The recent 150 basis point rise in the monetary policy rate (MPR) by the Central Bank of Nigeria (CBN), according to Mr. Segun Ajayi Kadir, Director-General of the Manufacturers Association of Nigeria (MAN), will exacerbate the already high cost of doing business in the nation.
During a press conference on Thursday in Lagos, Ajayi-Kadir said that more tightening and rising loan prices would increase production costs, restrict the availability of funds, and lower investment and competitiveness in the manufacturing sector.
He added that the Monetary Policy Committee’s (MPC) most recent choices would make the problems facing the industry even worse.
The MAN Director General claims that instead of attempting to find a fair solution, the MPC appears to favor the financial industry over the real economy.
He said that the current state of the economy will limit investment and growth, making it more difficult for manufacturers to take on new projects, increase their output, or penetrate untapped areas. The ability of manufacturers to operate in these domains will be further limited by the combination of rising borrowing rates and falling liquidity.
“Therefore, this may result in postponements or cancellations of scheduled initiatives, ultimately limiting the sector’s growth potential and its overall contribution to economic growth and development,” the speaker stated.
“The MPC’s decision will increase the already high cost of doing business, which will reduce Nigerian products’ competitiveness in the international market.”
“The high lending rate, which surpasses 30%, will raise borrowing costs and reduce the competitiveness of Nigerian goods in relation to goods from other countries.”
Increasing MPR consistently hasn’t produced fruitful outcomes.
Ajayi-Kadir commended the MPC for its efforts in tackling the nation’s economic issues, including exchange rate volatility and inflation. He did, however, implore the committee to take into account the impacts on the real economy and the country as a whole.
In order to support the sector’s historical role in generating major employment, productivity, foreign exchange profits, and overall economic improvement, he underlined that cooperation with fiscal authorities is crucial.
Ajayi-Kadir added that there have been no beneficial effects from boosting the MPR for almost two years. He therefore asked the CBN to investigate other approaches, with a primary focus on cost-push factors, to address the fundamental drivers of inflation.
Backstory
The decision to raise the benchmark interest rate by 150 basis points, from 24.75% to 26.25%, was made public by the MPC on Wednesday. The decision comes as the apex bank tightened its aggressive monetary policy at the start of the year to control inflation.
The CBN has defended the consecutive big hike in MPR during the last three meetings of the MPC, citing efforts to stabilize the currency rate and control inflation, which as of April 2024 stands at 33.69%.
