The Manufacturers Association of Nigeria (MAN) has called on the Central Bank of Nigeria (CBN) to upscale the current efforts at improving the availability of development-oriented funds at single-digit interest rates, prioritizing industries.
MAN in a statement titled ‘MAN Perspective on the September 27, 2022 decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN)’ signed by its Director General Segun Ajayi-Kadir stressed the need for the regulatory authority to promote a more robust production centric forex management and intervention in the official forex market, leveraging on the sustained increase in crude oil price in the global market.
The Committee increased the Monetary Policy Rate (MPR) by 150 base points to 15.5per cent with an asymmetric corridor of +100/-700 basis points around the MPR, and Cash Reserve Requirement (CRR) by 750 base points to 32.5per cent; while retaining the Liquidity Ratio at 30per cent.
The increase was aimed at moderating the high inflationary pressure on the economy and narrowing the gap between the hitherto MPR of 14per cent and the inflation rate which stood at 20.52per cent in August 2022 in order to improve the level of real interest rate.
MAN in the statement maintained that priority attention should be given to meeting the forex requirement of the industry’s vital inputs that are not available locally, to sustain and ramp up production.
The association also called for the intentional promotion of monetary and fiscal policy fusion; that is, the Central Bank of Nigerian and the Federal Ministry of Finance, Budget & National Planning should jointly put complementary measures in place in support of domestic manufacturing, noting that framework that will facilitate harmonious implementation of relevant policy guidelines aimed at boosting productivity, should be put in place.
According to MAN, interest rate, inflation, and exchange rate are triadically critical to investment and production, adding that balancing the rates in line with local aspiration is therefore imperative.
“Regrettably, at the moment, other contributory factors like insecurity and externalities induced food shortage; Government’s excessive drive for internally generated revenue, increase in interest rate in the US; unsustainable and unpragmatic interventions in the forex market; the acute shortage of forex and unfriendly exchange rates are not only fueling inflation but seriously depressing industrial production.
“Consequently, MAN is hopeful that the CBN will creatively go beyond the conventional monetary management system because global economic dynamics are changing and conventional measures may no longer be effective.
“Undoubtedly, the implementation of these measures will enable industries to remain in business; increase aggregate output; improve contribution to Gross Domestic Product (GDP) and ensure inclusive and sustainable economic growth,” MAN said.
On the implications for the economy and manufacturing sector, the association maintained that the increase in the two monetary parameters, MPR and CRR portends worrisome negative consequences for the manufacturing sector.
“Some of which include, increased cost of borrowing by manufacturers, further beyond the extant double-digit rate, which disincentivize new investments in the sector; increased factor costs which feed into high product prices, making the sector uncompetitive; high product prices, which makes patronage to plummet and lead to a huge inventory of unsold manufactured products in the sector.
“High inventory of manufactured products will trigger reverse effect in the sector as manufacturing capacity utilization, production, employment, profit and tax contribution to the national building will decline,” the association added.
MAN also said that in consideration of the prevailing scenario around an increase in the interest rate and access to funds, tougher times are ahead for the productive sector, stressing that the increase in MPR from 14per to 15.5per cent will rub off negatively on other rates and dash the hope for a single digit lending rate for the productive sector in the economy.