It is obviously looking more like a fashion parade that almost all the financial institutions’ regulatory authorities in the country have had to literally indulge their constituent organizations in a compulsory capital raise by way of increasing their various Minimum Capital Requirements as a process of presumably consolidating their operational efficiencies and service deliveries by way of improved liquidity.
As the thinking in certain quarters now is that the whole process of compelling financial institutions to increase their capital outlays is to help government achieve the desire of a one trillion dollars economy by 2030, we make bold to say that the thought process behind this initiative may have been faulty considering the fact that the rejuvenation of the Nigerian economy; like in every other jurisdiction, lies more in economic diversification projects in the areas of manufacturing and agriculture more than the current glamour associated with the banking and related financial institutions.
It is our considered opinion that efforts at empowering the nation’s manufacturing sector remains the vital role in national economic growth as emphasized through job creation, poverty reduction, and increased standard of living.
Key strategies for empowering the sector should include investment in innovation, research and development, and a skilled workforce through education and apprenticeships.
Empowering also involves integrating technology for efficiency and sustainability, supporting SMEs, adopting worker-centric approaches, and promoting gender diversity.
Policy frameworks like tax reforms, incentives, and improved ease of doing business are essential to create a supportive ecosystem for manufacturing to thrive.
Improvement in the area of infrastructure, such as roads and power, should not be taken for granted. With the manufacturing sector in comatose, with part of its consequences as growing unemployment, lower purchasing power of individuals, a disruptive value-chain and capital flight on the back of consumption of imported but essential commodities, the need to lay more emphasis on ingredients for the rejuvenation of that critical sector cannot be overlooked.
The ever-increasing cost of borrowing funds from financial institutions has never been directly linked to the illiquidity of lender institutions but primarily on account of inflationary trends.
There is no gain in re-emphasizing the fact that the manufacturing sector, if well stimulated adds value to raw materials, creating finished products and driving economic growth. It has a high employment “multiplier” effect, creating jobs and contributing to poverty eradication. It is crucial for modernizing agriculture and is a cornerstone for a nation’s economic power.
For us, part of the key strategies for empowering the nation’s manufacturing sector revolves around the conscious and perhaps guided investment in advanced technology and research to improve efficiency and develop new capabilities, investment in high skills, support for apprenticeships, and partnering with educational institutions to build a future-ready workforce.
These should be in addition to implementing policies that will enhance the ease of doing business and provide access to funding for small and medium-sized enterprises in the sector.
We are quick in adding integrated sustainable business practices and leveraging digital tools to reduce waste and environmental impact. Promoting gender diversity by providing education, technical skills, and employment opportunities for women in technical fields counts alongside the introduction or rather, refine initiatives such as tax reforms, production-linked incentives, and improved digital infrastructure to support growth.
Fostering a better working environment through worker empowerment, inclusion in decision-making, and the use of technology to facilitate knowledge sharing and collaboration should form part of the lower-hanging fruit in making the manufacturing sector, especially the SMEs and cluster zones more relevant to the nation’s dream of achieving the much-orchestrated one trillion dollar economy by the year 2030.
The lamentable aspect of the continual increase in the capital requirements of financial institutions in Nigeria which are always inflation-induced induced is that they have never succeeded in bringing down lending rates, which today hover around 30 percent.
Under this kind of hostile environment, no decent manufacturing concern can break even, thus opening the country to foreign but cheaper and most time,s higher quality goods and services by way of importation.
The high interest rate to deposit spread in Nigeria has significant consequences for GDP growth rates. A wide spread is a consequence of high lending rates, relative to low deposit rates, making it more expensive for individuals and businesses to borrow money. This can reduce investment, consumption, and economic growth.
Furthermore, a high-interest rate spread can also lead to a decrease in deposit rates, making saving less attractive. This can reduce the amount of money available for banks to lend, further exacerbating the problem.
In Nigeria, the high-interest rate spread has been shown to have a negative impact on the output gap, which is the difference between the actual and potential output of the economy. A high-interest rate spread can also lead to a decrease in manufacturing output, as high lending rates make it more expensive for manufacturers to borrow money.
Overall, the high interest rate to deposit spread in Nigeria from our research shows an inverse correlation with GDP growth making it essential for policymakers to address this issue.
Key consequences are reduced investment as high lending rates make it more expensive for individuals and businesses to borrow money, as well. As reducing investment.
High lending rates discourage borrowing for productive investments and stifling economic growth. SMEs and individuals face difficulties accessing affordable credit which can limit their ability to invest in new projects and expand their operations, creating employment and economic growth.
The creation of more conducive environments for the manufacturing and agricultural sectors to thrive should be the major focus of the Bola Tinubu administration’s Renewed Hope Agenda.
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