• Tuesday, July 23, 2024
businessday logo

BusinessDay

UPDATED: Dangote says 30% interest rate stifling investments

‘Buy me out & run the refinery’, Dangote challenges NNPC

Africa’s richest man, Aliko Dangote, has also appealed to the federal government to cut high interest rate, which is around 30 percent in banks or more, to stimulate investments in Nigeria.

According to him, high interest environment stifles business and leads to factory closures.

Dangote, who delivered the first keynote address at the ongoing summit organised by the Manufacturers Association of Nigeria (MAN) in Abuja, said unless urgent steps are taken to address the poor state of Nigeria’s economy, the country may become a mere trading hub.

The Central Bank of Nigeria (CBN) has raised the monetary policy rate, which is the benchmark interest rate, to 26.25 percent. Banks lend as high as 35-40 percent to businesses. Interest rate hikes are meant to rein inflation and trigger price stability.

Read also: High interest rate environment, FX depreciation boost bank earnings

Dangote described the import dependence as one of the greatest banes to the Nigeria’s industrial growth and development.

“No power, no growth, no prosperity. Similarly, no affordable financing, no growth, no prosperity. There is no industrialization without protection. Ignoring these facts, is what gives rise to insecurity, banditry, kidnapping and abject poverty,” he noted.

Listing the contributions of the manufacturing sector to the economy, Dangote said, “There is evidence that the strength of a country’s manufacturing sector determines its capacity to compete in global trade of which 70% is in manufactured goods, according to available statistics. Countries that have industrialised and have a robust manufacturing sector and

are able to export manufactured goods are generally able to grow their economies through global trade.”

A review of the percentage of manufactured goods in the export

trade of various countries indicates a clear relationship between industrialisation and the capacity of the manufacturing sector.

In his comparative analysis, Dangote noted that China’s is 93 percent, while South Korea’s is 93 percent.

The European Union’s is 83 percent; Malaysia, 86 percent; India, 73 percent; USA, 70 percent; Egypt, 42 percent, and South Africa, 37 percent.

“Sadly, Nigeria remains far behind with its manufacturing sector accounting for less than 5% of its merchandise export in 2022 (mainly from Urea and Cement).”

The president of Dangote Group stated in every economic regime, investment projects in manufacturing and industrial sectors need time, and a conducive environment for them to mature, build capacity and scale, to become competitive against those in older and more mature markets.

“But since the mid-1980s, non-industrialized countries and their leaders have been discouraged from protecting and supporting such investment and forced to expose them to unfair competition from stronger, older competitors in their own internal market, even before the newcomers are

commissioned.”

Read also: Dangote begins diesel exports to West African markets as imports from Europe decline

A report by MAN revealed that something urgent must be done, as about N3 trillion was spent on importation of raw materials in 2023.

The report demanded for market expansion, cost reduction, economics of scale, improved logistics, building fof brands, collaborations and partnerships, as well as improvement of the environmental social and governance (ESG) practice.

The report also urged the government to increase budgetary allocations to sustain infrastructure at industrial hub, promote made-in-Nigeria products, local sourcing of raw material, patronage of made-in-Nigeria product, encourage inflow of the foreign direct investment (FDI) into predetermined sectors, avoid multiple taxation, energy reform and overhaul the energy sector.

The report, which identified several challenges including electricity, said high energy cost is hurting the sector.

“Inflation and the core macroeconomic matrix have impacted on the sector, namely; inflation, interest rate, availability of foreign exchange, unemployment, amongst others.

“Unfortunately, from 2018 until now, inflation has increased significantly, from 14% and currently, it is 33.9%.”

The report said the unification of the exchange rate in 2023 also impacted negatively on the sector, with more people losing their jobs.

The report however stated that the country has exported more goods and services in 2023 than it imported in 2023.

“About 335 manufacturing companies experienced distresses, 767 business shut down, then devaluation. On the percentage contribution of manufacturing to exports, Nigeria has less than 10 percent, while most other African countries are doing above 20%.

“The extant policy initiatives are not achieving their result. In larger terms, the Nigeria manufacturing sector can be said to be on life support because it is suffering for survival and it might go into extinction.

Read also: Dangote refinery boosts gasoil exports to W. African market

“We don’t just want this country to just be a country of buying and selling and we are not producing anything. This is dangerous for us.”

The report recommended tax holidays, and subsidies development of industrial parks.

“South Africa is promoting use of locally produced goods, Egypt U.S. creating special economic zones. Many have five years plans focusing on specific sectors of the economy. Malaysia is focusing on high-tech economy, South Africa is chemical and agro processing while Morocco is automotive sector.

“Some of the other things they have done is human capital development. We need to develop our human capital, trade and export promotion.

“Insufficient funding, skill shortages, inefficient supply chains, over dependence on imported raw materials and insecurity

“The N3 trillion was spent on raw materials importation in 2023 and this says a lot.”