Director General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, has lamented that local manufacturers are finding it increasingly difficult to cope with the several strangulating fiscal and monetary policy measures of the Central Bank of Nigeria (CBN).
Ajayi-Kadir, therefore, charged the apex bank to reconsider its stance regarding the fiscal and monetary policy measures and reforms that have negatively impacted the manufacturing sector.
He said in response to the domestic economic conditions in the first quarter (Q1) of 2022 and other challenges, especially those associated with the prevailing international financial and economic environment, the Monetary Policy Committee (MPC) recently reviewed its previous decisions by deepening the MPC.
He disclosed that the MPC reviewed its previous decisions by increasing the Monetary Policy Rate (MPR) to 13.5 per cent from 11.5 per cent, which was fixed since September 2020.
He argued that although the rationale for increasing the MPR stems from the need to curb the rising rate of inflation that recently peaked at 16.8 per cent, the CBN should ensure relative stability and sustain economic growth in the face of uncertainties in the global economy.
“The implication of CBN’s actions for the economy and manufacturing sector will lead to another level of increase in interest rates on loan-able funds, which will enhance the intensity of the crowding effect on private sector businesses, as firms have lesser access to funds in the credit market.
“It will spur an upward review of existing lending rates dependent on obligations of manufacturing concerns, which will increase costs. It will intensify demand crunch emanating from the heavily eroded disposable income of Nigerians, as well as constrained access of households and individuals to cheap funds.”
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Ajayi-Kadir added that the CBN action will exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses.
“It will also further reduce capacity utilisation, increase unemployment, crime and insecurity, as banks’ capacity to support production and economic growth has been constrained. This will restrict the pace of full recovery of the real sector, make manufacturing performance remain lacklustre and lead to learner contribution to the Gross Domestic Product (GDP),” he added.
He stressed that the increase in MPR has widened the journey further away from the preferred single-digit interest rate regime, which is not friendly considering the myriad of binding constraints already limiting the performance of the sector.
He added that MAN was concerned about the ripple effects of CBN’s decision and its implications for the manufacturing sector, which is finding it difficult to survive.
Consequently, manufacturers remain hopeful that the stringent conditions for accessing available development funding windows with the CBN would be relaxed to improve inflow of long-term loans to the manufacturing sector at single-digit interest rate.
“The expectation is that MPC will ensure that future adjustments of the MPR will consider the trends of core inflation rather than base decisions on headline and food inflation. This will no doubt shield the 13.5 per cent on MPR ramp up production and guarantee sustainable growth in the manufacturing sector in particular and the economy in general,” he stated.
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