Prior to the decision of the Central Bank of Nigeria (CBN) to increase the Monetary Policy Rate (MPR) otherwise known as the interest rate from 13 percent to 14 percent last week, manufacturers were already having tough times.
Some of the challenges they face include – not having access to forex when they need it, a high-interest rate which is already in double digits as against single digit, unfavorable policies, taxation, and others.
TechEconomy understands that decision by the CBN was in response to the domestic economic conditions in the second quarter of 2022 and other economic realities, especially those associated with the prevailing international financial and economic environment.
The move according to the CBN, was to curb the rising rate of inflation that recently peaked at 18.6 percent, ensure relative stability, and sustain economic growth in the face of the high-level uncertainties in the global economy.
Manufacturers’ Perspective
With the new increase in the MPR, the Manufacturers Association of Nigeria (MAN) are saying that it adds to their myriads of problems such as the high cost of manufacturing inputs, as well as widening the journey farther away from the preferred single-digit interest rate regime.
Segun Ajayi-Kadir, Director General, MAN in a document expressed concern about the ripple effects of this decision and its implications for the manufacturing sector that is visibly struggling to survive the numerous strangulating fiscal and monetary policy measures and reforms.
“Consequently, 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 rates.
“The expectation is that MPC will ensure that future adjustments of MPR take into consideration the trend of core inflation rather than basing decisions on the headline and food inflation.
This will no doubt shield the sector from the backlashes from the 14per cent MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy,” MAN said.
On the implications for the economy and manufacturing sector, MAN, noted that this is another level of increase in interest rates on loanable funds, which will no doubt upscale the intensity of the crowding out effect on the private sector businesses as firms have lesser access to funds in the credit market.
According to MAN, it will also spur an upward review of existing lending rates dependent on obligations of manufacturing concerns, which will drive costs northward, intensify the demand crunch emanating from the heavily eroded disposable income of Nigerians, constrained access of households and individuals to cheap funds
The Association further stated that the increase will equally lead to the rising cost of manufacturing inputs, which will naturally translate to higher prices of goods, low sales, and an enormous volume of inventory of unsold products.
MAN also added that it will exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses.
“Further 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.
“Reduce the pace of full recovery of the real sector, make manufacturing performance to remain lackluster and of course, lead to a leaner contribution to the Gross Domestic Product (GDP), the association said.
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