The Manufacturers Association of Nigeria (MAN) has enjoined the Central Bank of Nigeria to focus on promoting domestic production and economic recovery by allowing time for previous rate increases to take effect before implementing further hikes.
MAN made the call in reaction to the September increase in the Monetary Policy Rate (MPR) by 50 basis points, from 26.75% to 27.25% by the apex bank.
Segun Ajayi-Kadir, the MAN Director-General, said that despite the manufacturers expectation for a rate hold or reduction, given that price increases had slowed for the second consecutive month in August to an annual rate of 32.2%, the MPC opted for a tightening of monetary policy.
“The decision to raise the MPR to 27.25% has far-reaching implications for the manufacturing sector in Nigeria,” said Ajayi-Kadir.
He said: ” The continued increase in interest rates, which now totals 15.75 percentage points since May 2022, would compound the challenges faced by the sector, including rising production costs in the face of declining consumer purchasing power.
With the increase in borrowing costs, manufacturers will now pay over 35% on their credit facilities.
Clearly, this will lead to increase in production costs, higher prices of finished goods, lower competitiveness and production capacity expansion.
The impact of higher interest rates goes beyond compounding the challenges of manufacturers, it stifles opportunities for investment in crucial areas such as technology, retooling, and expansion within the manufacturing sector.
Manufacturers will, all the more, be compelled to choose servicing existing credit facilities over expansion and investment in new product lines.
For instance, over the first six months of the year, manufacturers incurred more than ₦730 billion in capital expenses due to the continuous rise in interest rates imposed by commercial banks.
This dilemma hampers innovation, productivity and growth.”