The Director-General of the Manufacturing Association of Nigeria, Segun Ajayi-Kadir, mni, has called on the Central Bank of Nigeria to consider her stand regarding the Fiscal and Monetary Policy Measures and Reforms that have made survival difficult for the manufacturing sector. This was disclosed in a statement made available to News Wings NG.
The entire statement of the DG is reproduced below
THE PRELIMINARY POSITION OF MAN ON THE MAY 24, 2022 DECISION OF THE MONETARY POLICY COMMITTEE (MPC) OF THE CENTRAL BANK OF NIGERIA
1.0 Preamble
In response to the domestic economic conditions in Q1 2022 and other related challenges, especially those associated with the prevailing international financial and economic environment, the Monetary Policy Committee (MPC) recently reviewed its previous decisions. The Committee decided to deepen its contractionary monetary policy stance by increasing the Monetary Policy Rate (MPR) to 13.5% from 11.5%, which was fixed since September 2020.
The key rationale for upscaling the MPR stems from the need to curb the rising rate of inflation that recently peaked at 16.8%, ensure relative stability, and sustain economic growth in the face of the high-level uncertainties in the global economy. The MPC however, retained the asymmetric corridor of +100/-700 basis points around the MPR; Cash Reserve Ratio (CRR) at 27.5% and Liquidity Ratio was also retained at 30%.
2.0 Implications for the economy and manufacturing sector
- This is another level of increase in interest rates on loanable funds, which will no doubt upscale the intensity of the crowding-out effect on the private sector businesses as firms have lesser access to funds in the credit market
- It will spur an upward review of existing lending rates dependent obligations of manufacturing concerns, which will drive costs Northward
- Intensify demand crunch emanating from the heavily eroded disposable income of Nigerians, constrained access of households and individuals to cheap funds
- Lead to the rising cost of manufacturing inputs, which will naturally translate to higher prices of goods, low sales and enormous volume of inventory of unsold products
- Exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses
- Further reduce capacity utilization, upscale the rate of unemployment, incidences of crime and insecurity as the capacity of banks to support production and economic growth is heavily constrained
- Reduce the pace of full recovery of the real sector, make manufacturing performance remain lackluster and of course, lead to leaner contribution to the GDP.
3.0 The Position of MAN
Clearly, the increase in MPR has widened the journey farther away from the preferred single-digit interest rate regime. It is not manufacturing friendly considering the myriad of binding constraints already limiting the performance of the sector. MAN, is therefore, concerned about the ripple effects of this decision and its implications for the manufacturing sector which is visibly struggling to survive the numerous strangulating fiscal and monetary policy measures and reforms.
Consequently, manufacturers are hopeful that the stringent conditionalities for accessing available development funding windows with the CBN will be relaxed to improve the flow of long-term loans to the manufacturing sector at single-digit interest rates. The expectation is that MPC will ensure that future adjustments of MPR take into consideration the trend of core inflation rather than basing decisions on the headline and food inflation. This will no doubt shield the sector from the backlashes from the 13.5% MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy.
