Business owners as well as experts have raised concerns that the continuous hiking of the monetary policy rate (MPR) by the Central Bank of Nigeria will throw many out of business, leading to a renewed unemployment crisis.
They warned that as much as the increase in interest rates is necessary to rein in the stubbornly high inflation at 33.69 percent in April and calm the FX market, it poses a great risk on the already fragile business environment.
Femi Egbesola, the president of Association of Small Business Owners of Nigeria said the high interest rate is piling small businesses’ debt profile and eating up their profits.
Egbesola further said that when businesses get higher interests on loans borrowed, the consumer will pay more and ultimately shoot up inflation.
“If you borrow at a higher interest rate, the prices of your goods and commodities will also go up, so the consumer will have their disposable income depleted,” he said.
“When the consumers are no longer buying, then the entrepreneur would have to cut overhead costs, retrench some workers and that leads to more job loss in the market.
“Many of these small businesses have decided to close shops because they cannot continue to run at a loss,” ASBON president said.
At the recent monetary policy committee meeting, Nigeria’s lending rate was jacked up by 150 basis points to 26.25 percent, marking the third straight time the rate will be hiked this year.
The MPC had in February raised the benchmark interest rates by 400 basis points to 22.75 percent from 18.75 percent it stood last July.
It again increased rates in March raising the MPR by another 200 bps, bringing the country’s interest rates t0 24.75 percent, further straining business owners’ access to loans.
Under the leadership of Olayemi Cardoso, the CBN governor, the interest rates have been increased by a combined 750 bps, placing a tough choice on business enterprises from accessing credit from banks.
BusinessDay gathered that commercial banks set their lending rates between 28 – 30 percent as soon as the CBN increased the benchmark interest rates.
“Hiking interest rates is a conventional theory used to halt inflation. High interest rates are expected to destroy demand which will automatically see inflation fall, but Nigeria seems to be a different case,” Samuel Sule, chief executive officer Renaissance Capital Africa said.“
Sule added that while the monetary policies are deployed to put the market right, they alone cannot solve structural problems stressing the need for the fiscal authorities to complement the CBN’s efforts.
Oluwafemi Olalekan, chief executive officer of People’s Needs Farm and Academy, a Lagos-based agricultural outfit, lamented that due to the continuous hike, he had to stop getting loans from banks.
“I just stocked over 100 thousand fish (juvenile) with the hope to get loans from the bank to buy enough feed as I always do but was surprised with the rate I was given.
“The amount added to the loan was too much to bear. Considering the amount I would spend on fuel and factor in the salaries of my over 20 workers, I might run out of business and remain bankrupt,” he said.
Micro, small and medium enterprises (MSMEs) contribute significantly to the country’s growth, especially as Nigeria races towards hitting a trillion dollar economy.
According to a recent report by EY, a consulting and tax transaction service provider, there are over 39.6 million MSMEs in Nigeria, representing 96.7 percent of businesses in the country.
This sector contributes over 45 percent to the country’s GDP, accounts for about 6.2 percent of Nigeria’s total exports and employs about 80 percent of the country’s population.
The report further stated that due to lack of financing, between 2019 and 2021, “nearly 2 million SMEs closed shops due to myriads of challenges they faced chief of which was lack of access to affordable finance”.
“Businesses are faced with the impact of inflation, lending rates and the FX crisis all hitting them at the same time. I think they just need to adapt to the new business environment to survive,” the Renaissance Capital Africa CEO said.
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