By Charles Okonji
The Manufacturers’ Association of Nigeria (MAN), has condemned the continued tightening of the monetary policy by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) as it undermines the significant underlying factors feeding the nation’s increasing cost-push inflation.
By further tighten the monetary policy rate as its best option to address inflation and other ills plaguing the financial sector, the CBN had last week raised the interest rate by 150 basis points – from 24.75 per cent to 26.25 per cent, while maintaining the Cash Reserve Ratio (CRR) of Deposit Money Banks at 45.0 per cent and retaining the Liquidity Ratio at 30.0 per cent.
Commenting to this during the presentation of its bi-annual BI-Q1 2024, MAN Chief Executive Officers’ (CEOs) Confidence Index Report to the media in Lagos Thursday, indicated a “moderate improvement in the Aggregate Index Score (AIS) from 51.8 points to 53.5 points for the first time in the last six quarters.”
According to MAN, it reflects a sector on the path of restoration and recovery, at least to the level recorded in Q3 2022, with the hope of improvement in the next quarter.
MAN attributed the “meagre increase” to other underlying factors, as “emerging policies are pointing to the contrary and may imperil this positivity.”
In his remarks, the Director-General of MAN, Segun Ajayi-Kadir, who was represented by Ambrose Oruche, a Director in MAN, stated, “Clearly, this performance is attributable to the undying resilience of manufacturers, the reasonable gains recorded by the naira in the latter part of the first quarter and the expectation of reasonable reduction in diesel price.
“Others include the hope that the presidential intervention funds for the manufacturing sector will be disbursed seamlessly, and the policy direction of the government will become clearer.”
MAN pointed out the Nigerian economy in recent years has faced significant challenges, including foreign exchange volatility, escalating energy costs and food insecurity, which have “intensified inflationary pressures, adversely impacting consumers’ purchasing power and impeding the growth of the manufacturing sector.
“Consequently, production levels have declined, leading to reduced competitiveness within the industry.
“Unfortunately, while the MPC depicted the sustained increase in headline inflation, predominantly driven by rising food prices due to supply constraints and elevated logistics and distribution costs, it targeted achieving inflation at average of 21 per cent by year end through further tightening the MPR.
Moreover, MAN lamented that Nigeria’s persistent macro-economic instability, resulting from sustained monetary policy decisions over the past two years, has negatively impacted the manufacturing sector.
According to MAN, “This instability, compounded by various constraints affecting sectoral performance, continues to disrupt production plans, undermine investments, and cast uncertainty over prospects.
“Also, the recent decisions by the MPC exacerbate these challenges by further tightening credit interventions, increasing loan costs, raising production cost, limiting fund accessibility, and eroding investment and competitiveness within the manufacturing sector.
“It is evident that the MPC leans towards prioritising the financial sector over the real sector, rather than striving for a balanced approach between the two.
“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,” and “could lead to delays or cancellations of planned initiatives, ultimately constraining the sector’s potential for growth.
“It will further compound the already high cost of doing business, consequently diminishing the competitiveness of Nigerian products in the global market. The high lending rate exceeding 30 per cent will increase the cost of borrowing and make Nigerian goods less competitive to products from other nation.”
Suggesting ways out, MAN urged the committee to thoroughly assess the potential impact on the real sector and the multiplier effect on the nation, collaborate with fiscal authorities to reinforce the sector’s traditional role in driving significant employment, heightened productivity, steady forex earnings, and sustained economic progress.
“It is notable that the strategy of raising the MPR has persisted for nearly two years without yielding positive results. MAN had hoped that the CBN would explore alternative measures, particularly in addressing the underlying causes of inflation, primarily cost-push factors.
“MAN earnestly urges the MPC to carefully evaluate the effects of these monetary policy actions on both the manufacturing sector and the broader economy,” insisting that “achieving a delicate equilibrium between addressing macro-economic challenges and fostering the growth and resilience of the manufacturing industry is crucial.
“Therefore, MAN advocates robust collaboration between monetary and fiscal authorities and suggests implementing targeted interventions aimed at mitigating the underlying cost driving inflation, thereby alleviating the financial burden on manufacturers
“Prioritising forex and credit allocation to manufacturers and fast-tracking the proposed recapitalisation of the banking sector; emphasising the development of infrastructure within industrial hubs and bolstering nationwide investments in renewable energy sources to alleviate logistical expenses and enhance competitiveness, among others.”
