New banks capital requirement: MAN wants CBN to consider impact of policy on manufacturing sector

COMFORT EKELEME

The Manufacturers Association of Nigeria (MAN) has urged the Monetary Policy Committee (MPC) to carefully consider the impact of these monetary policy measures on the manufacturing sector and the broader economy.

Its Director General, Segun Ajayi-Kadir, while giving the position MAN on the report of MPC meeting held recently, said, it is crucial to strike a balance between addressing macroeconomic challenges and supporting the growth and sustainability of the manufacturing industry.

He said, in the light of the afore mentioned, “we recommend a robust synergy between the monetary and fiscal authorities as well as the consideration of the following policy measures, ensure adequate security in farming areas and business environment by fast-tracking the passage of the Police Reform Bill and investing significantly in data platforms, surveillance systems and community policing.

According to him, there need to stabilise the value of the naira by managing the floating exchange rate within a business-friendly threshold and intensify ongoing reforms to boost the level of liquidity and degree of transparency in the official forex window.

He however, urged the regulatory authorities to prioritise forex and credit allocation to the manufacturers and fast track the proposed recapitalization of the banking sector.

To him, there is the urgent need to further reduce the reliance of the country on imported products and raw materials by providing incentives for investment in backward integration and local sourcing to reduce the pressure on the dollar to the barest minimum.

Ajayi-Kadir, also said the authorities should prioritise the provision of infrastructure in industrial hubs and boost nationwide investment in renewables to reduce logistics cost and promote competitiveness.

Daily Champion recalled that the MPC, at the end its 294th meeting decided to further tighten monetary policy as follows-Raise the MPR by 200 basis points to 24.75 per cent from 22.75 per cent; adjust the asymmetric corridor around the MPR to +100/-300 basis points; retain the Cash Reserve Ratio (CRR) of Deposit Money Banks at 45.0 per cent; adjust the Cash Reserve Ratio of Merchant Banks from 10.0 per cent to 14.0 percent and retain the Liquidity Ratio at 30.0 percent.

On the implication on the manufacturing sector, Ajayi-Kadir said, in broad terms, the implications of maintaining the same pattern of monetary policy decisions in the last two years is evident in the continuous macroeconomic instability prevalent in the economy with overwhelming impact on the manufacturing sector in Nigeria.

“This is worsened by the multidimensional binding constraints responsible for the lackluster performance of the manufacturing sector in Nigeria. Undoubtedly, macroeconomic instability will continue to disrupt production plans, jeopardize investments, and cloud the sector’s prospects.

“In specific terms, the current MPC decisions will further limit credit interventions, increase the cost of loans, upscale production cost, reduce access to funds, manufacturing investment and competitiveness.

“The higher cost of doing business will be further exacerbated by the decision of MPC, thereby worsening competitiveness of Nigerian products in the global market, which is evident in the drastic reduction in global demand for these products,” he said.

Data provided by the World Trade Organisation, revealed that South African manufacturing export value was $46 billion, while that of Nigeria was $3billion in 2022. Clearly, this is over 15 times greater than Nigeria’s manufacturing export value in that year.

The reduction in global demand for Nigerian products was further buttressed by NBS report that confirmed that manufacturing export value of Nigeria plummeted by 166 per cent from N2.07 trillion in 2019 to N778.44 billion in 2023.

In addition, the exorbitant lending rate of over 30 percent has contributed largely to a drop in the share of manufacturing export to non-oil export from 82.4 per cent to 24.8 per cent in 2019 and 2023 respectively.

The resultant increase in the cost of servicing loans is a threat to the financial stability of manufacturing companies. The increase will destabilize manufacturers through the disruption of production plans, avoidable stock-out situations, and decreased capacity utilization. Clearly, all of these could lead to downsizing of workers, closure of more companies, upscaling of social vices and insecurity in Nigeria.

The MAN DG further noted that the increase in Merchant Banks’ CRR and the narrowing of the asymmetric corridor will further reduce the capacity of banks to lend to the productive sector, such as manufacturing.

“These, in addition to the high interest rates, will limit backward integration, research & development and innovation needed to enhance productivity and rapid industrial-led economic growth,” he said.