The Manufacturers Association of Nigeria (MAN) has called on the Federal Government to utilize savings from subsidy reforms to improve infrastructure within industrial hubs, such as roads, electricity, and rail, to enhance manufacturing productivity.
MAN made this call through the document signed by the Director General, Mr Segun Ajayi-Kadir, while reacting to the recent monetary policy rates hike by the Central Bank of Nigeria (CBN).
Ajayi-Kadir adviced the government to promote investments in renewable energy to alleviate the rising energy costs that burden manufacturers and reduce competitiveness.
“Accelerate the disbursement of the N1trillion single-digit loan in the accelerated stabilization and advancement plan for the manufacturing sector to cushion the impact of the high MPR on borrowing costs.
“Introduce fiscal measures that support the importation of essential raw materials and technology at concessionary rates to ease the burden on manufacturers. Encourage backward integration and local sourcing to minimize dependence on imports and reduce pressure on foreign exchange reserves.
“Conduct a comprehensive review of the effects of continuous rate hikes on inflation and the real sector over the past five years to guide future decisions. Focus on promoting domestic production and economic recovery by allowing time for previous rate increases to take effect before implementing further hikes. Strengthen the collaboration between the monetary and fiscal authorities to ensure that they are aligned to support growth.” The DG stressed.
According to him, the decision to raise the MPR to 27.25% has far-reaching implications for the manufacturing sector in Nigeria.
He pointed out that continued increase in interest rates, which now totals 15.75 percentage points since May 2022, would further compound the challenges faced by the sector, including rising production costs in the face of declining consumer purchasing power.
“With the increase in borrowing costs, manufacturers will now pay over 35% on their credit facilities. Clearly, this will lead to increase in production costs, higher prices of finished goods, lower competitiveness and production capacity expansion.
“The impact of higher interest rates goes beyond compounding the challenges of manufacturers, it stifles opportunities for investment in crucial areas such as technology, retooling, and expansion within the manufacturing sector. Manufacturers will, all the more, be compelled to choose servicing existing credit facilities over expansion and investment in new product lines. For instance, over the first six months of the year, manufacturers incurred more than ₦730 billion in capital expenses due to the continuous rise in interest rates imposed by commercial banks. This dilemma hampers innovation, productivity and growth.
“Moreover, the manufacturing sector is grappling with depressed consumer demand, primarily driven by lower purchasing power. This decline has severely hampered capacity utilization within the sector. Data from the first half of the economic review published by MAN reveals a troubling trend: the value of unsold finished goods inventory surged by 42.93 percentage points, reaching ₦1.24 trillion compared to ₦869.37 billion at the close of 2023.
“This growing stockpile of unsold products underscores the difficulties manufacturers face in a weakening market. The broader implications of these challenges threaten not only the manufacturing sector but also the Nigerian economy as a whole. As higher borrowing costs lead to poor access to funds, lower capacities and potential business closures. Truth be told, the capacity to absorb the country’s growing youth population into meaningful employment has diminished significantly with the attendant adverse socioeconomic and security implications. In broad terms, MAN is worried about the implications of the continuous rate hikes on the productive sector and earnestly expects the CBN to stop the rate hike but explore more of the monetary-fiscal policy handshake option to curb inflation.” MAN laments.
