The Nigerian Association of Chambers of Commerce Industry Mines and Agriculture (NACCIMA) has described the recent increase in inflation rate from 14 percent to 15 percent does not address the underlying cause of inflation.
The Director General of NACCIMA, Shola Obadimu, who stated this in a press release made available to TBI Africa, noted that the persistent increase in interest rates may not be sufficient to reduce the inflation rate.
Obadimu said, “We feel that this is primarily a strategy to manage inflation and does not address the underlying cause of inflation, which is rising food costs caused by several variables, including the devaluation of the Naira and the cost of energy, which has impacted production and transportation.
“To attain low inflation rates, the government must assure monetary stability, a continuous electricity supply, and security to promote inclusive economic growth.”
The DG stated that the decision of the Monetary Policy Committee of the Central Bank of Nigeria to raise the Monetary Policy Rate from 14% to 15.5% is the third move by the central bank in 2022 in response to the continuous increase in inflation rate.
In his own word, “While we suspected that the government believed that the country’s inflation could be controlled by a one-directional review, we as the organised private sector feel that the country’s pressing inflationary condition is the result of multiple factors. And that relying just on monetary policy to restrain its unabated growth may be ineffective as opposed to producing the desired outcome.
“The ramifications of the increase in the interest rate would negate the proliferation of ease of doing business, the impact of which most businesses are still uncertain about.
“Following this policy, the majority of SMEs would begin to have less discretionary income because of increased interest payments, reducing their capacity to invest, reinvest, and hire additional personnel. Due to higher interest rates, it would be more challenging for businesses to repay their loans, and the majority could be threatened with insolvency.
“Consequently, the survival of most small and medium-sized businesses is threatened by the rising costs of capital and production, which result in an increase in the price of finished items. In fact, and in a practical sense, the majority of the population has diminished purchasing power, while the percentage of individuals living at the base of the pyramid continues to rise. This new regulation will cause increased hardship for businesses and individuals.”
He advised the Government to undertake a policy review to eliminate additional inflationary drivers.
“Our hope is that the government will place greater emphasis on the contribution of special industries and Micro, Small, and Medium-Sized Enterprises to the economy and offer more developmental financing to mitigate the consequences of production cost increases.
“The current state of the economy has severely diminished the production capability of the majority of industries; enterprises are already closing. Small and medium-sized firms, which accounted for 91% of all businesses in the country and employed about 60% of the working population, would be severely harmed by the implementation of this new policy, since it would inevitably result in an increase in operating costs.
“As the cost of raw materials increases for firms, they are forced to raise prices regardless of demand as a result of inflation’s root causes. Attempts by the government to restrict the circulation of money would inevitably result in a rise in the price of products and consumables, as well as a decline in the standard of living.
“Most employers of labour would continue to find it difficult to accede to the desires of their employees, as employees may request a raise. If companies fail to maintain competitive salaries, they may face a labour shortage. Which has been the case in the largest number of businesses in most industries in present Nigeria. Due to the status of the economy, average youth, the brightest minds, and specialists are on the verge of movement/escape. We believe before voting on a policy, it is necessary for decision-makers to always study the policy’s dynamic from a holistic and contextual perspective,” Obadimu expressed.
He pointed out that the impact of the Monetary Policy Rate on industries, particularly the manufacturing sector, is unquestionably considerable, stressing that the manufacturing industry already faces several obstacles, such as high exchange rates, forex scarcity, currency depreciation, the cost of diesel, and insecurity.
Commenting on the concurrent introduction of the increased Cash Reserve Ratio from 22.5 percent to 32.5 percent, he noted that banks will be dissuaded from lending money or may explore mergers to meet the effects of CRR and MPR.
“Increase in MPR can be devastating if too much is done too quickly, as in the instance of Nigeria, which implemented three significant rate hikes within five months. It is conceivable that this hike in Policy rates is insufficient to contain inflation. Therefore, it is essential for Nigeria to tread carefully down this path of business closures, rising inflation, high unemployment, and slow/stagnant economic growth,” the DG lamented.
