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By Merit Ibe
The Manufacturers Association of Nigeria (MAN), has again expressed worry over the decision of the Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to tighten the monetary policy, saying it will further decline manufacturing competitiveness. The association urged MPC to carefully consider the impact of these monetary policy measures on the manufacturing sector and the broader economy, noting that it is crucial to strike a balance between addressing macroeconomic challenges and supporting the growth and sustainability of the manufacturing industry.
The MPC of the CBN held its 294th meeting this week to evaluate recent economic and financial developments and assess potential risks to the economy’s outlook.
At the end of the meeting, the committee decided to further tighten monetary policy as follows: -Raise the MPR by 200 basis points to 24.75 per cent from 22.75 per cent; adjust the asymmetric corridor around the MPR to +100/-300 basis points; retain the Cash Reserve Ratio (CRR) of Deposit Money Banks at 45.0 per cent; adjust the Cash Reserve Ratio of Merchant Banks from 10.0 per cent to 14.0 percent and retain the Liquidity Ratio at 30.0 percent.
Director General of MAN, Segun Ajayi-Kadir noted that the current monetary stance would further limit credit interventions, increase the cost of loans, upscale production cost, and reduce access to funds, manufacturing investment and competitiveness.
He noted that the implications of maintaining the same pattern of monetary policy decisions in the last two years is evident in the continuous macroeconomic instability prevalent in the economy with overwhelming impact on the manufacturing sector in Nigeria. This he said is worsened by the multidimensional binding constraints responsible for the lacklustre performance of the manufacturing sector in Nigeria.
“Undoubtedly, macroeconomic instability will continue to disrupt production plans, jeopardise investments, and cloud the sector’s prospects,” he noted.
He explained that the reduction in global demand for Nigerian products was further buttressed by NBS report that confirmed that manufacturing export value of Nigeria plummeted by 166 per cent from N2.07 trillion in 2019 to N778.44 billion in 2023.
“In addition, the exorbitant lending rate of over 30 per cent has contributed largely to a drop in the share of manufacturing export to non-oil export from 82.4 per cent to 24.8 per cent in 2019 and 2023 respectively.”
He lamented that the higher cost of doing business will be further exacerbated by the decision of MPC, thereby worsening competitiveness of Nigerian products in the global market, which is evident in the drastic reduction in global demand for these products.
Ajayi-Kadir pointed out that the resultant increase in the cost of servicing loans is a threat to the financial stability of manufacturing companies, adding, “the increase will destabilise manufacturers through the disruption of production plans, avoidable stock-out situations, and decreased capacity utilisation. Clearly, all of these could lead to downsizing of workers, closure of more companies, up scaling of social vices and insecurity in Nigeria.”
He said the increase in merchant banks’ CRR and the narrowing of the asymmetric corridor will further reduce the capacity of banks to lend to the productive sector, such as manufacturing, noting that “these, in addition to the high interest rates, will limit backward integration, research and development and innovation needed to enhance productivity and rapid industrial-led economic growth.”
MAN urged the MPC to carefully consider the impact of these monetary policy measures on the manufacturing sector and the broader economy, noting that it is crucial to strike a balance between addressing macroeconomic challenges and supporting the growth and sustainability of the manufacturing industry.
