Interest rate hike detrimental to manufacturing sector recovery – MAN
The Manufacturers Association of Nigeria (MAN) has warned that the recent increase in Monetary Policy Rate (MPR) to 14 percent is detrimental to the operation and recovery of the sector amid lingering inherent challenges.
The Central Bank of Nigeria (CBN) increased the rates by 100 basis points from 13 percent to curtail rising inflation, however MAN said it is not manufacturing friendly considering the myriad of binding constraints already limiting the performance of the sector.
In a public statement signed by Segun Ajayi-Kadir, director-general, MAN, the association expressed concerns stating about the ripple effects of this decision, noting that it will reduce the pace of full recovery, make manufacturing performance uninspiring and reduce its contribution to the GDP.
“Clearly, the increase in MPR has widened the journey farther away from the preferred single digit interest rate regime, It will spur upward review of existing lending rates which will drive costs Northward, resulting in higher prices of goods, low sales and enormous volume of inventory of unsold products,” he said.
He reiterated that the manufacturing sector is visibly struggling to survive numerous strangulating fiscal and monetary policy measures and reforms.
The DG said manufacturers are hopeful that the stringent conditionalities for accessing available development funding windows with the CBN will be relaxed to improve the flow of long-term loans to the manufacturing sector at single digit interest rate.
“The expectation is that MPC will ensure that future adjustments of MPR takes into consideration the trend of core inflation rather than basing decisions on headline and food inflation,” Ajayi-Kadir said.
This, he said, will shield the sector from the backlashes from the 14 percent MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy.
Ajayi-Kadir also noted the accelerated movement of the country’s inflation figures which stood at 18.6 percent in June 2022, according to data from the National Bureau of Statistics (NBS).
He said beyond the familiar triggers of inflation like insecurity, food shortages, shortfall in the supply of raw materials for production, among others fuel scarcity, continuous growth in broad money supply and naira depreciation contributed to the inflation performance.
He explained that the prevailing inflation rate will have an adverse impact on the manufacturing sector as the cost of production will increase, with a ripple effect on capacity utilization, inventory and profitability of manufacturing firms.
“It will also have differing implications like reduction in demand for manufactured products leading to poor sales and turnover; increase the tempo of hoarding dollars; deepen the downward swing of export earnings, which of course will worsen the forex challenge in the country,” he said.
The DG recommended that policies be deployed with more structural measures to combat the peculiar inflationary pressures from insecurity, energy and transport cost while efforts at improving infrastructural developments are sustained to reduce susceptibility to externally-induced inflation.
“The country’s reliance on imported products and raw materials should be reduced by encouraging local sourcing through a comprehensive and integrated incentivized system, all forex related challenges confronting the productive sector should be resolved by making a detour from the CBN’s foreign exchange regime,” he said.
He added that the oil and gas industry should be strategically positioned to benefit maximally from future interruptions in global supply that triggers increase in price of crude oil, while favorable investment-oriented and security measures must be introduced to encourage private investment inflow into the industry.