Manufacturers warn of sector’s decline on 35% interest rate hike
Agency Report
The Manufacturers Association of Nigeria (MAN) on Wednesday lamented that the average maximum lending rate charged by commercial banks on loans to its members rose to 35 per cent in Q2 of 2024, up from 28.6 per cent in Q1.
MAN made this known in a report titled: “MAN Position on the Incessant Increase in Interest Rate,” published in its Q2’24 “MAN CEO’s Confidence Index (MCCI).”
The report showed that the aggregate index score of the manufacturing sector decreased from 53.5 points to 51.9 points in Q2 2024.
Furthermore, the report indicated that lending rate to manufacturers during the period under review for Zenith Bank Plc was 30 per cent on the average while Access Bank Plc and the United Bank for Africa (UBA) were 32 per cent apiece. For First Bank of Nigeria Plc and Ecobank Plc, it was 35 per cent.
It added: “The continuous hikes in MPR have tightened financial conditions for the productive sector, with the average maximum lending rate charged by commercial banks on manufacturers’ finances rising to 35 per cent in Q2 2024 from 28.6 per cent in Q1 2024.
“This has not only increased the cost of goods but has also further compounded the inflationary problem and threatened employment in the sector.”
MAN blamed the ‘erroneous disposition’ of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to fighting inflation with continual hiking of the Monetary Policy Rate (MPR) for the current lending rate to the manufacturing sector.
“As the CBN continues to hold the erroneous belief that inflation in Nigeria is primarily money-induced, it has persistently increased interest rates in an attempt to curb the escalating inflationary pressure, which reached a 28-year high of 34.19 per cent in June.
“The MPC’s decision to further hike the MPR by 50 basis points in its July meeting brings the total increase to 1,525 basis points since May 2022, when the committee began its aggressive rate hikes.
“Unfortunately, inflation has continued to defy the antidote of increased interest rates, as the inflationary problem in the country is largely driven by supply-side deficiencies and other structural bottlenecks,” MAN stated.
It asserted that before the recent increase in the MPR, available data revealed that none of the five top banks charged a maximum lending rate below 30 per cent.
It warned that the MPC’s decision would further “escalate the cost of borrowing, limit access to credit, and discourage investment in the manufacturing sector.”
The association, therefore, expressed concern that the capacity of the manufacturing sector to play its strategic role of stimulating economic growth has been further constrained by the increase in interest rates.
“The new rate will further limit the growth of the manufacturing sector, as the purchasing power of consumers, production levels, competitiveness, and sales will further decline beyond measure.
“Specifically, the recent increase in the cost of borrowing will escalate production costs, prices of finished goods, unemployment, and social instability and lead to the closure of more manufacturing concerns and constrain the capacity of the sector to compete effectively in global and regional markets,” it said.
The manufacturers’ association observed that while the devaluation of the Naira has more than doubled the value of manufactured exports from N131.15 billion in Q1’23 to N268.7 billion in Q1’24, the share of manufacturing in non-oil exports has consistently declined from 30.2 per cent in Q2’23 to 15.1 per cent in Q1’24, even below the recorded share of 19.8 per cent in Q1’23.
“This reveals the waning competitiveness of the Nigerian manufactured export in the global market. This is occasioned by the high cost of doing business, especially the rising cost of borrowing for manufacturing investment.
“It is also noteworthy to acknowledge the critical link between domestic investor confidence and foreign investor sentiment.
“As increasing interest rate contributes to low domestic investor confidence, foreign direct investment in the sector had also declined $191.92 million in the Q1’24, marking a significant drop of 25 per cent quarter-on-quarter and 57 per cent year-on-year. It was $256.12 million in Q1’23,” it said.
It stated that it was expedient that the CBN should prioritise the survival of manufacturing in making monetary policy decisions. This would enable the sector to effectively play its role as the key driver of employment creation, productivity, stable foreign exchange earnings, and sustained economic growth.
It, therefore, implored “the CBN to be domestic production centric by taking a detour from continuous hike in MPR and allow time for the real sector to recover from the impact of previous hikes.”
