The Manufacturers Association of Nigeria (MAN) on Wednesday lamented that the average maximum lending rate charged by commercial banks on loans to its members rose to 35 per cent in Q2 of 2024, up from 28.6 per cent in Q1.
MAN made this known in a report titled: “MAN Position on the Incessant Increase in Interest Rate,” published in its Q2’24 “MAN CEO’s Confidence Index (MCCI).”
The report showed that the aggregate index score of the manufacturing sector decreased from 53.5 points to 51.9 points in Q2 2024.
Furthermore, the report indicated that lending rate to manufacturers during the period under review for Zenith Bank Plc was 30 per cent on the average while Access Bank Plc and the United Bank for Africa (UBA) were 32 per cent apiece. For First Bank of Nigeria Plc and Ecobank Plc, it was 35 per cent.
It added: “The continuous hikes in MPR have tightened financial conditions for the productive sector, with the average maximum lending rate charged by commercial banks on manufacturers’ finances rising to 35 per cent in Q2 2024 from 28.6 per cent in Q1 2024.
“This has not only increased the cost of goods but has also further compounded the inflationary problem and threatened employment in the sector.”
MAN blamed the ‘erroneous disposition’ of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to fighting inflation with continual hiking of the Monetary Policy Rate (MPR) for the current lending rate to the manufacturing sector.
“As the CBN continues to hold the erroneous belief that inflation in Nigeria is primarily money-induced, it has persistently increased interest rates in an attempt to curb the escalating inflationary pressure, which reached a 28-year high of 34.19 per cent in June.
“The MPC’s decision to further hike the MPR by 50 basis points in its July meeting brings the total increase to 1,525 basis points since May 2022, when the committee began its aggressive rate hikes.
“Unfortunately, inflation has continued to defy the antidote of increased interest rates, as the inflationary problem in the country is largely driven by supply-side deficiencies and other structural bottlenecks,” MAN stated.
It asserted that before the recent increase in the MPR, available data revealed that none of the five top banks charged a maximum lending rate below 30 per cent.
It warned that the MPC’s decision would further “escalate the cost of borrowing, limit access to credit, and discourage investment in the manufacturing sector.”
The association, therefore, expressed concern that the capacity of the manufacturing sector to play its strategic role of stimulating economic growth has been further constrained by the increase in interest rates.
“The new rate will further limit the growth of the manufacturing sector, as the purchasing power of consumers, production levels, competitiveness, and sales will further decline beyond measure.
“Specifically, the recent increase in the cost of borrowing will escalate production costs, prices of finished goods, unemployment, and social instability and lead to the closure of more manufacturing concerns and constrain the capacity of the sector to compete effectively in global and regional markets,” it said.
The manufacturers’ association observed that while the devaluation of the Naira has more than doubled the value of manufactured exports from N131.15 billion in Q1’23 to N268.7 billion in Q1’24, the share of manufacturing in non-oil exports has consistently declined from 30.2 per cent in Q2’23 to 15.1 per cent in Q1’24, even below the recorded share of 19.8 percent in Q1’23.
“This reveals the waning competitiveness of the Nigerian manufactured export in the global market. This is occasioned by the high cost of doing business, especially the rising cost of borrowing for manufacturing investment.
“It is also noteworthy to acknowledge the critical link between domestic investor confidence and foreign investor sentiment.
“As increasing interest rate contributes to low domestic investor confidence, foreign direct investment in the sector had also declined $191.92 million in the Q1’24, marking a significant drop of 25 per cent quarter-on-quarter and 57 per cent year-on-year. It was $256.12 million in Q1’23,” it said.
It stated that it was expedient that the CBN should prioritise the survival of manufacturing in making monetary policy decisions. This would enable the sector to effectively play its role as the key driver of employment creation, productivity, stable foreign exchange earnings, and sustained economic growth.
It, therefore, implored “the CBN to be domestic production centric by taking a detour from continuous hike in MPR and allow time for the real sector to recover from the impact of previous hikes.”
Meanwhile, the Minister of State for Defence, Bello Matawalle, on Wednesday said that indigenous manufacturing of arms and ammunition in commercial quantities, will lower the pressure on Naira and improve its value in the foreign exchange market.
Matawalle also disclosed that the country was grappling with a significant demand for ammunition, with the military alone requiring approximately 200 million rounds each year.
He added that when the needs of other paramilitary forces and the police are factored in, the total annual requirement for ammunition surges to a staggering 350 million rounds.
The minister made this disclosure on Wednesday, when the ministries of defense, steel development, and the national agency for science and engineering infrastructure (NASENI) signed a Memorandum of Understanding (MoU), to facilitate massive production of arms and ammunition in Nigerian through the military industrial complex.
He however, expressed optimism that the country was on track to begin exportation of arms and ammunition in no distant time, through the revitalised Defence Industries Corporation of Nigeria (DICON).
Matawalle, who doubles as the board chairman of DICON, said: “I made a promise to Mr. President that as far as we are in ministry of defence, before the expiration of these four years, DICON will be exporting its military capability.
“ Therefore, all we need from all of you is prayers and your dedication. We should look at it as our own baby. If today, we are manufacturing even 60 or 70 percent of our military hardware and ammunition, the ministry or military need for forex for importation of arms and ammunition every year would have reduced minimally.
“The requirement of just military is about 200 million rounds of ammunition per annum. Put together, other paramilitary agencies, and the police, we would be looking at about 350 million rounds of ammunition per annum”.
He noted that if the military industrial complex was able to achieve the projected volume of arms and ammunition, the country will not have the problem of foreign exchange pressure because the ammunition will be purchased with local currency.
According to him, if the military or police or civil defence are buying from DICON, they will pay in Naira, and the pressure of sourcing forex will be eliminated.
Speaking at the singing of the MoU, the Minister of Steel Development, Shuaibu Audu, highlighted the strategic importance of Ajaokuta in the initiative, saying, “Ajaokuta provides the perfect platform for the military industrial complex.”
He noted that the collaboration was not only expected to enhance Nigeria’s defence capabilities but also to stimulate economic growth by creating jobs and reducing the country’s dependence on foreign imports.
Dike Onwuamaeze and Linus Ikechukwu
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