Segun Ajayi-Kadir, the Director General of the Manufacturers Association of Nigeria (MAN), has expressed concerns over the recent decision by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to raise the monetary policy rate (MPR).
Ajayi-Kadir warned that the increase in lending rates would make Nigerian goods less competitive in the global market and pose significant challenges to the country’s manufacturing sector.
In a report by the News Agency of Nigeria (NAN) on Thursday, Ajayi-Kadir highlighted the adverse effects of the MPC’s decision to raise the MPR from 24.75 percent to 26.25 percent on May 21.
The MPR serves as the benchmark for banks to set their interest rates. Additionally, the MPC left the liquidity ratio (LR) unchanged at 30 percent and retained the cash reserve ratio (CRR) at 45 percent for deposit money banks (DMBs) and 14 percent for merchant banks.
The asymmetric corridor was also maintained at +100/-300 basis points around the MPR.
Ajayi-Kadir explained that the higher lending rates would lead to increased production costs, restricted access to funding, and reduced investment in the manufacturing sector.
He said, “The combination of heightened borrowing costs and reduced liquidity will hinder manufacturers’ ability to invest in innovative technologies, expand production capacities, or venture into new markets.
“This could lead to delays or cancellations of planned initiatives, ultimately constraining the sector’s potential for growth and its overall contribution to economic growth and development.”
He criticized the MPC for prioritizing the financial sector over the real sector, advocating for a balanced approach that considers the needs of both.
Ajayi-Kadir emphasized that the current MPR would stifle investment and growth, limiting manufacturers’ ability to adopt new technologies and expand their operations.
Ajayi-Kadir also referenced data from the World Trade Organization (WTO) to illustrate the competitiveness gap between Nigeria and other African countries.
In 2022, South Africa, Morocco, and Egypt had manufacturing export values of $45.38 billion, $30.61 billion, and $20.14 billion respectively, while Nigeria’s export value was only $3.21 billion.
He pointed out that the capacity utilization of Nigeria’s manufacturing sector had decreased from 56.4 percent in 2022 to 55.1 percent in 2023, and the sector’s growth had slowed from 3.35 percent in 2021 to 1.40 percent in 2023.
“The high lending rate exceeding 30 percent will increase the cost of borrowing and make Nigeria’s goods less competitive compared to products from other nations,” Ajayi-Kadir warned. “Such a glaring divergence underscores the significant disparity in the competitiveness of Nigeria.”
Ajayi-Kadir acknowledged the MPC’s efforts to address economic challenges such as inflation and exchange rate fluctuations but urged the committee to consider the broader impact on the real sector.
He called for collaboration with fiscal authorities to enhance the manufacturing sector’s role in generating employment, increasing productivity, ensuring steady foreign exchange earnings, and promoting sustained economic growth.
