The Manufacturers Association of Nigeria (MAN) has expressed concerns as to how its members will fare going forward following the recent hike in interest rate by the Central Bank of Nigeria (CBN).
The financial regulator announced its decision to increase the benchmark interest rate to 13 percent from 11.5 percent to curtail accelerating inflation after the Monetary Policy Committee (MPC) meeting.
In a statement signed by Segun Ajayi-Kadir, director general, MAN, the association noted that the increase in the Monetary Policy Rate (MPR) has widened the journey farther away from the preferred single digit interest rate regime which it has always advocated for.
“It is not manufacturing friendly considering the myriad of binding constraints already limiting the performance of the sector, MAN is concerned about the ripple effects of this decision and its implications for the manufacturing sector that is visibly struggling to survive,” he said.
The DG highlighted some implications the decision will have on the manufacturing sector which includes a reduction in the pace of full recovery which will make the sector remain lackluster and also reduce its contribution to GDP.
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“this will lead to rising cost of manufacturing inputs, which will naturally translate to higher prices of goods, low sales and enormous volume of inventory of unsold products; furthermore it will reduce capacity utilization, upscale the rate of unemployment, incidences of crime and insecurity as the capacity of banks to support production and economic growth is heavily constrained,” he explained.
Credit access has over the years remained a challenge for manufacturers with reports showing that this tops the chart for reasons why the sector is not growing as well and fast as it should.
The MAN CEOs Confidence Index (MCCI) for the fourth quarter of 2021 stated that high-cost borrowing remained a perennial constraint of manufacturing in the country as manufacturers believe that current lending rate discourages productivity in the sector.
“Over 280 manufacturers noted that the smallness of size of commercial bank loans to manufacturing does not support productivity in the sector,” it said.
Ajayi-Kadir said going forward, 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.
He recommended that the CBN also base its future MPR adjustments on the trend of core inflation rather than basing decisions on headline and food inflation in order to shield the sector of the backlashes from the 13.5 percent MPR.
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