The President of the Manufacturer’s Association of Nigeria (MAN), Otunba Francis Meshioye, has asked that the Nigerian government help Nigerian manufacturers with an intervention of a Trillion Naira loan with a single digit interest rate that will help cushion the effects of the high interest rates on the manufacturing sector.
Meshioye said this in an interview with ARISE NEWS on Friday, where he reiterated the call by MAN that the increase in interest rate charged by commercial banks on loans, which increased from 28.6% to 35%, was “not even good for the economy, and it’s very worse for the manufacturing sector.”
He said, “It was around 25 thereabout sometimes ago, going up to about 35. But what happens now is- before that time, we were actually about 30/32% interest that we’re paying on interest on our loans. Currently, it’s reading between 32 and 37%. You will find a very few banks who will give it to you at 32/33, but often times, it is 35-37%. You will agree with me that this means that the cost of funding has again jumped up to all businesses, and the impact on the manufacturing sector is very enormous.
“What you can do immediately as a true business person is to first look at your process and find way to reduce cost. If you’re hitherto running an efficient process, there’s little you can do in a very short time. So, you’re likely to go on to say how to pass this cost to an extent on the consumer. You may want to reduce your profit margin, but definitely, it will impact on the consumer. Now, the impact of consumer tells you certain things- looking at the inflation rate generally, like I’ve mentioned, there is no sufficient money for patronage at this point in time.
“So, consumer will prioritise his goods and his demands that he wants to make. So, what will happen is that there will be low demands on the goods, and what will happen in this case is that since demand has diminished, then we’ll be having a lot of unsold stock again. You will remember in our last publication or report we reported about a huge unsold stocks going to trillions of naira. So this means that we will be having piling of unsold stock mounting up in our warehouse.
“The effect of this is not palatable, because you need to understand in the first instance that these stocks were funded by loans taking from banks, and the interest is going up, and the funds are unsold. You are getting the business choked up as it is going that way. Eventually, it’s going to visit the manpower- there will be reduction in our employment, people will lay off staff, already saturated market where the unemployment rate is very high will continue to increase.”
The MAN President then acknowledged the role of the government in trying to improve this situation, but said that there needs to be more, as he said, “We thank the government for intervention fund of 75 billion introduced sometime ago, that’s about a year ago, which is the offering which we’re trying to access. We have applied to an extent, some of our members.
“But this is not really anything to go by because we need much more than that, maybe about a trillion naira that is being discussed about, that will be fine, and we should be involved in this strategy in how to deploy to manufacturers to ensure that those who will be benefiting from whatever special funds available will be manufacturers indeed. And when I say intervention, get me right, we are talking of loan that is affordable at single digit interest rate, not like anything else.
“So, if this happens, then that will be a way to cushion the effect of the problem that manufacturers are facing today. But loan alone is not sufficient, mind you. Loan within a very turbulent environment will do little. It will be helpful, but it will only do a little. There should be deliberate efforts to improve the myriads of infrastructure problems that we have inherited and still have up to date. It is imperative that this be addressed contentiously and with high sense of focus so that we will have enabling environment that works.”
He went on to say, “The administrations have tried to pull few things in the pipeline which makes us to be hopeful, a recent one is the withholding tax which has been really worked upon. Manufacturers will not be paying withholding tax which is very good. This means that we could have some funds which would have hitherto been withheld available for businesses. But this is not really sufficient because it’s just a percentage, and you know that what it just means is that even if that is not there, you remember that there will be income tax that you have to pay in the future. So, you need to be shrewd in finding a way to accumulate funds so when you have to pay your tax in the future, you have money to do that. It’s just an advance tax payment, so that was all it was.
“However, we need intervention that really will help the businesses. When the governor was making his speech, that is, the CBN governor, he discussed about having a collaboration between the monetary policy and the fiscal policy, and this one thing, we have been really impressing on the government in the past. So, if in the wisdom of the CBN governor that this path is what it will take to reduce the interest rate, because that is the argument of the MRC that that’s a way to combat the inflation rather, so, if that is the trend, there is a fiscal measure that truly softens it for business men in manufacturing sector, because high cost of funds will not make them to be competitive, and you can’t grow at 25/30/35/37% rate, it can’t work.”
Ozioma Samuel-Ugwuezi
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