The Manufacturers Association of Nigeria has called on the Central Bank of Nigeria has said the interest rates are still too high and has appealed to Central Bank of Nigeria to further cut it down, as high cost of borrowing has continued impede production and encumbered competitiveness.
This stand was made by MAN in its reaction to the outcome of the Monetary Policy Committee meeting held on November 24 and 25, where the MPC retained the Monetary Policy Rate at 27 per cent.
Precisely at the 303rd meeting, the MPC also adjusted the Standing Facilities Corridor to +50/-450 basis points, retained the Cash Reserve Ratio at 45 per cent for commercial banks and 16 per cent for merchant banks, and left the liquidity ratio unchanged at 30 per cent.
In a statement signed by the Director-General of MAN, Segun Ajayi-Kadir, the association appreciates the decision of MPC to halt the increase in MPR and to maintain the 27.00 percent fixed at the last meeting.
Ajayi-Kadir explained that the decision to adjust the standing facilities corridor to enhance liquidity is also noted.
“However, the expectation of the Association is a further reduction in the rate to reduce the cost of borrowing for manufacturers.
“Despite the reduction at the last meeting, borrowing costs of 30 to 37 percent remain high for manufacturers. The rate hinders production and reduces the competitiveness of the sector,” he said.
He stated further that the emphasis on exchange rate stability and improved forex liquidity is vital, as manufacturers rely on foreign exchange for imports, but added that “it is essential to reduce the cost of funds to encourage borrowing for expansion and investment.”
Persistent high lending rates, Ajayi-Kadir further noted, “will further limit access to affordable credit for manufacturers, especially those within the SMI cadre.”
He explained that the situation “is complicated with prevailing structural challenges like poor infrastructure, high logistics costs, inadequate electricity supply, high energy cost and insecurity that cumulatively raise production costs and weaken competitiveness.”
MAN thus urged the Central Bank and other policymakers to continue to pursue policies that foster inclusive growth, incentivize manufacturing and address binding constraints limiting the performance of the manufacturing sector.
Ajayi-Kadir also appealed to the CBN to strengthen handshake with fiscal authority to promote reforms capable of unlocking the full potential of the manufacturing sector.
The association made other recommendations for the manufacturing sector to fully leverage on the emerging macroeconomic stability for productive growth.
It urged the CBN to adopt a downward review of the rate in the subsequent MPC meetings to lessen the burden of high borrowing costs and incentivize long-term investments in manufacturing, particularly in capital-intensive sub-sectors.
Ajayi-Kadir recommended that the CBN should consider additional policy instruments or incentives that facilitate credit flow to the real sector of the economy, especially the manufacturing sector, adding that the government should strengthen fiscal discipline while upscaling investment in infrastructure (Roads, Power and Logistics) to boost the supply capacity of the sector
“The Federal Government should collaborate closely with the Central Bank of Nigeria (CBN) to stabilize the naira and manage external risks by monitoring the potential risk of capital flights because of the MPC’s corridor review that will push banks to lend more
“Government to implement complementary fiscal measures that support industrial development and promote structural reforms especially in real sectors of the economy including Agricultural, Manufacturing and Energy sectors to further reduce inflationary pressure.
“The government should urgently resolve the lingering spate of insecurity in the country, especially in agricultural and industrial zones to stabilize food supply and raw material inputs. A secure environment is critical to food security, lower inflation rate and sustained industrial growth in both urban and rural areas,” he stated.
MAN also urged the CBN to monitor and evaluate the impacts of previous MPC decisions on credit access to the real sector to aid informed position at subsequent meetings.
