The Manufacturers Association of Nigeria (MAN) has called on the Central Bank of Nigeria (CBN) to stop increasing the monetary policy rate and instead explore a monetary-fiscal option to bring down inflation.
In a statement on Thursday, the Director General (DG) of MAN, Segun Ajayi-Kadir, said the recent hike in interest rate to 27.25 per cent would worsen the already challenging operating environment for manufacturers in the country.
Ajayi-Kadir said, “The decision to raise the MPR to 27.25 per cent has far-reaching implications for the manufacturing sector in Nigeria. The continued increase in interest rates, which now totals 15.75 percentage points since May 2022, would compound the challenges faced by the sector, including rising production costs in the face of declining consumer purchasing power.
“With the increase in borrowing costs, manufacturers will now pay over 35% on their credit facilities. Clearly, this will lead to an increase in production costs, higher prices of finished goods, lower competitiveness and production capacity expansion”.
He added that the manufacturing sector’s grappling with rising production costs and shrinking consumer demand due to declining purchasing power also compounds the problem.
“For instance, over the first six months of the year, manufacturers incurred more than N730 billion in capital expenses due to the continuous rise in interest rates imposed by commercial banks. This dilemma hampers innovation, productivity and growth. Moreover, the manufacturing sector is grappling with depressed consumer demand, primarily driven by lower purchasing power”, the MAN DG said.
Ajayi-Kadir cited MAN’s half-year economic review and explained that unsold goods in the manufacturing sector surged by 42.93 per cent, reaching N1.24 trillion in the first half of the year, reflecting the severity of the challenges faced by industry players, as higher interest rates limit access to funds for critical investments in retooling, technology, and capacity expansion.
MAN expressed concern that the continuous rate hikes were stifling growth in the productive sector and called for a more balanced approach.
“We are surprised that the CBN has increased the MPR despite the modest improvements in inflation”, it said, highlighting that central banks in other countries were either retaining or reducing rates.
He proposed several measures to mitigate the adverse effects on the manufacturing sector, including a comprehensive review of the impact of rate increases, accelerated disbursement of single-digit loans, and the introduction of fiscal measures to ease the importation of essential raw materials.
“Conduct a comprehensive review of the effects of continuous rate hikes on inflation and the real sector over the past five years to guide future decisions, focus on promoting domestic production and economic recovery by allowing time for previous rate increases to take effect before implementing further hikes and strengthen the collaboration between the monetary and fiscal authorities to ensure that they are aligned to support growth.
“Accelerate the disbursement of the N1 trillion single-digit loan in the accelerated stabilization and advancement plan for the manufacturing sector to cushion the impact of the high MPR on borrowing costs, introduce fiscal measures that support the importation of essential raw materials and technology at concessionary rates to ease the burden on manufacturers and encourage backward integration and local sourcing to minimize dependence on imports and reduce pressure on foreign exchange reserves”, he said.
Further, Ajayi-Kadir recommended promoting renewable energy and improving infrastructure within industrial hubs to reduce operational costs for manufacturers.
