy.
“It is crucial to strike a balance between addressing macroeconomic challenges and supporting the growth and sustainability of the manufacturing industry.
“In the light of the fore mentioned, we recommend a robust synergy between the monetary and fiscal authorities as well as the consideration of the following policy measures:
“Ensure adequate security in farming areas and business environments by fast-tracking the passage of the Police Reform Bill and investing significantly in data platforms, surveillance systems and community policing,” MAN said.
Furthermore, it recommends; “Stabilise the value of the naira by managing the floating exchange rate within a business-friendly threshold and intensify ongoing reforms to boost the level of liquidity and degree of transparency in the official forex window.
“Prioritise forex and credit allocation to the manufacturers and fast track the proposed recapitalisation of the banking sector.
Further reduce the reliance of the country on imported products and raw materials by providing incentives for investment in backward integration and local sourcing to reduce the pressure on the dollar to the barest minimum.
“Prioritise the provision of infrastructure in industrial hubs and boost nationwide investment in renewables to reduce logistics cost and promote competitiveness.”
The MPC of the Central Bank of Nigeria (CBN) held its 294th meeting recently to evaluate recent economic and financial developments and assess potential risks to the economy’s outlook.
