Local manufacturers in Nigeria are raising the alarm, warning that they can no longer afford any more increases in interest rates. They argue that higher rates are crippling the manufacturing sector, leading to rising costs, reduced consumer demand, and even forcing some companies to shut down or leave the country altogether.
The Manufacturers Association of Nigeria (MAN) has expressed serious concerns about the impact of continuous interest rate hikes on the industry. They say that the rising costs of borrowing have made it nearly impossible for businesses to operate effectively. As a result, production costs have soared, unemployment has risen, and social instability has increased. These challenges are not just hurting individual businesses but are also having a ripple effect on the entire economy.
Segun Ajayi-Kadir, the Director-General of MAN, highlighted the dire situation by noting that, even before the recent increase in the Monetary Policy Rate (MPR), none of the top five banks in Nigeria offered lending rates below 30%. On average, commercial banks charge a staggering 32.7% interest, which has made it extremely difficult for manufacturers to access credit and invest in their businesses.
The rising interest rates have also had a significant impact on the flow of investments into the manufacturing sector. Foreign Direct Investment (FDI) has dropped by 25%, from $256.12 million in the first quarter of 2023 to $191.92 million in the first quarter of 2024. This decline in investment is worrying for a sector that is critical to Nigeria’s economic growth.
Ajayi-Kadir also pointed out that while the depreciation of the naira has doubled the value of manufactured exports, the overall share of manufacturing in non-oil exports has fallen sharply. This trend is alarming because it indicates that the sector is losing its competitiveness in global and regional markets.
Given these challenges, MAN is pleading with the Central Bank of Nigeria (CBN) to reconsider its approach to monetary policy. They argue that stabilizing prices and prioritizing the survival of the manufacturing sector should be at the forefront of the CBN’s decisions. By doing so, the sector can continue to play a vital role in job creation, productivity, and economic stability.
Ajayi-Kadir emphasized the need for the CBN to focus on supporting domestic production by avoiding further hikes in the MPR. He also called for the implementation of a N75 billion single-digit loan approved by the President for the manufacturing sector, which would provide much-needed relief to struggling businesses.
The situation for manufacturers has been further complicated by a sharp increase in import duties. Bashir Adewale Adeniyi, the Comptroller General of the Nigerian Customs Service (NCS), revealed that import duty rates have changed an astonishing 42 times in the second quarter of the year alone. These constant fluctuations are creating uncertainty and making it difficult for manufacturers to plan and budget effectively.
Adeniyi acknowledged that the situation is concerning and noted that the NCS is working with other stakeholders, including the CBN, to stabilize these rates. He stressed the importance of all parties coming together to agree on fiscal requirements and address the challenges facing the manufacturing sector.
The ongoing struggles of Nigeria’s manufacturing sector highlight the urgent need for stability in both monetary and fiscal policies. Continuous interest rate hikes and fluctuating import duties are placing immense pressure on businesses that are already grappling with a range of challenges, from rising production costs to declining consumer demand.
Source: The Guardian
