Interest rate hike threatens manufacturing sector, MAN warns

The Director General, Manufacturers Association of Nigeria, Segun Ajayi-Kadir, has warned that the latest interest rate hike threatens the survival of the manufacturing sector.

He emphasised that the continued increase in the cost of borrowing will escalate production costs, stifle investments, and reduce the sector’s competitiveness, ultimately leading to job losses and economic downturn if not urgently addressed.

Ajayi-Kadir gave the warning in a statement on Wednesday.

The 296th meeting of the Monetary Policy Committee of the Central Bank of Nigeria held on July 22-23, 2024, focused on analysing recent economic developments.

The committee identified high foreign exchange rates, increasing energy costs, and food insecurity as challenges posing potential risks to price stability.

Ajayi-Kadiri lamented the persistent rise in inflation majorly occasioned by continuous increases in energy and food prices, the  CBN has again increased the Monetary Policy Rate by 50 basis points from 26.25 per cent to 26.75 per cent.

The MPC widened the asymmetric corridor around the MPR from +100 to -300 basis points to +500 to -100 basis points.

Additionally, the MPC decided to maintain the Cash Reserve Ratio for deposit money banks at 45 per cent and for merchant banks at 14 per cent and retained the Liquidity Ratio at 30 per cent.

The statement read, ” Despite the continuous increase in MPR over the past two years resulting in a weighty 1,475 basis point hike from 11.5 per cent in May 2022 to 26.25 per cent in May 2024, inflation has remained persistently high, reaching a staggering 34.19 per cent in June, the highest since March 1996. The new rate will further constrain the growth of the manufacturing sector, as the purchasing power of consumers, production levels, competitiveness and sales will face further decline.

“The manufacturing sector in Nigeria plays a vital role in the country’s economy. However, it is facing a multitude of challenges that threaten its sustainability and contribution to economic growth. Therefore, the continued increase in the cost of borrowing, which is one of our major challenges, will:

“Escalate production costs and consequently the prices of finished goods, with consequential effect on unemployment and social instability. It will further compound the prevailing low consumer demand, capacity utilization and profitability.

“Stifle capacity to make new and further investments, innovation and curtail opportunities for the growth.

“Constrained the capacity of the sector to compete effectively in regional and global markets, and if unchecked, may trigger critical distress of more manufacturing concerns.”