The Manufacturers Association of Nigeria (MAN) has accused the Central Bank of Nigeria (CBN) of prioritising the financial sector over the real sector in the manner it has been deploying its monetary policy options.
This view was expressed on Thursday by the Director General of MAN, Mr. Segun Ajayi-Kadir, in a press statement titled the “Position of MAN on the Report of Monetary Policy Committee Meeting on May 20-21, 2024.”
Ajayi-Kadir said: “It is evident that the Monetary Policy Committee (MPC) leans towards prioritising the financial sector over the real sector, rather than striving for a balanced approach between the two.”
The MPC reached a decision to raise the interest rate by 150 basis points, from 24.75 percent to 26.25 percent and opted to maintain the Cash Reserve Ratio (CRR) of deposit money banks at 45.0 percent and retain the liquidity ratio at 30.0 percent during its latest meeting.
But these decisions, according to him, have serious militating implications for the Nigerian manufacturing sector.
He argued that “the persistent macroeconomic instability in Nigeria, resulting from sustained monetary policy decisions over the past two years has negatively impacted the manufacturing sector.
“This instability, compounded by various constraints affecting sectoral performance, continues to disrupt production plans, undermine investments, and cast uncertainty over prospects.
“Furthermore, 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,” he said.
The director general of MAN noted that the strategy of raising the MPR has persisted for nearly two years without yielding positive results.
Ajayi-Kadir stated that the probable outcomes that could be harvested from continued tightening of monetary instruments would be constraints on investment, business expansion and further decline in manufacturing competitiveness.
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.
“As a result, 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 added that a high lending rate exceeding 30 percent will increase the cost of borrowing and make Nigeria goods less competitive to products from other nations.
“This is evident in the substantial downturn in global demand for Nigerian goods. Notably, data sourced from the World Trade Organisation (WTO) reveals a stark contrast in manufacturing export values between Nigeria, South Africa, Egypt and Morocco in 2022, with South Africa, Morocco and Egypt recorded $45.38 billion, $30.61 billion, $20.14 billion respectively compared to Nigeria’s modest record of $3.21 billion.
“Such a glaring divergence underscores the significant disparity in competitiveness of Nigeria,” he argued.
Moreover, according to the MAN survey, he said the capacity utilisation of the manufacturing sector reduced from 56.4 percent recorded in 2022 to 55.1 percent in 2023.
Also, the growth of the sector reduced to 1.40 percent in 2023 from 3.35 percent and 2.45 percent recorded in 2021 and 2022 respectively, he maintained.
He, therefore, said that the CBN should explore alternative measures, particularly in addressing the underlying causes of inflation, primarily cost-push factors.
He said: “MAN, earnestly urges the MPC to carefully evaluate the effects of these monetary policy actions on both the manufacturing sector and the broader economy.
“Achieving a delicate equilibrium between addressing macroeconomic challenges and fostering the growth and resilience of the manufacturing industry is crucial.
“Therefore, MAN advocates for robust collaboration between monetary and fiscal authorities and suggests considering the following policy measures, such as the implementation of “targeted interventions aimed at mitigating the underlying cost-push factors driving inflation, thereby alleviating the financial burden on manufacturers,” prioritisation of “forex and credit allocation to the manufacturers and fast track the proposed recapitalisation of the banking sector.”
He also emphasised the development of infrastructure within industrial hubs and bolstering nationwide investments in renewable energy sources to alleviate logistical expenses and enhance competitiveness.
Furthermore, he called for the reduction of the reliance of the country on imported products and raw materials by providing incentives for investment in backward integration and local sourcing to reduce the pressure on the dollar to the barest minimum.
Dike Onwuamaeze
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