As the Central Bank of Nigeria (CBN) continued to tighten its monetary policy noose, as evident by its recent increase of its Monetary Policy Rate (MPR) to 27.25%, the umbrella body of the nation’s  manufacturers, the Manufacturers Association of Nigeria (MAN), has said the policy has begun to take severe tolls on the manufacturing sector, with the value of unsold finished  goods inventory presently hitting ₦1.24 trillion, compared to ₦869.37 billion at the close of 2023, representing a 42.93 percent surge.

 

 

 

It also disclosed that  over  ₦730 billion was incurred in capital expenses, by members,  due to the continuous rise in interest rates imposed by commercial banks, in the first six months of Year 2024.

 

 

While expressing its reservations on the  recent decision of the Monetary Policy Committee (MPC) to jerk up MPR, the association, in a statement signed by its Director General, Segun Ajayi-Kadir, described the growing stockpile of unsold products as underscoring the difficulties manufacturers have continued to face in a weakening market, a development, it stated, threatens not only the manufacturing sector, but also the Nigerian economy.

 

According to MAN, a higher borrowing costs lead to poor access to funds, lower capacities and potential business closures, thereby making the sector’s capacity to absorb the country’s growing youth population into meaningful employment diminish significantly.

 

Besides, it stated,  the continued increase in interest rates, which now totals 15.75 percentage points since May 2022, would lead to rising production costs in the face of declining consumer purchasing power.

 

 

The manufacturers’ group argued further that with the increase in borrowing costs, manufacturers would be compelled to  pay over 35% on their credit facilities, thereby leading 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.

 

 

“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,” it stated.

 

 

It expressed surprise that the country’s apex bank decided to increase the MPR,  at a time Central Banks, in other climes are either retaining or cutting rates.

 

 

MAN therefore urged the federal government to  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.

 

 

It also called on the government to 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.

 

 

The association would also want the government to focus on promoting domestic production and economic recovery by allowing time for previous rate increases to take effect before implementing further hikes, while also stressing the importance of strengthening the collaboration between the monetary and fiscal authorities to ensure they align to support growth.