The manufacturers’ access to credit was further limited by the aggressive hikes in the benchmark interest rate, according to the Manufacturers Association of Nigeria (MAN).
Consecutively, the Monetary Policy Rate (MPR) rose by 600 basis points from 18.75 percent in January to
22.75 percent in February and to 24.75 percent in late March.
Sequel to the decision of the Monetary Policy Committee (MPC) in the first quarter, average prime lending rate and maximum lending rate for the manufacturing sector have risen exorbitantly to 20.65 percent and 30.25 percent respectively.
The association stated this at the bi-annual presentation of Q1 2024 MAN CEO’s Confidence Index report held yesterday in Lagos, even as it explained “the upward adjustment of the Cash Reserve Ratio (CRR) to 45 percent in February also had a remarkable adverse impact on the size of available credit to the manufacturing sector. In addition, the narrowing of the asymmetric corridor from +100/-700 in February to +100/-300 in late March is set to further reduce the incentives of Deposit Money Banks (DMBs) to lend to the manufacturing sector.
“The contractionary monetary policy changes during the quarter greatly increased the cost and reduced the size of investments in branding, cost-saving technology, and production expansion.”
On his part, the president of MAN, Otunba Francis Meshioye said, “the Monetary Policy Committee of the Central Bank of Nigeria met a few days ago and made certain critical decisions which have far-reaching implications on the manufacturing sector.
“The Nigerian economy has encountered significant challenges in recent years, including foreign exchange volatility, escalating energy costs, and food insecurity.
These challenges have intensified inflationary pressures, adversely impacting consumers’ purchasing power and impeding the growth of the manufacturing sector. Consequently, production levels have declined, leading to reduced competitiveness within the industry.”
Meshioye noted that the strategy of raising the Monetary Policy Rate (MPR) has persisted for nearly two years without yielding positive results, saying “MAN had hoped that the CBN would explore alternative measures, particularly in addressing the underlying causes of inflation, primarily cost-push factors.
“MAN, earnestly urges the MPC to carefully evaluate the effects of these monetary policy actions on both the manufacturing sector and the broader economy. Achieving a delicate equilibrium between addressing macroeconomic challenges and fostering the growth and resilience of the manufacturing industry is crucial. Therefore, MAN advocates for robust collaboration between monetary and fiscal authorities.”
He suggested that the government should implement targeted interventions aimed at mitigating the underlying cost-push factors driving inflation, thereby alleviating the financial burden on manufacturers; prioritise forex and credit allocation to the manufacturers and fast track the proposed recapitalization of the banking sector; among others.
The director-general of MAN, Segun Ajayi-Kadir said, “the report we are presenting today confirms a moderate improvement in the Aggregate Index Score (AIS) evidenced by the meagre increase from 51.8 points to 53.5 points for the first time in the last six quarters.
“Notwithstanding, this performance shows that the manufacturing sector is set on the path of restoration and recovery, at least to the level recorded in Q3 2022 with the hope of improvement in the next quarter.”
