REACTION OF MANUFACTURERS ASSOCIATION OF NIGERIA ON THE REPORT OF MONETARY POLICY COMMITTEE MEETING

The 297th meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) was held on September 23-24, 2024. The committee focused on analyzing recent economic developments, particularly the persistent inflationary pressures and challenges in the foreign exchange market. During the meeting, it was noted that the inflation rate had slowed for two consecutive months; however, new inflationary pressures had emerged. In a bid to further stabilise the economy, according to the CBN, it announced an increase in the Monetary Policy Rate (MPR) by 50 basis points, raising it from 26.75% to 27.25%. The committee decided to maintain the asymmetric corridor around the MPR at +500 to -100 basis points. Additionally, it raised the Cash Reserve Ratio (CRR) for deposit money banks by 500 basis points, increasing it from 45% to 50%, and for merchant banks by 200 basis points, raising it from 14% to 16%. The liquidity ratio was retained at 30%, while other critical rates, including the CRR, were adjusted to prioritize price stability as the primary policy objective. Despite market expectations for a rate hold or reduction, given that price increases had slowed for the second consecutive month in August to an annual rate of 32.2%, the MPC opted for a tightening of monetary policy. This decision, according to the committee was influenced by the emergence of new pressures stemming from rising costs of fuel, electricity, and food. It is noteworthy that the Nigerian government increased the pump price of Premium Motor Spirit (PMS) by almost 41% in August.

The decision to raise the MPR to 27.25% has far-reaching implications for the manufacturing sector in Nigeria. The continued increase in interest rates, which now totals 15.75 percentage points since May 2022, would 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 the Manufacturers Association of Nigeria 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.

The Manufacturers Association of Nigeria (MAN) acknowledges the efforts of the Central Bank of Nigeria to stabilize the economy. The Association is however surprised that the CBN is increasing the MPR against the backdrop of the meagre improvement in inflation figures, which could be largely traceable to the onset of the harvest season. We also note that this increase is coming at a time that Central Banks, in other climes are either retaining or cutting rates. It is therefore expedient that Government adopt a holistic and balanced approach to policy formulation and decisions, with due consideration of their overall impact on the various sectors of the economy, particularly the productive sector. Undoubtedly, price stability is crucial, and so is the survival and growth of the manufacturing sector. This should be top priority at this time and is in line with the government avowed commitment to growing domestic production, creating more jobs and alleviating poverty.

In light of the recent decisions by the MPC, MAN urges the government and CBN to consider the following:

 • 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.

 • 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.

• Promote investments in renewable energy to alleviate the rising energy costs that burden manufacturers and reduce competitiveness.

 • Utilize savings from subsidy reforms to improve infrastructure within industrial hubs, including roads, electricity, and rail, to enhance manufacturing productivity.