Reacting to the Central Bank of Nigeria’s (CBN) recent increase in the Monetary Policy Rate (MPR), the Manufacturers Association of Nigeria (MAN) warns that this policy move is hampering growth in the real sector.
The CBN’s Monetary Policy Committee (MPC) confirmed a fifth consecutive MPR hike on Wednesday, pushing the rate to 18.5 per cent to combat inflation. This rise anticipates a subsequent climb in lending rates to 25 per cent for prime borrowers and over 30 per cent for others.
MAN’s Director General, Segun Ajayi-Kadir, voiced his concerns. He predicts the MPR escalation will worsen an impending recession in the manufacturing sector and adversely affect its operations.
Among the issues highlighted by Ajayi-Kadir is an increase in borrowing costs that could discourage investments, an upsurge in production costs leading to a surplus of unsold products, and a reduction in output and capacity utilization due to high-interest rates. He also warns of potential government revenue loss due to the manufacturing sector’s decreased productivity, leading to lower taxes.
Ajayi-Kadir adds that the ongoing MPR increments have not fostered the desired economic growth. He calls for a review of the policy mix, considering the Nigerian economy’s frailty and the numerous challenges impeding growth.
He argues that the increase from 18% to 18.5% will inevitably lead to increased lending rates, further hampering the manufacturing sector’s competitiveness.
Editorial
Reassessing Monetary Policy for Nigeria’s Manufacturing Growth
The recent hike in Nigeria’s Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN) has brought the nation’s manufacturing sector into sharp focus. As the Manufacturers Association of Nigeria (MAN) points out, these increases pose severe threats to sector growth, potentially exacerbating an impending recession.
The consequences of this policy decision are manifold. The challenges are extensive, from discouraging investment due to high borrowing costs to increasing production costs leading to a surplus of unsold products. There’s also a genuine concern about a decline in government revenue due to decreased productivity in the manufacturing sector and subsequent lower taxes.
The broader economic context underscores the urgency of addressing these issues. The Nigerian economy remains fragile, with numerous hurdles inhibiting growth. In this precarious economic landscape, the persistent hikes in MPR aren’t fostering the desired economic growth but exacerbating the problems.
This situation calls for a fresh look at monetary policy in Nigeria. While the intentions behind increasing the MPR are to combat inflation, the detrimental side effects on the manufacturing sector necessitate a different approach.
Rather than persisting with MPR hikes, exploring alternative mechanisms to curb inflation and stimulate economic growth might be prudent. In addition, an approach that fosters a favourable environment for manufacturers could prove more beneficial in the long run.
Did You Know?
- The manufacturing sector contributes about 10% to Nigeria’s GDP.
- In Nigeria, only 10% of manufacturing companies have access to credit.
- Over 50% of Nigeria’s small and medium enterprises (SMEs) are in manufacturing.
- The interest rate for commercial banks in Nigeria hovers around 30%.
- Manufacturing capacity utilization in Nigeria is around 53%.
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