The Nigeria Association of Chambers of Commerce Industry Mines and Agriculture(NACCIMA), has advocated for a holistic approach towards resuscitating the nascent Nigeria’s energy sector which it identified as a major driver of rising inflation in the country.
The association insists that one of the best approaches to reduce the current rate of inflation is to conduct a comprehensive analysis of all the causes contributing to the inflation’s rising trend and to implement control measures that can halt their effects.
According to NACCIMA, “it has never been more important than it is now for multi-sector, intergovernmental agencies/ministries, and the organised private sector of Nigeria to have their technical submissions regarding the likely future course of action considered.”
Responding to the decision of the Monetary Policy Committee(MPC), of the Central Bank of Nigeria(CBN), to raise the Monetary Policy Rate(MPR) from 14 per cent to 15.5 per cent, the director general of the association, Shola Obadimu, observed that this is the third move by the bank in 2022 in response to the continuous increase in inflation rate.
Obadimu noted that, though the approval reflects the resolve of the Bank to stem the rising rate of inflation, nonetheless he felt this should have been accomplished in close cooperation with the Organized Private Sector.
According to him, “the persistent increase in interest rates may not be sufficient to reduce the inflation rate.
The Association argued that even though this is primarily a strategy to manage inflation but again does not address the underlying cause of inflation, which is rising energy costs, food costs caused by several variables, including the devaluation of the Naira, which has impacted production and transportation.
To attain low inflation rates, the government must assure monetary stability, a continuous electricity supply, and security to promote inclusive economic growth, stressed the DG.
“While we suspected that the government believed that the country’s inflation could be controlled by a one-directional review, we as the organised private sector feel that the country’s pressing inflationary condition is the result of multiple factors.
“And that relying just on monetary policy to restrain its unabated growth may be ineffective as opposed to producing the desired outcome. The ramifications of the increase in the interest rate would negate the proliferation of ease of doing business, the impact of which most businesses are still uncertain about.” NACCIMA warned.
He went to state that , “Following this policy, the majority of SMEs would begin to have less discretionary income because of increased interest payments, reducing their capacity to invest, reinvest, and hire additional personnel. Due to higher interest rates, it would be more challenging for businesses to repay their loans, and the majority could be threatened with insolvency.
“Consequently, the survival of most small and medium-sized businesses is threatened by the rising costs of capital and production, which result in an increase in the price of finished items. In fact, and in a practical sense, the majority of the population has diminished purchasing power, while the percentage of individuals living at the base of the pyramid continues to rise. This new regulation will cause increased hardship for businesses and individuals.
“Government may need to undertake a policy review to eliminate additional inflationary drivers. Our hope is that the government will place greater emphasis on the contribution of special industries and Micro, Small, and Medium-Sized Enterprises to the economy and offer more developmental financing to mitigate the consequences of production cost increases.”
Noting the consequences of the increase, NACCIMA said, the current state of the economy has severely diminished the production capability of the majority of industries; enterprises are already closing.
“Small and medium-sized firms, which accounted for 91% of all businesses in the country and employed about 60% of the working population, would be severely harmed by the implementation of this new policy, since it would inevitably result in an increase in operating costs.
“As the cost of raw materials increases for firms, they are forced to raise prices regardless of demand as a result of inflation’s root causes. Attempts by the government to restrict the circulation of money would inevitably result in a rise in the price of products and consumables, as well as a decline in the standard of living,” he stressed.
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