30% Lending Rate Crippling Factory Operations, Stalling Job Creation – MAN, ASBON

Manufacturers in Nigeria have warned that commercial lending rates of 30 per cent and above are crippling factory operations, stalling expansion plans and threatening job creation, as small and medium-sized enterprises (SMEs) struggle to finance production amid rising operating costs.

Industry stakeholders said the high cost of credit was forcing small factories to operate below their installed capacity, cut production shifts, postpone equipment upgrades, and, in some cases, lay off workers, with far-reaching implications for industrial growth, household incomes, and the competitiveness of locally made goods.

They called on the federal government and the Central Bank of Nigeria (CBN) to introduce targeted, single-digit interest loans for manufacturers, particularly small businesses, warning that without affordable financing, the sector’s capacity to expand production and absorb more workers would remain constrained.

The stakeholders noted that manufacturers were already grappling with high energy costs, expensive raw materials, foreign exchange volatility and logistics challenges, leaving them with limited financial capacity to absorb borrowing costs that could exceed 30 per cent.

Although the CBN recently reduced its benchmark Monetary Policy Rate (MPR) by 350 basis points to 23 per cent, manufacturers said the reduction would have limited impact on production and investment unless commercial banks also lowered their lending rates.

The director-general of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, said high financing costs, alongside energy and logistics pressures, were undermining manufacturing operations and discouraging fresh investments.

He explained that manufacturers could not always pass on increased production costs to consumers due to weak purchasing power, leaving businesses caught between rising costs and shrinking profit margins.

According to him, increases in input prices also raise manufacturers’ working capital requirements, as businesses need more money to purchase the same quantities of raw materials.

With borrowing costs exceeding 30 per cent, he said, many manufacturers were finding it increasingly difficult to sustain production and invest in additional capacity.

“Investment decisions remain cautious as high energy, financing and logistics costs continue to reduce the attractiveness of new investments. Capacity utilisation may remain constrained,” Ajayi-Kadir stated.

He added that some manufacturers were reducing production whenever the cost of operating additional shifts or purchasing more inputs became commercially unsustainable.

The situation, he warned, was also weakening the competitiveness of locally manufactured products against cheaper imports, particularly where imported goods entered the market at lower prices.

Ajayi-Kadir said the high cost of doing business was limiting manufacturers’ ability to expand operations and create additional jobs, undermining the sector’s potential to drive employment and economic growth.

“Nigeria needs an environment in which manufacturers can access affordable energy, finance, foreign exchange and logistics, while sourcing a greater proportion of their inputs locally,” he said.

For small businesses, the pressure is particularly severe, as limited access to affordable financing leaves them with fewer options to sustain operations or expand production.

The president of the Association of Small Business Owners of Nigeria (ASBON), Dr. Femi Egbesola, said high borrowing costs remained a major obstacle to the survival and expansion of small businesses, with many SMEs facing interest rates of between 25 and 35 per cent or even higher.

“At such rates, borrowing to expand production becomes extremely risky, as businesses struggle to repay loans while covering rising costs of raw materials, energy and labour,” he said.

Egbesola said the consequences were already evident in the operational decisions of small manufacturers, many of whom were postponing expansion, operating below capacity, restricting recruitment and, in some cases, laying off workers.

“Many small manufacturers are postponing expansion, operating below capacity, limiting recruitment and, in some cases, laying off workers. This also raises the cost of locally made goods, weakens competitiveness and increases dependence on imports, with direct consequences for jobs and citizens’ purchasing power.”

He called on the CBN and the federal government to establish a targeted, single-digit interest-rate credit scheme for SME manufacturers, with long-term loans provided through participating commercial banks and development finance institutions.

He said the scheme should be supported by government-backed credit guarantees, partial interest subsidies and strict monitoring to ensure that the funds were channelled into productive activities.

“By directing affordable credit towards increased production rather than consumption, Nigeria can support SMEs, expand supply and moderate inflationary pressures,” he added.

Similarly, the director and chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, criticised Nigeria’s high-interest-rate environment, warning that borrowing costs above 30 per cent were undermining investment, productivity and business expansion.

Yusuf said businesses were struggling to obtain affordable credit for both expansion and working capital, with the situation particularly difficult for SMEs facing mounting input costs.

He identified manufacturing, agriculture, construction, and logistics as sectors in which high commercial lending rates were especially difficult to sustain due to their long investment cycles and tight profit margins.

“Many of these sectors cannot fund operations at 30 per cent and above and still remain competitive,” he noted.

Yusuf welcomed the CBN’s recent reduction of the MPR to 23 per cent, describing it as a significant shift from the prolonged restrictive monetary policy stance.

However, he stressed that the benefits of the reduction would depend on how effectively it translated into lower lending rates for businesses.

He urged banks to reflect the new monetary policy direction in both new and existing credit facilities, saying the impact of the rate cut on the real sector would ultimately depend on the extent to which businesses gained access to cheaper financing.

The stakeholders further warned that manufacturers who resorted to expensive borrowing faced heavier debt-servicing obligations, leaving them with less cash to purchase raw materials, maintain equipment and meet other operating expenses.

They argued that prolonged access to costly credit could discourage investment in modern machinery, restrict production growth and undermine the ability of local manufacturers to compete with imported goods.

They therefore called for stronger development-finance programmes and dedicated lending facilities that would provide manufacturers with affordable capital over longer repayment periods.

In particular, they advocated a targeted, long-term financing window at below-market interest rates for micro, small, and medium-sized manufacturing enterprises, saying that affordable credit was essential to expanding industrial capacity, protecting existing jobs, and creating new employment opportunities.